Low Acreage Propels Cotton "Limit Up"

The smallest acreage for cotton in 26 years has propelled the fluffy material "limit up" for the day, in what amounted to almost a delayed reaction from traders, as cotton was initially down yesterday when the report came out. Likely due to the weakness shown by the other grains.

You'd think that with cotton supplies continuing to shrink rapidly, a run up toward $1 is only a matter of time. October cotton futures closed today at 58.63.

Taking a look at the chart - maybe cotton is indeed getting wound up to make a run here. A solid pop over 60-cents would be a strong cry to "hop aboard"!

Cotton prices have resembled one of those lame kiddy park rollercoasters this year.

(Source: Barchart.com)

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.

Stratfor: Fall in Food Prices Likely Temporary

Stratfor reports that the current drop in food prices is likely to be temporary, because falling prices and the credit crunch will reduce supply next growing cycle.

The article confirms something we've been discussing here at length - the trends which originally brought about the supply/demand imbalance in the grains markets are still firmly in place, and that these supply constraints will remain until there is a large structural change in supply or productivity.

Food Supply Problem More Acute Than Ever

Chris Mayer writes in Agora Financial's Rude Awakening that the global food supply problem is more acute than ever before, as a result of the current financial crisis.

This is something we've been discussing here of late. Farmers cannot get basic loans for fertilizer. Forget about new capital investments. And this all happening with world inventories of the grains hovering near historic lows.

BOTTOM LINE: Pick up some agricultural commodities at these depressed prices. Ag-flation is coming - you may as well profit off it!

Are Any Grains Worth Buying at These Prices?

Are there any grains worth buying at these prices? Have you seen any article, commentary that may be of help?

This question was posed by our buddy and regular reader/contributor Moyo, who runs the fine commodity focused site FuturesCafe.

I think that sugar, cotton, and coffee are the most attractive agriculture plays at this point. For the simple reason that their prices have not moved up recently - therefore, additional supply has not come on the market. Couple this fact with the further tightening of supply that commodities will experience across the board as a result of the current state of the credit markets, and these, I believe, are good candidate commodities to lead the way up.

Cotton is the most attractive investment opportunity I can see - it is actually trading below the prices it was at when the bull market in commodities began in the first place.

Cotton's price spike in 07-08 was really a speculative phenomena. Traders started piling into cotton futures contracts, as everyone knew cotton was destined for a spike - driven by reduced supply as farmers planted higher priced corn and soybeans in lieu of cotton.

The self-fulfilling prophesy proved to be short-lived, as the market was not able to sustain a rally. But it's coming.

Wheat also may be worth a look here. Corn, rice, and soybeans interest me less, as they are coming off a recent run-up, and have been planted from sea to sea across the world. It may take more time to work off the new supply on the market - though it's possible that prices already reflect this.

BOTTOM LINE: "Ag-flation" is coming again, in a very big way. Agriculture is very attractive at current prices, but I would caution you against being "early" into these trades. Wait for an uptrend - you'll have plenty of time to build up your positions, as commodities, particularly agriculture, are likely to be the first assets to recover in price.