As is readily apparent in the chart above, Agri-Food prices continue to march into all time high territory.  Weather has certainly played a role in such a development. Drought in China being the latest development to follow the worst bout of bad weather in Australia’s history. Today’s weather story is not about rain, or lack thereof, but rather the frigid cold covering North America.

From Kansas City to St. Louis temperatures are running -40 to -10 F(-180 to0 -20 C).  From that line north seems that snow is covering all. That is serving to restrict the flow of Agri-Foods, and just about the movement of everything else. While the longer term forecasts for Agri-Food supplies are indeed bullish for prices, today’s North American weather may be a factor.

But Spring will come. So will the thawing and rains where they are needed. As that happens, Agri-Foods will again be flowing more freely in North America. Prices in short-term will be vulnerable then to improved supply flow. About that time too will flow the first of planting intention reports for North America. With visions of high prices dancing in their heads, farmers will have high intentions. Reports on planting intentions will likely be an exaggeration of reality, but an appearance of high intentions will dominate.  Spring weather and planting reports may serve to provide the first Agri-Food price correction in some time.

While corn is on the mind of traders because of the growing short supply situation in North America, the world might better look at developments in rice. As the above chart portrays, U.S.  rice prices have broken through the last high. U.S. rice prices are now at a 90-week high, and seem poised to move higher. Factors driving prices upward include expectations for lower U.S. rice plantings as farmers shift to more profitable corn and soybeans and reports of tight supplies in China.

Rice is perhaps more vulnerable to upward price pressure than many might expect. Reason for that is a myopic focus on the big picture. Like all macro numbers, or averages, nothing of the variance of those rice holdings is immediately evident. In the above graph, using USDA estimates, the world has about 76 days of rice consumption in reserves, shown by left bar in chart above.

That number, however, tells us nothing of the distribution of rice reserves. China consumes about  30% of world’s rice, but its rice reserves are 46% of the world’s total. As the middle bar in chart indicates, China has about 115 days of rice consumption set aside. If we exclude the Chinese rice influence, the world has only about 59 days of consumption in reserve. Some nations are obviously going to be very short of rice this coming year.

Chins is the epicenter of the world’s increasingly tenuous Agri-Food situation. India’s ascendency in the global economic hierarchy will only serve to exacerbate the situation. Investors have already benefitted from this situation as the first tier Agri-Equities have moved higher, outperforming the market. Current opportunity would seem to lie with those most close to the Chinese Agri-Food situation.

Second tier Agri-Equities with direct exposure to China have, one, performed exceptionally well over time, and, two, marked time for most of the past year. Chinese Agri-Equities seem the better alternative as they have been building a foundation for some time, have direct exposure to China, and have fairly negative perceptions problems at the present time. Investors should be now researching these Chinese Agri-Equity opportunities.

Source: http://www.dailywealth.com/1604/Two-of-2011-s-Surest-Bets

The US dollar advanced for the fifth consecutive session today but we think there is more room to run. Continue to fade rallies in the Euro, Swissie and Pound. Our downside targets are as follows: 129.00, 1.0100, and 1.5250 respectively.

Live cattle is back above the 20 day MA; our suggestion is gain bullish exposure in either February or April contracts looking for new contract highs and potential record highs into next year. Silver and gold have yet to correct but we have yet to rule out this possibility. As we said yesterday on a settlement below the 50 day MA in gold and 20 day MA in silver expect sellers to be in the driver’s seat. Until then we’re cautiously optimistic. Copper is at a fresh two year high and though we’re not suggesting shorts we do not think this appreciation is sustainable without a healthy correction. That likely means 40-50 cents but the question is from what level…$4.30 or $4.50? We still want to see a correction in Agriculture, namely corn and soybeans before re-establishing bullish plays for clients. In reality we probably will hold off until early 11′ but we do want some type of long exposure before the January USDA report. Another limit move higher in cotton today. Some of our more aggressive clients own March put options and premiums were crushed today. Being we think we could get a violent move lower we will stay the course for now. DO NOT trade futures in cotton right now and options traders take your size down as we’re in uncharted waters. We missed a long entry in coffee with clients and remain onlookers from the sidelines. We will be looking to buy a set back of 15 cents if we are given that opportunity for clients. If you trailed your stops in lumber futures you should have been stopped on your longs at a profit today.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

By Chris Mayer

10/18/10 Gaithersburg, Maryland – “I think we have a food crisis right now.”
– Hussein Allidina, head of commodities research, Morgan Stanley

The leaves have turned all shades of red and gold. The air is crisp and cool. The fall beers are tapped. The brats are on the grill. It’s autumn. That means it’s time to talk about the harvest, in particular for corn.

Corn was the big news in markets on Friday. What some called a “harvest shocker” sent corn up 6% on the day. The USDA cut its harvest projections by nearly 4%, which took the market by surprise. And that’s just one of the reasons why the corn price has soared to $5.30 a bushel from $3.30 a bushel last July.

