Marc Faber's 3 Favorite Commodity Picks Right Now

Last night, we posted a Marc Faber interview over at our sister site, The Contrary Investing Report.  Most of the interview focused on Faber's outlook for China - he believes a crash is coming within the next 12 months.

For us commodity traders, Faber dropped a very nice tip right at the end of the interview.  He thinks agriculture is getting real cheap - perhaps making a major bottom - and specifically said that corn, wheat, and soybeans could be interesting plays.

As you can see, the grains (represented below by ETF DBA) have not "reflated" much over the past year - they've been largely left behind:

Are the grains forming a major bottom? (Source: StockCharts.com)

In my experience trading the grains, I've found that it's best to wait for them to make a move, before piling in. Major breakouts are often excellent times to buy.  

So we'll be keeping an eye on this developing story, and my interest is certainly piqued after Faber's comment.

Recommended reading:

• David Rosenberg's latest comments on the money supply and deflation
• Robert Prechter shares 8 bearish technical indicators
• Our Sacramento Casey Research Phyle Wrap for our May meeting

This Just In...There's Too Much Damn Corn! Futures Get Trashed

Corn futures are getting absolutely trashed this morning...along with basically everything else in the commodities sector.

July futures are down nearly 8% as I write, as the USDA just reported that corn stocks are up 6% from a month earlier. Obviously the market does not like this supply news, and corn is being heavily discounted as a result.

The USDA also reported soybean stocks down 12%, while wheat stocks are up 118% from a month earlier. Wheat and soybeans are also down on the report...beans down only half a percent though, so a decent performance in the wake of the carnage.

This looks like another "all or nothing" day in the markets - with the dollar and T-bonds up, and everything else down. We've been keeping an eye on this lack of decoupling...and I think we can assume it hasn't happened yet.

Notable performances in the commodity sector today by rough rice and orange juice...the only green ticks amidst a sea of red. Keep an eye on these two, as strong performances on down days can imply good things to come.

I wouldn't interpret this as a nail in the coffin of the bull market in agriculture - more likely just a respite for this year. The old saying is that if corn doesn't rally by July 4th, it's not going to happen.

We still appear, though, to be playing a game of Russian Roulette with the food supply - we basically need a bumper crop every year to keep this cheap food party going. Grain supplies remain near record lows, so the 2010 grain contracts may be an interesting speculation in the near future...or perhaps right now.

Puking up corn chunks...right past the line of support.

(Source: Barchart.com)

Interested in investing in agriculture...a la Jim Rogers? Check out our weekly series This Week in Commodities.

PS - If you haven't taken our 3-question reader survey yet, please take a minute to do so - much appreciated, as it helps me gauge what type of content we should focus on here.

Corn Demand Projected to Outpace Supply This Year

The LA Times reports that corn supplies are tightening, with supply/demand projected to be "upside down" this year:

This year's harvest is expected to yield 11.9 billion bushels, down 155 million from last month's projection. The decline is due to soggy weather in such corn-producing states as Illinois, where farmers have delayed planting.

Total use of the corn crop is projected to be 12.5 billion bushels, which would outstrip this year's supply by 525 million bushels.

That means the corn surplus would be drawn down heavily, according to the USDA report, leaving about 1.1 billion bushels at the end of the year. That's 510 million bushels fewer than USDA analysts had expected.

Also, supplies are very low for...drumroll...soybeans! Lowest supply levels since 1983 according to the article...when demand was only half of what it is today, to boot.

Thanks to my friend Jonathan of Lederer Private Wealth Management for passing this piece along.

New USDA Crop Progress Report

The USDA just released its latest crop progress report.

Most of the grain crops look to be in pretty good shape, with the exception of soybeans, which are still behind schedule.

Wheat's been slammed the past few days after a speculative run-up, so it appears this news was priced in. Not much movement from corn and soybeans.

It still looks like soybeans are the most intriguing play in the grains complex - with strong demand expected to continue from China, and a harvest running behind schedule.

Wheat, Corn Stocks Still at 30-Year Lows

Despite record harvests last year, corn and wheat stocks are still sitting near 30-year lows.  Which means, anything short of a bumper crop could send the grains skywards once again.

Here are some very cool charts, courtesy of Chris Mayer at DailyWealth, that depict the stocks-to-use ratios of of wheat and corn since 1970, versus their inflation-adjusted prices.

