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Run Over by the Grain Train
The US Department of Agriculture released a shocking report earlier this month that triggered rare limit up moves in all three major grains simultaneously, corn, (CORN), wheat, and soybeans, and sent the prices of shares of anything with an agriculture flavor through the roof. Futures contracts for corn were up 30 cents to $5.28/bushel, wheat by 60 cents to $7.19, and soybeans 70 cents to $11.35.
My long term picks, Mosaic (MOS) soared by 13%, while Agrium (AGU) popped 8%. After the corn futures locked up with an enormous imbalance of buyers, traders rushed into the ETF (CORN) taking it up a gob smacking 16% in hours.
The free-for-all was triggered by government forecasts that the corn crop would come in 4% smaller than expected, while the soybean crop was shy by 2%, and that stockpiles had shrunk to only a few weeks, a 20 year low. The shortfall was caused by the baking heat we saw last summer.
While supplies are adequate to meet US demand, foreign importers facing possible famines panicked. Local traders went into the report short, convinced that the meteoric price rises seen this year were overdone.
I put out a piece a few weeks ago advising readers to rotate out of corn into hard winter wheat as a risk control measure (click here for “Wheat Melt Up Warning” at http://www.madhedgefundtrader.com/september-20-2010.html ). Corn had been up almost every day for two weeks, while wheat had spent several months consolidating a serious move up in June/July on the back of out of control Russian fires (click here for the tip from my old KGB friend in “The Grains are On Fire” at http://www.madhedgefundtrader.com/july-19-2010-2.html ). I don’t call limit up moves very often, but it does happen occasionally. When you have the long term secular trend right, the accidents tend to happen in your favor.
This is exactly the sort of move I have been anticipating since I put out my watershed call to buy the sector in June (click here for “going Back into the Ags” at http://www.madhedgefundtrader.com/june-24-2010.html ). When push comes to shove in the global economy, the commodities you have to have are the grains. If you don’t believe me, trying eating gold, silver, iron ore, coal, or copper.
It all fits in with my view that we are entering a major secular bull market in food, as the world is making people faster than the food to feed them, at the rate of 175,000 a day! The Scottish reverend Thomas Malthus must be smiling from his grave.
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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Any real good is likely to rise in terms of a weak dollar, and dollar is chronically ill.
Weather volitility usually results in decreased harvests, and weather volitility follows solar instability which is current and ongoing.
These factors are driving ag prices more than global population. As dollar declines (increasing oil and fertilizer imput costs) unemployment grows, and harvests fail, foreign food aid could become unfeasable. We may even see world population decline in the years ahead.
Likely there is more $ to be made long ag trades, but i am leaving the casino. Almost everyday we hear of new rot discovered in the foundation and timbers. I don't want to be at a table when(if) it collapses! (long physical metals, land)
We have a lot of plates to spin in this economic environment. Giving this one a little momentum is always useful. Not an in-depth article but it keeps the issue in the forefront. Thanks for that.
The rain forests have been creeping back. Something the greenies who want your guilt dollar will never tell you.
Ethanol is a political driven subsidy. It has all the benefits of adding water to soup.
If food is short useless people will die balancing supply and demand. Animal populations cycle to peaks and crash. Fox or sheep or people all the same.
Don't forget the rain forests in South America and Africa are being cleared at an alarming rate to plant...Oh, Ah, food?
Malthus confirmed? Well, maybe and then again maybe not. As you mentioned the harvest here in the US is marginally lower, and the Russian wheat harvest has been impacted enourmously.
It doesn't help that a sizeable amount of the US corn crop yield (33%) is currently used for ethanol production, and will continue to be until a reasonable substitute is found or developed.
All that said, your analysis and reccomendations have been spot on, as the incredible increases in the agro-commodity prices have reflected, and most likely will stay high for the next year; reflecting the increased demand and the effects of a weak dollar.
But, that won't necessarily be so good for low income folks here at home.
The "Grain Trade" is old news but thank you, oh mighty MHFT.
The "Grain Trade" is old news but thank you, oh mighty MHFT.
Hyperinflation is such a fad.
dismal pseudoscience
Isn't the population of big eaters (read the West and its cravings for calorius in extremis) now in decline? Sorry, while prices of ag commodities may rise I have my doubts that it will be largely due to the more mouths to feed theory.
Bothering people with common sense...
Better to let people enjoy the thought that non consumers are the root of an overconsumption issue, that people who dont bid lead the way up in an auction.
People love their fantasies.
Good "Me Too" article, MHFT; but the Jim Roger's train is well down the track.
Did you have lunch with Thomas Malthus?
www.ediblegold.com
I believe the cheapest commodity on earth to produce is people....Keeping them alive is another matter and largely depends on the individual's marginal utility determined by some macro forces.
That said, Jimmy Rogers was way ahead of you on food scarcity, like 5 to 7 years.
Jimbo Rogers. A voice of reason in an unreasonable world...
Nice call, Nostradamus.