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in the Commodity Market
By Alan Knuckman
November 19, 2010
Over the last few years we have seen major market fluctuations that have left investors running scared… However, these major market swings have left us with exciting investment opportunities within the commodity market.
New USDA data Tuesday morning added to the bullish trend in grains — surprisingly this was in the place of the normal harvest selling pressure.
Multi-year highs were the result for corn, and beans with wheat getting close.
This action again shows the value for the foods we like to eat. It’s often on the indirect pass through of the feed grain for livestock and poultry that make up the protein demand in diet.
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Here’s what the Dow Jones had to say about these great grain gains:
“The U.S. on Tuesday unexpectedly cut its soybean harvest estimate and slashed its supply forecast, setting the stage for gains in soybean futures.
“Soybean production was pegged at 3.375 billion bushels, down 1% from the government’s October estimate, according to the U.S. Department of Agriculture. Analysts surveyed by Dow Jones, on average, had expected an increase of about 0.5% from last month.
“The USDA projected soybean supplies as of Aug. 31, 2011—the end of the crop’s marketing year—at 185 million bushels, down 30% from its October estimate. Analysts had expected the government to trim the forecast about 9%.
“The USDA trimmed its forecast for the U.S. corn harvest for the third time Tuesday, although the cut was in line was expectations.
“The front-month corn contract overnight soared to a 27-month high and soybeans climbed to a 26-month high. Prices reached record highs in summer 2008, as excessive rains fell in the U.S. and production dropped in South America.”
I’d say that these numbers surprised me but throughout the late summer I positioned my Resource Trader Alert readers for this EXACT scenario.
Its important to remember price is never high or low.
It’s simply at the equilibrium level based on buyers and sellers action in the marketplace.
Unfortunately most investors only get comfortable enough to buy something AFTER a long sustained trend gives them confidence in the upward trend (or vice versa for short selling). Pullbacks in the overall trend should be opportunities to enter while selecting good reward to risk trades and time for development.
Commodities and Big Picture Bullishness
Part of the concern about the rally in commodities is because the price hikes are for tangible products that are used every single day. Compare that to the recovery in stock share prices that has outpaced resource gains from the 2008 extreme lows and I believe commodities have a lot more room to run.
The S&P 500 had highs at 1571 with 2009 lows at 671 (wow, that price looks hard to believe but we were there). The technical 50% retracement of the move to 1123 was surpassed on the upside November of last year. With these current post-Lehman collapse two-year highs of 1225 there has been an 82% recovery off the low.
Commodities are in the news with gold, cotton, coffee, and silver, at the highest levels in decades getting deserved attention as REAL investment vehicles. The often mentioned Commodity Research Bureau (CRB) index 50% retracement goal looms ahead another 5% higher at 335. As we stand now at 315 the CRB is lagging at 58% off the January 2009 recession lows.
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Dollar Deal
A little chart history for the class...
This chart shows a double top in the Dollar with declines poised to reach the 2009 lows at 74. Below that the 71 all time dollar lows occurred interestingly in 2008, as the previous administration also engaged in the unspoken weak Dollar U.S. policy that has boosted exports and corporate profits.
The global race to the bottom in currencies is a battle royale that may be politically unpopular but supports the respective home team industries to maintain jobs.
In fact the U.S. Dollar traded below 75 for the entire first half of 2008 as a business building mechanism. Current prices have traded between 7850 and 7650 for the month of October projecting a downside breakdown to 7450 as a near term target. That is a positive driver for American assets and resources to continue the recovery.
I believe that this economic climate will provide continuing profits in the commodity market… I wouldn’t give up on your commodity investments just yet!
Sincerely,
Alan Knuckman
P.S.: For my commodity picks that will profit in these turbulent times, just read my exclusive research report…
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Profiting from Current Trends in the Commodity Market is featured at Penny Sleuth.
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