Investing in grains is actually pretty easy - when supplies are low, and prices are low, you know prices should eventually go up.  Then, at some point, high prices spur enough new supply onto the market that prices come down.  Ideally, that's when you go short!

You'll notice from the charts that grain stocks and prices move in fairly long cycles - about 15 to 20 years in length.  It takes time to bring new supply online, to replenish stocks...ultimately to rebalance the supply/demand situation.

This time should be no different.  China is industrializing in a big way, and its citizens have taken a liking to eating, a habit they're not likely to give up, no matter how bad the global economy gets.  Most notably, they are adopting Western style high protein diets, with lots more meat...and livestock require a lot of grains to raise.

Bottom line - it's safe to tune out the talking heads on TV when thinking about agriculture...just focus on supply and demand.  It's that simple.  When demand exceeds supply, prices will rise, until supply is able to overtake demand.  Sure, things like currency devaluation, a falling dollar, will toss fuel on the fire...but at the end of the day, it's all about supply and demand.

USDA Planting Intentions Report Sparks Rally in Grains

Corn and soybean futures each jumped roughly 5% today after the USDA released its Planting Intentions Report.

Some quick highlights from the report reveal that there appears to be plenty of corn and beans coming our way, but cotton will continue to be neglected, as we had anticipated.

• Corn acreage is down 1% from last year, but is still projected to be the 3rd largest acreage in over 50 years.

• Soybean acreage is on track for a record year, up slightly from 2008.  This is below expectations though, hence the rally.

• Cotton acreage is projected to be 7% below last years total, and the lowest since 1983.  The Associated Press reports that low acreage and high production costs are being blamed.

Cotton futures rallied on today's planting intentions report.

Sugar Futures Poised to Climb - Weekly Commodities Report

Sugar is quietly staging an impressive rally off its October lows, when it briefly dipped below the 11-cent mark.  Since then, we can see that sugar prices are clearly moving from the "lower left to the upper right," recently hitting a 5-month high.

Is it time to buy sugar?  I think so.  Fundamentally, there are a number of bullish factors lining up:

• The global sugar deficit is expected to rise this year
• India, the world's 2nd biggest producer of sugar (after Brazil), will have lower output than forecasted, and may need to import sugar this year

What could dampen demand for sugar?  Low crude oil prices could reduce the demand for sugar to be converted into ethanol.  Sugar into ethanol is profitable at about $50 oil.  So while a rally in oil could send sugar prices higher, continued low oil prices may weigh on sugar.

Also important to note that President Obama does not appear to be in favor of sugar based ethanol for our energy needs.  Obama did very well in the Midwest, including his win in Iowa in the primaries, and appears to be set on finding energy solutions that can be harnessed right here in the USA, such as ethanol from switchgrass.

Other potential trades to watch:

• Short the Japanese Yen - looks like the Carry Trade has officially unwound

• Long the Australian Dollar - Aussie and Canadian dollar could rally if commodity prices start ticking up

• Short long dated US Treasury Bonds - sound like a broken record here, but it appears a downtrend may have (finally) started

• Short the Euro - as disastrous as the US dollar is, the Euro appears to be circing the bowl at a faster rate

• Buy and hold gold stocks 

Open positions

Date	Position	Qty	Month/Yr	Contract			Entry Price	Last Price	Profit/Loss
02/26/09	Long	1	MAY 09	Corn			373 1/2	360	($675.00)
02/27/09	Long	1	MAY 09	Sugar #11			13.79	13.73	($67.20)
Net Profit/Loss On Open Positions									($742.20)

Account Balances

Current Cash Balance	$30,648.02
Open Trade Equity	($742.20)
Total Equity	$29,905.82
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$29,905.82

---------------------------------------------

Cashed out: $20,000.00
Total value: $49,905.82
Weekly return: 0.4%
2009 YTD return: -41.3% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Corn Rallies on Short Covering, Technicals

I thought it was something Komrade Obama said last night, but apparently corn's rally today was due to short covering and buy orders that kicked in on the rally.

According to my broker, corn still sits about $.50 below the cost of production. I've read that for the most part, most grains and softs are currently sitting either below or just at their respective costs of production.

