THE SOFT COMMODITY BOOM CONTINUES

Some call it the Bernanke effect, some blame the BRIC nations, while others blame rising soft commodity prices on the weakening USD.

JIM ROGERS clearly has been spot on as far as the boom in soft commodities goes. Food inflation is making headlines again!

Clearly some of the commodities may be rather overpriced at the moment. Meanwhile speculators and commodity hedge funds continue to build positions in this rather overbought sector. Caveat emptor - Watch this space!

Source : Commodity Prices / Quotes & Commodity Charts - Free - A fantastic site for commodity charts.

SUGAR HIGH !

Sugar prices have been rallying!

Concerns of a rain affected crop and lower output from India are addig fuel to this sugar rally.

Sugar speculators would be well advised to take profit on investments in a phased manner. Low crop production and recent speculation may not be enough to support prices in the long run.

Always respect 'commodity cycles'. Enjoy the ride for now, but as with other investments, stick to the golden thumbrule
- BUY LOW & SELL HIGH!

COMMODITY MELTDOWN !!

When you look at a chart that has witnessed an almost vertical drop, you know that its worth a second look!!!!! As the CRB Commodity Index shows, gains accumulated over the last 3 years were wiped out in 4 months!!
This deleveraging commodity meltdown has been much faster than most expected, as speculators and leveraged hedge funds have bailed on this once '''must have sector'''. Now that the'weak hands' have been forced out, commodities look interesting again!!!
Welcome to Commodities round 2!










While I am not a big fan of Base metals/metal ores, even these commodities have seen a sharp selloff! Given the global slowdown and recession we are in, industrial metals and ores could take a while to recover.
GOLD - meanwhile has held its own amidst all the turmoil in the credit markets, stock market and in the real economy. I repeat that Gold IS NOT A METAL, but a currency that is a true store of value.
It is one of the most liquid mediums of exchange; something that many high networth individuals who are trapped in ILLIQUID HEDGE FUNDS may now realise!

I continue to be quite optimistic on soft commodities, such as corn, wheat, soybean and other agriculturals, which continue to see growing demand in emerging markets along with the alarming possibilites of reduced acerage and farmer bankruptcies on the back of the recent food grain price collapse.
I have never been a supporter of using 'food for fuel', but irrespective of the meltdown in the ethanol industry, these food crops look interesting at this stage.

Coming to Crude Oil, although the selloff has been sharp, in the near term a demand slowdown can cap any attempts of a rally here. However you must remember that the recent strength in the USD has been showing some sings of weakening lately, and any USD currency volatility / crisis in 2009 will support crude oil prices even if demand fails to recover.
Longer term I remain an oil bull, given the lack of fresh capacities added, as also growing consumption in Asian economies.












Will post more on Crude Oil and Soft Commodities in coming weeks.

TIME TO EXIT SOFT COMMODITIES (Food Grains)

With everyone piling into soft commodities, I think we have hit a short term top in the food grain market.
While demand for food grains far exceeds supply, the vertical rise in price of these food grains warrants caution. Speculation is high, and everyone is desperate to join this party.

At these levels, a sudden sharp pull back, is likely to cause panic selling, a triggering of stop losses and losses for short term speculators.
Even in a long, multi year bull market in these commodities, be prepared for corrections, which can be used for fresh entry points.

For now, if you can't stand the heat, then stay out of the kitchen.

Corn:Wheat:Soybean:

Indian Union Budget 2008 & beyond

The Indian equity markets ended in the red, in line with the weakness across global markets.
As far as the stock markets are concerned the Union Budget was neutral overall, and did nothing to further reforms in the run up to the upcoming elections.

Some Highlights
The Fiscal deficit = 3.1% in FY08, revenue deficit = 1.4%
Ahead of the upcoming elections, the finance minister reiterated the need for ‘inclusive’ growth, reduced excise duty on small cars and announced higher spending on education and a Rs. 60,000 Cr loan waiver/relief for farmers.
Short term capital gains tax has been raised from 10% to 15%, and the threshold limit for all IT assesses has been increased from Rs.110,000 to Rs.150,000.
http://www.equitymaster.com/budget08/comments.asp

2008 is going to be a difficult year for global stock markets. Here’s what we are up against:

Stagflation in the US : Slow growth, rising unemployment & inflation.
The rapidly declining USD, eroding the value of Forex Reserves of Central Banks.

