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Grains See the Light at the End of the Tunnel
I am a huge long term bull on the grains, but abandoned my trading call in January when the USDA published a spectacularly positive forecast for most crops for 2010. Not only were plantings up, so were yields per bushel.
Since then, the ags have been in a world of hurt, plumbing new contract lows, as they wandered aimlessly in the wilderness. I now see the light at the end of the tunnel.
Heavy rain in western Canada has seriously crippled that country’s wheat crop, while a once in 25 year locust plague threatens draught ridden Australia’s crop. Oats have put in some interesting technical action lately. Now corn is showing some bottoming moves too, no doubt assisted by China’s recent 1 million tonne purchase to cope with scant rainfall in the western part of their country.
It also looks like the mindless diversion of one third of the US corn crop for fermentation into ethanol for fuel is not only going to continue for the foreseeable future, it will expand (click here for my ethanol piece at http://www.madhedgefundtrader.com/march_3__2010.html ).
Aiding investors this time around is the launch last week of the Teucrium Agricultural Trust Corn Fund (CORN), the first ever dedicated corn ETF, which will no doubt bring in some new buying on its own. No more hassle with opening futures accounts or dealing with an obnoxious CFTC. Exchange traded funds for the wheat and soybeans are expected to follow.
By going long corn, you effectively own a rising standard of living in the emerging markets, as well as challenging fresh water shortages, famine, and bad weather in grain producing countries. Sounds like a “buy” to me.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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Ethanol caught on because it's competitor poisoned 10000 wells in California alone - remember MBTE? Problem solved! About damn time producers catch a break - the governments "cheap food policy " has been manipulating prices down on corn, same as gold, forever. Ethanol doesn't "WORK"? speak for yourself- (turning yellow grain into yellow metal)
Ethonol is idiotic; it takes perto chemicals to produce the crops. The EROEI could well be negative.
Corn ETF? ETFs are so stupid.
Here is my trade on this advice:
http://www.etfsecurities.com/csl/short/etfs_grains_sh.asp
All of these commodity ETF's are eroded by contango and actual futures traders who can jump in front of the planned and published monthly contract rolls.
Shhhh! You'll spoil all of my fun!
"Vehicles built after 2000 cannot run on 15%, they will destroy their engines."
I think you meant built before 2000. DosZap.
But hey, it's all good. The government gets those vehicles off the road
without having to pay any clunker fees so we are forced to buy never cars from government owned companies. What's not to like?
Good insight into fundamentals supporting the price of corn.
Problem with ETFs in general, is that the managers have way to much leeway in comprising the ETFs when deciding how they will reflect the underlying commodity. SOme ETFs like PHYS, thankfully have very specific outlines what they buy
So with respect to corn, which month are you bullish MHFT, old crop values like July trading at 3.60ish, or new crop values at 3.80ish? Do you have an opinion of the spread? It's all fine and good to say you want to be long corn...or that you are "bullish grains" but it is important to remind your readers that futures prices in the ag space are extremely sensitive to cash basis and the seasonal characteristics of that particular delivery month. It is important that you put a flat price opinion in the context of the spread trade as well. With July trading $.20 1/2 under the December, keep in mind that this is what you will PAY to roll the July position forward. I hope your expected profit was more than that for instance. By trading the ETF you are guaranteed to pay the cost of carry (contango) from month to month.
Well done, MHFT!
Like you, I'm also long term bullish on grains, many of which are at, or near their all time lows.
Wait till these morons make it a law to add 15% Ethanol to fuel.
The damages to anything except Flex Fuel vehicles will cause a friggin riot.
Vehicles built after 2000 cannot run on 15%, they will destroy their engines.
I suggest all who are interested in corn watch the documentary "King Corn". I can't see how corn works in the really long term especially if we are in a peak oil situation. Though in the short-mid term, it's probably a good bet.
http://www.kingcorn.net/
Jim Rogers says he likes to walk over to the corner and pick up a pile of money that is just sitting there. Those are his favorite trades. Ag commodities are like that right now, in my opinion. Cheap as can be. Look at the charts on these things. Buy and hold.
When inflation finally kicks in, these will go sky high.
I already bought DAG.
I have had my eyes on volcanoes and oil slicks etc e4tc and any effect on food production with an eye on wheat and beef stocks here. I will wait for the expected market correction/crash before investing.
Yay! Let's all make money from a food shortage. Famine is great for business! If they get really hungry, let them eat cake.
Yet with the spill, it is a safe way to investigate.
in the face of a soon to be plunging stock market ?
Until the gov't deems you an evil speculator for driving up food prices and you positions are confiscated.