Reading this article reminded me that I completely forgot to roll my 2 March corn contracts - a couple more days and we might have seen a big old truck from Iowa pulling up at my doorstep to drop off a special delivery. Boy the wife would have loved that one.

So I just rolled them, but only picked up 1 May.

CBOT Corn Review: Surges; Short-Covering, Spread Unwinding

Fiat Currencies are Toast - Weekly Commodities Review

Gold & Silver Up - Everything Else Continues to Circle the Bowl

Gold, silver, and - of course - the US dollar - continued to rally this week. They were about it, as the stock market swooned, commodities got whacked, and every asset class continued to circle the bowl.

Stocks have now gone nowhere in the last 11 years (check out the chart below, courtesy of Agora Financial). I expect they'll go nowhere for at least 5 more. Bear markets in equities typically last 15-20 years. This bear market started in 1999 - just 10 years ago. This bear has got some room to run.

Plus, bear markets rarely start from valuations this high. Although stock prices have been slammed, earnings - or the "E" in P/E, have been falling even faster. In fact, collective stock market earnings are now lower than they were 11 years ago!

Bull markets always start with price-to-earnings ratios below 10 - sometimes closer to 5. We're still north of 15. DOW 3000 anyone?

Meanwhile gold continues to rock and roll, spurred on by a fantastic display of money printing across the world, and a possible end to the fiat currency experiment as we know it.


While everything appears to be lining up in gold's favor, it's important to remember that no asset ever goes straight up. It's very possible that gold could correct from here - quite significantly - and a correction back down towards $700 cannot be ruled out.

However, it's also possible that gold could hit the "mania" phase quite soon, as described in this Financial Times article.

My take is that you should seriously consider having some of your core holdings in gold. In the medium term, today's price should be an attractive entry. However in the short term, you may get a better price to initiate some holdings, and may want to considering keeping some dry powder.

Though if I could time the gold market myself, I'd be drinking a Mai Tai in a hot tub somewhere, instead of blogging from my living room right now.

And don't forget silver - which doesn't typically perform as well as gold in a deflationary environment. In fact, silver often suffers in recessions because of reduced industrial demand. Maybe the recent price action in silver suggests inflation is closer than our wonderful government officials believe.

Silver is historically more volatile than gold - and it could really start to move if the trend of cashing in paper currencies for precious metals continues to accelerate.

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	355 1/4	($975.00)
01/20/09	Long	1	MAR 09	Corn	397 1/2	355 1/4	($2,112.50)
Net Profit/Loss On Open Positions							($3,087.50)

Account Balances

Current Cash Balance	$32,886.73
Open Trade Equity	($3,087.50)
Total Equity	$29,799.23
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$29,799.23

---------------------------------------------

Cashed out: $20,000.00
Total value: $49,799.23
Weekly return: -5.1% :(
2009 YTD return: -41.3% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Ah well - easy come, easy go...

Cotton Futures Hit 2009 Low - Weekly Commodities Review

Cotton Futures Hit 2009 Low

Cotton futures slumped to a 2009 low on bearish supply/demand news. Cotton's projected world stocks-to-use ratio hit their highest mark since 2004-2005.

We were stopped out of our position at $0.45, and this one hurt - I hate the idea of selling cotton at these prices - BUT, we always have to respect our stops, no matter how strong the desire to get some of these losses back.


Cotton has been dropping about $0.01 after going "limit down" $0.03 earlier in the week.

Next support for cotton appears to be at $0.41 - we'll continue to watch cotton and see if it retests it's old lows.

Looks like cotton may continue to circle the bowl until demand is able to stage some sort of recovery. I still believe we'll see $1 cotton sooner rather than later, as soon as these stimulus packages begin to take hold. All of this newly printed money will be looking for a home.


Coffee's Rocky Week

Coffee did not fare much better this week. We are holding on to our position right now, with a stop around the 113 mark.


We discussed coffee's long term supply/demand situation last week. We'll soon see if our timing on this trade was appropriate.


Gold Stocks Starting to Catch Some Air

The rally in gold, and gold stocks, continues to look very strong.

Gold set a 100-day high on February 12th at 954.0, and closed Friday at 942.2. While the barbaric relic may be due for a pullback, the chart undoubtedly goes from the "lower left to the upper right", as Dennis Gartman is fond of saying.