An increased likelihood of a hard landing for the US economy.
The "Goldilocks economy theory" and the Decoupling theory are dead.
Weakening US Consumer consumption.
US Home prices continue to decline.
The global credit crunch continues.
Eventual downgrading of the US Bond Insurers. More trouble at Freddie Mac & Fannie Mae.
The Fed focusing on growth and Wall Street, and not inflation.
Food grain and oil prices at record highs.
Fears of writedowns in the Global Banking industry in the first quarter 2008.
Slowdown in foreign institutional fund flows to emerging markets.

The Goldilocks Economy : Return of the Bears

Post the Dot com crash, 9/11 and the subsequent Fed rate cuts, the US economy went from a Stock market bubble to a Housing Bubble.

Cheap money has resulted in

• Inflated asset prices,



• Rising raw material prices(oil, base metals, metal ores, and coal)



• An extreme out performance across emerging markets,



• Overleveraged and overvalued LBO deals



• Rising home prices in the US coupled with refinancing of home mortgages at lower rates, enabling the US consumer to spend his way out of a recession post 9/11.

• An exponential expansion in mortgage backed derivatives fuelled by a once booming US housing market.

Here's what happened>>>

Fed Rates hit a 45 year low of 1% in 2003. The US Stock Market rallied, as the Goldilocks economy(moderate economic growth : not too hot or cold & low inflation, ) continued on its way.

Through 2004 & 2005 the US Dollar staged a comeback as interest rates started to rise, only to resume its downtrend in 2006 as the US Housing market started to crumble.

High debt levels, falling US home prices, and rising interest rates have resulted in a mega catastrophe. US Consumer Confidence is low and as the economy continues to slow, the US consumer will cut back on spending. Huge cash infusions by Central Banks and bailouts by Arab and Asian investors have been unavoidable as leading investment banks are struggling to meet regulatory capital adequacy requirements. The mess in the derivative markets continues, with concerns over losses in Credit-default swaps, and many mortgage backed derivative securities now being seen as toxic WMDs.

Uncontrolled credit expansion encourages reckless consumption and excessive leverage. When the prices of leveraged & overvalued assets start to unwind, the consequences are disastrous.

So are we heading for a "Stagflationary" Bear Market in the US?

Slow economic growth, Inflation and relatively high unemployment = Stagflation
Gold has always done well in such periods, when Central Banks are unable to raise rates to combat inflation due to slowing growth.

Meanwhile, economies such as India and China are consuming increasing quantities of oil, raw materials and food grains as the standard of living across the region continues to rise. Due to their low cost advantage, Asian economies are emerging as manufacturing centres of the world, as production activities continue to shift to developing economies.

Given the dominant position of the US in global trade, the World Economy is going to struggle to decouple from the US economy if the US goes into recession.

2008: RISING FOOD CROP PRICES.

2008 will see yet another year of record food crop prices. This will continue to add to inflationary pressures, even as global growth continues to slow.


CORN

WHEAT

SOYBEAN RICE

ETHANOL - BOOM or BUST

An increased demand for corn used in ethanol production in the US, has been blamed for rising corn prices. Ironically, as corn prices have come off their recent highs, and crude oil prices surge to new highs, ethanol prices have been down sharply.
A possible ethanol glut as new capacities come on stream, and high prices of corn relative to a few years ago, has taken its toll on the US Ethanol industry.

Arguments that ethanol is not as environmentally efficient as it claims to be, and rising food crop prices heading into an election year, have led to sharp corrections in the stock prices of ethanol producers.

Rising prices of CORN, WHEAT & SOYBEAN

Corn

Wheat

Soybean

http://futures.tradingcharts.com/menu.html

Prices of food crops have seen a dramatic rise, over the last few years.

The diversion of corn to ethanol production in the U.S.A., crop disruptions due to droughts, and increased consumption in developing countries spurred on by a weakening US dollar , are among the many responsible factors.

Core producer prices, used in reports on the wholesale price index in the USA, do not include food and energy sectors.

Consumers are facing higher supermarket bills and higher fuel prices, though the core inflation figures may not reflect the same.