Even with gold rallying, gold stocks are following, but somewhat reluctantly. The Gamco Gold fund, where my wife's entire 401K resides, has doubled off its October lows, but is still about 30% below its highs from last spring.

I recently read that last spring's valuation on gold stocks really had $1100 or $1200 priced into them, which may explain why we're not back to that point, even with gold rallying to where it is.

It's also possible that gold stocks are a fantastic bargain right now, and are poised to start doing moonshots when gold takes off. Chris Mayer, my favorite Agora analyst, expects gold stocks to make all-time highs in 2009, partly thanks to lower input costs that will fuel (no pun intended) record earnings.

For more information on gold and gold stocks, I'd recommend checking out some of the articles written by Casey Research and Big Gold editors on our blog, such as this one.

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	363 1/2	($562.50)
01/20/09	Long	1	MAR 09	Corn	397 1/2	363 1/2	($1,700.00)
02/06/09	Long	1	MAY 09	Coffee 'C'	121.95	114.75	($2,700.00)
Net Profit/Loss On Open Positions							($4,962.50)

Account Balances

Current Cash Balance	$36,354.04
Open Trade Equity	($4,962.50)
Total Equity	$31,391.54
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$31,391.54

---------------------------------------------
Cashed out: $20,000.00
Total value: $51,391.54
Weekly return: -17.1% :(
2009 YTD return: -38.2% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Coffee Perking Up? - Weekly Commodities Review

Coffee Perking Up?

Long-time readers know that we've been quite bullish on coffee for some time in this space. So on Friday, when I received an email from my commodity broker, Robert, about possibly initiating a coffee position, I was extremely intrigued.

We wrote this article about coffee for Seeking Alpha last August.

Long-term fundamentals are very favorable for long positions. The world continues to increasingly caffeinate itself with coffee, driven by - you guessed it - China and the rest of East Asia. A small but growing coffee market continues to gain ground on tea, the traditional caffeinated drink of choice.

On the supply side, most of the world's coffee comes from Brazil. So coffee supplies are heavily dependent on the quality of the Brazilian harvest, for better or for worse.

Coffee fundamentals are set up for us to see a super spike over the next 5 years. I firmly believe we'll see $2+ coffee at some point. And coffee has not yet had a major run up, like many of the other agricultural commodities - so it's certainly due.

As you can see from the long-term chart, coffee has been in a bull market since 2001 - due to many of the reasons we've discussed above:


Here are the near term factors that may spur an upcoming coffee rally:

• Coffee demand in China is projected to continue to grow 20% annually, despite the current recession/depression

• Coffee consumption has a tendency to increase during recessions - consumption in coffee shops takes a hit, but people brew more at home
  

• The International Coffee Organization said earlier this month the 2009-10 crop could see a 5-million 60-kilogram bag shortfall in world supplies - note: coffee harvests have off-years every other year
  

More bullish/bearish factors for coffee:
http://www.insidefutures.com/article/94842/Foods%20and%20Softs%20Outlook%20for%20February%206,%202009.html

In summary, expect demand to stay strong, and let's keep an eye on the supply picture for potential shortages. Anyone in Brazil care to share a weather report with us?


Stopped Out of Soybeans - Corn Flat

We were stopped out of our two mini-soybeans positions mid-week. Beans rallied to finish the week, as did corn and wheat.

I like the double-bottom formed by corn this week. Had our stop in at 350 and it held.

Looking at this chart - wow, if this isn't a classic Fibonacci Retracement - gaining back 50-62.5% of the previous move down. If anyone knows how to identify the bottom in real-time, let us know!

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	377	$112.50
01/20/09	Long	1	MAR 09	Corn	397 1/2	377	($1,025.00)
12/31/08	Long	1	MAR 09	Cotton	48.52	49.80	$640.00
02/06/09	Long	1	MAY 09	Coffee 'C'	121.95	121.50	($168.75)
Net Profit/Loss On Open Positions							($441.25)

Account Balances

Current Cash Balance	$38,296.35
Open Trade Equity	($441.25)
Total Equity	$37,855.10
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$37,855.10

---------------------------------------------
Cashed out: $20,000.00
Total value: $57,855.10
Weekly return: -2.5%
2009 YTD return: -25.5% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Weekly Commodities Review - Next Stop: Gold $1,000

Next Stop: Gold $1,000

Gold has a date with destiny. Destiny may not be at the bar yet, but she's now definitely circling the parking lot, looking for an open spot outside the Gold $1,000 comeback party.


My comments on gold from last week's commentary, which were verified to some extent by the continued rally this week:

Adam Hewison of INO.com believes the gold market is getting wound up, ready to explode higher (check out his free video here). Long time readers know that I believe gold is heading much higher, because inflation is heading much higher.

Inflation is already through the roof - it's just that we are not yet experiencing the effects of this newly printed money, because the velocity of money has dropped off so sharply. Not that this has been any consolation to my wife - who I "protected" last July by shifting her entire 401K into gold stocks. I may have hit the exact short-term top in gold stocks.

I think Bernanke is fighting the wrong battle. As a student of the Great Depression, he's working to prevent deflation at all costs. And in the end, I think he'll be successful - and bring us a true inflationary nightmare.


Grains Still Rangebound

The grains were off a bit on the week, but still holding above the near-term resistance levels. We continue to hold, with stops set at our customary 15-day lows.



Cotton Down Slightly

Cotton dropped a bit over 1 cent this week. I'm not particulary concerned - this slowwwwwww developing uptrend still appears to be in place.


While demand for cotton is taking it on the chin, cotton supply seems to be taking an even harder fall. The Commodity Research Bureau projects that global cotton output will fall 7.4%, which outpaces the 6.1% year over year fall in global cotton consumption the USDA is projecting.

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	378 1/2	$187.50
01/20/09	Long	1	MAR 09	Corn	397 1/2	378 1/2	($950.00)
12/31/08	Long	1	MAR 09	Cotton	48.52	49.50	$490.00
01/13/09	Long	1	MAR 09	Mini Soybeans	987 1/4	981 1/2	($57.50)
01/13/09	Long	1	MAR 09	Mini Soybeans	989 1/4	981 1/2	($77.50)
Net Profit/Loss On Open Positions							($407.50)

Account Balances

Current Cash Balance	$39,223.08
Open Trade Equity	($407.50)
Total Equity	$38,815.58
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$38,815.58

---------------------------------------------
Cashed out: $20,000.00
Total value: $58,815.58
Weekly return: -5.3% :(
2009 YTD return: -23.6% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Weekly Commodities Review: Is Gold Breaking Out?

Gold Breaking Out?

Adam Hewison of INO.com believes the gold market is getting wound up, ready to explode higher (check out his free video here). Long time readers know that I believe gold is heading much higher, because inflation is heading much higher.

Inflation is already through the roof - it's just that we are not yet experiencing the effects of this newly printed money, because the velocity of money has dropped off so sharply.

Not that this has been any consolation to my wife - who I "protected" last July by shifting her entire 401K into gold stocks. I may have hit the exact top in gold stocks.

I think Bernanke is fighting the wrong battle. As a student of the Great Depression, he's working to prevent deflation at all costs. And in the end, I think he'll be successful - and bring us a true inflationary nightmare.


Rangebound Grains

A pretty quiet week in the grains, after last week's excitement (nausea). We continue to hold our corn and soybean positions, and are waiting for the market to tell us what to do next.



Cotton Rallies Late

A BIG Friday for cotton! The "Pakistan Observer" reports that cotton rallied on news a major merchant took out significant amounts of cotton from the exchange - hey, it's on the internet, so it must be true.

While demand for cotton is taking it on the chin, cotton supply seems to be taking an even harder fall. The Commodity Research Bureau projects that global cotton output will fall 7.4%, which outpaces the 6.1% year over year fall in global cotton consumption the USDA is projecting.


A Socialist Plea

Earlier this week, I felt compelled to step up to the plate and defend free market capitalism, after receiving this socialist plea from our local utility company.

What do you think - did I take it too far? Not far enough? You decide, Komrade!

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	390 1/4	$775.00
01/20/09	Long	1	MAR 09	Corn	397 1/2	390 1/4	($362.50)
12/31/08	Long	1	MAR 09	Cotton	48.52	50.55	$1,015.00
01/13/09	Long	1	MAR 09	Mini Soybeans	987 1/4	1006	$187.50
01/13/09	Long	1	MAR 09	Mini Soybeans	989 1/4	1006	$167.50
Net Profit/Loss On Open Positions							$1,782.50

Account Balances

Current Cash Balance	$39,223.08
Open Trade Equity	$1,782.50
Total Equity	$41,005.58
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$41,005.58

---------------------------------------------
Cashed out: $20,000.00
Total value: $61,005.58
Weekly return: 0.6%
2009 YTD return: -19.3%

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

(Had to add these historical facts in to keep me from smashing my head into my keyboard).

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Stratfor: Major Drought is Threatening Argentina's Agricultural Production for 2009

Stratfor reports that a major drought is threatening Argentina's agricultural crop for 2009.

According to the projections of the Buenos Aires Cereals Exchange published on Jan. 16, the country’s wheat yield for 2009 will be 8.7 million metric tons, down from 16.3 million in 2008 (domestic wheat consumption in 2007 was approximately 6.7 million metric tons). Total wheat planting dropped by 350,000 hectares, or 8 percent, in the 2008 planting season, and the drought has affected what has already been sown. Corn production is projected to drop from its 2008 figure of 20.9 million metric tons to 16.5 million metric tons, with a reduction in crop planting by 26 percent from 3.2 million hectares in 2008 to 2.4 million in 2009. Soybean output, meanwhile, could fall to 40 million metric tons if the drought continues — a 7 million metric ton drop.

Weekly Commodities Review: Which Side of the Corn Trade Should We Take?

On Monday, the USDA released it's agriculture supply and demand projections, which sent grains "limit down" for the day across the board, and many of the softs down sharply as well.

That proved to be the worst of it - as grains slowly recovered during the week as the market digested the news, finishing the week off with a sharp rally on Friday.

As you can tell from my positions as of last Sunday, I was not prepared to handle a "limit down" day across the grains board. It's one of those days that, as a leveraged trader, you just want to vomit.

I had an offsite meeting in the morning, so returned to the home office after markets had closed to see the carnage. Not only was I down 25% (!) on the day, but also still had these positions open. Everything had closed limit down, and I had no clue where this market was going to find a bottom - and even when I'd be able to get out of these positions.

Fortunately I was able to get out that evening during the Asian trading sessions - basically covered the grains positions and also my Treasuries short, leaving only cotton open.

Then while sipping some wine and reading the WSJ later that night, I read analysts mentioned they liked soybeans more than corn. So the next day, I went long soybeans, and short corn - nothing like a little wreckless pair trading to get over a big loss.

Well this trade actually held up OK until Friday morning, when, bless his heart, my commodities broker Robert gave me a call.

"Brett, I'd really like to get you in on this corn trade. It's trading $0.50 below the cost of production. Farmers are already switching to soybeans."

After picking Robert's brain for about 10 minutes, I had him put the trade through for me (he manages my Rollover IRA account), and ran to my computer here to cover that corn short, and then go long.

Phew - not a moment too soon - corn finished the day on a sharp rally.

Yesterday I did some online research and found that, indeed, it could be a difficult year for corn farmers. $4 corn ain't what it used to be for these guys, with input costs sharply higher these days.

We'll continue to watch the corn markets closely.



Recommended reading:

• Doug Casey believes we've begun what he calls "The Greater Depression." In this insightful article, he explores the foundations of the current crisis we're facing.

• Sugar prices continue to climb, and there could be a supply shortage shaping up soon.

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	389 3/4	$750.00
12/31/08	Long	1	MAR 09	Cotton	48.52	48.84	$160.00
01/13/09	Long	1	MAR 09	Mini Soybeans	987 1/4	1020	$327.50
01/13/09	Long	1	MAR 09	Mini Soybeans	989 1/4	1020	$307.50
Net Profit/Loss On Open Positions							$1,545.00

Account Balances

Current Cash Balance	$39,234.38
Open Trade Equity	$1,545.00
Total Equity	$40,779.38
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$40,779.38

---------------------------------------------
Cashed out: $20,000.00
Total value: $60,779.38
Weekly return: -16.0%
2009 YTD return: -19.7%

2008 return: -8%

***"Cash out" mostly means taxes, living expenses, and startup capital for our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Tough Year Ahead for Corn Farmers?

Corn farmers could be in some trouble this year reports the Batavia News, an upstate New York newspaper.

The (corn) price has been hovering near $4. That could be trouble for farmers if there is an average or below average crop.

Many of his customers have ordered more soybean seed. That crop requires less fertilizer. New York farmers last year planted 235,000 acres of soybeans, the most ever in the state. That was up 15 percent from the previous high of 205,000 planted in 2007.

Tip of the hat to Tom Rivers on a very well written and investigated piece!

Corn Prices Rising Without Any Good Explanation

Caught this piece in today's WSJ - the recent rally in corn prices had many analysts scratching their heads after a record corn harvest.

After today's USDA report, corn prices are looking quite vulnerable in the near term, even after closing "limit down" today.

WSJ: US Data Sinks Corn, Soybeans

CHICAGO -- A set of bearish government estimates released Monday reignited concerns about anemic demand amid a world recession and sent Chicago Board of Trade grain and oilseed futures plunging, analysts said.

CBOT corn and soybean markets fell by their exchange-imposed daily trading limits. March corn fell 30 cents to $3.8075 per bushel while nearby January soybeans fell 83.50 cents to $9.54 per bushel.

Rest of article (WSJ Online subscription required)


Editor's Note: Analysts quoted in the article believed soybeans may bounce back faster than corn, due to several supply/demand factors that are favorable to soybeans.

Corn, Wheat, Soybeans Slaughtered After USDA Projections

Grain futures plummeted today after the USDA issued it's supply and demand report, which projected larger supplies than previously forecasted. You can read the gory details of the full report here - or glorious details - depending on which side of the trade you were on.

Corn, soybeans, wheat, rough rice all basically closed "limit down" on the day, dropping the maximum allowable amount.

Wheat takes a nosedive after reading the USDA report.

My personal take on this report - in a word, "ouch." Can't say I saw this one coming - grain charts had been looking quite frisky of late, or so I thought - it's probably safe to call the grains bull dead for a little while after reading the supply/demand breakdown. I'm going to try and keep what powder I have left dry for awhile, so that we can reload down the road.

Commodity Futures Weekly Review - January 11, 2009

Now for the weekly review of our commodity futures positions - current as of January 11, 2009.

First, our top blog posts from the past week:

• Is It (Finally) Time to Short US Treasuries - And Make a Fortune?
• China Starting to Regurgitate US Debt
• Marc Faber on Bloomberg: World War III Has Already Begun
  

Also our coverage of Jim Rogers' and Marc Faber's Commodity Picks for 2009 was the 2nd most popular article on Seeking Alpha for much of the week.

A review of our trades and positions from the previous week:

• Sold our mini-gold futures contract - to make way for another grains contract. This was a position sizing move - gold had not yet hit our sell stop.

• Also sold our one cocoa futures contract - also for position sizing purposes. Cocoa was not performing as well as wheat, so we decided to add to our wheat position.
  

• Bought one more wheat futures contract - wheat put in a strong performance this week, up $0.20.

• Continued to hold one corn futures contract. This was an attempt to "pyramid" our grains position and diversify. Corn was up $0.02 on the week.

• Continued to hold one cotton futures contract - we LOVE cotton at these prices - as we've discussed with before in this space. Cotton was up slightly on the week.

• And finally, the dunce cap so far goes on our decision to eat our own dog food and short the 10-Year Treasury Note. We haven't lost hope yet, but will have to exit this position if new highs are hit. It won't be the first time we've gotten burned on this trade.
  

Commodities that appear quite beaten down - but we don't own them...yet...

• Sugar
• Coffee
• Natural Gas
• Silver
• Crude Oil

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
12/29/08	Long	1	MAR 09	Corn	422 1/4	412	($512.50)
12/31/08	Long	1	MAR 09	Cotton	48.52	49.33	$405.00
01/06/09	Short	1	MAR 09	T-Note (10yr)	123-285	125-220	($1,796.88)
12/24/08	Long	1	MAR 09	Wheat	579 1/4	630	$2,537.50
01/06/09	Long	1	MAR 09	Wheat	627 3/4	630	$112.50
Net Profit/Loss On Open Positions							$745.63

Account Balances

Current Cash Balance	$47,783.90
Open Trade Equity	$745.63
Total Equity	$48,529.53
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$48,529.53

---------------------------------------------
Cashed out: $20,000.00
Total value: $68,529.53
Weekly return: -2.1%
2009 YTD return: -4.5%

2008 return: -8%

***"Cash out" mostly means taxes - lately we've also been using it for living expenses, and also to finance our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.