The shares of most ag-based companies are responding in kind. Fertilizer stocks are soaring, for example, as are the shares of irrigation equipment companies like Lindsay (NYSE:LNN). By contrast, the market has been hammering the stocks of meat producers. Tyson Foods has been falling on the theory that higher prices for corn means higher feed prices to fatten up those chickens, cows, sheep and pigs.

By historical standards, the US corn harvest is still a mighty pile – 12.7 billion bushels. It’s the third largest ever. But demand is also near record levels. And that’s why supplies are still tight.

The USDA said that US corn held in reserve will fall 47%. This means the US will have the tightest reserves since the mid-’90s. However, the US also has a lot less idle farmland than it did then, which means it’s not going to be as easy to replenish lost reserves through US production.

Of course, there are spillover effects, too. This doesn’t affect just corn. Soybeans jumped nearly 7%, and wheat was up 9%. What affects one crop affects others. They all compete for arable land and the farmer’s investment dollar. If more farmers plant corn, that could mean fewer farmers plant soybeans.

Also, in the shadows lingers the possibility of another 2008 food crisis. Some think it’s already here. Some of the largest grain exporters, like Russia and the Ukraine, have imposed export restrictions. Meanwhile, many of the chronically large grain importers in the Middle East and North Africa are starting to hoard supplies. This drama resembles the one we saw in 2008.

So I think we’ll see a mega-corn planting for next year. That will be good for fertilizer and ag equipment stocks, as farmers load up on what they need. But from this point, the best-performing stocks might be the ones getting mauled today.

The old saw in the commodity pits reminds us that the cure for high prices is high prices. The market will bring us a lot of grain next year. My guess is that corn will be cheaper in the spring than it is today.

Meat prices will continue to rise, too, and are already climbing this year. Beef prices are already the highest in a quarter-century. In this scenario, the best plays would be the beaten-down Tyson Foods of the world that turn the world’s grain into meat.

In the meantime, it’s worth noting that agricultural commodities are not the only ones rising. Metals also helped the benchmark index for raw materials hit its highest level in two years on Friday. Tin hit an all-time high of $26,780 a tonne. Copper hit a two-year peak of $8,349.50 per tonne.

Beyond the industrial metals, precious metals are also soaring. Gold hit a new all-time high of $1,364.60 an ounce. All the big gold producers are closing their hedge books. Meaning, they think the price of gold will go higher. So rather than sell gold forward at today’s prices, they will take their chances. AngloGold Ashanti was the latest to do this.

On top of this, central banks around the world keep buying gold. Overseas, governments are actually encouraging their citizens to own gold. Most recently, the Vietnamese central bank said it was thinking about lifting a ban on gold imports, which has been in place since May 2008. The market took this as bullish, because Vietnam is one of Asia’s largest consumers of gold.

Silver is putting in 30-year highs.

When all these commodities start hitting their highs together, something greater is at work than just supply and demand issues.

As the FT notes: “Investors are pouring money into commodities as fear intensifies that competitive currency devaluations and quantitative easing – in effect, pumping money into the economy – by the world’s central banks will lead to the debasement of paper currencies and to runaway inflation.”

This is exactly it. Investors are not as dumb as they sometimes seem. They see the world’s governments fighting over currency issues. They see that the likely outcome is that these governments weaken their currencies. As one does it, the other weakens in response. Then the other weakens it more. And so on and so forth.

And before you know it, you need a $20 bill to buy a cup of coffee.

Commodities trade on world markets – at least the major ones do. Prices adjust to the fall in currencies. So as the dollar weakens, the price of gold or oil ought to rise in dollar terms, everything else being equal.

Companies that produce these commodities could do even better, because their costs – such as for labor – don’t rise as fast. When you get your annual raise – if you are a salaried worker – inflation may well have already chomped 10-15% of your purchasing power.

Also, commodity producers who have already spent the large dollars to get a project up and running will find they have a big advantage over new projects. Inflation will make new projects much more expensive by comparison. This also stimulates the merger and acquisition activity we’ve seen.

Management teams will sit in their backrooms and do the math on a white board. They will see that it is often cheaper these days to buy what they want in the stock market, rather than build it themselves. This is what BHP decided when it bid for PotashCorp; it’s what Robbins & Myers did when they decided to bid for T3. So my advice is to stay with tangible assets that won’t lose value as currencies depreciate.

For the last few years, I’ve been recommending the shares of tangible asset companies like PotashCorp and T3 to the subscribers of Mayer’s Special Situations.  Most of these recommendations have performed very well. But I think there’s still a lot more investment success to be had by buying into the companies that feed and power the world.

Regards,

Chris Mayer
for The Daily Reckoning

The Food Crisis of 2010 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

This is not entirely true but metals and energies certainly fit the bill. May Crude advanced again today briefly peaking its head above $85/barrel. If momentum gains and the dollar breaks down we could be looking at $90 in the coming weeks; no this is not an April fool’s joke. Crude oil has gained over 20% since the first week of February and it looks like the bulls remain firmly in control.

Bullish engulfing candle in natural gas on good volumes carries natural gas prices back over $4. As we’ve voiced we think the upward move could start on short covering and this may be the 1st inning. Wait for confirmation early next week. We will be looking to move on July options for clients if a bottom is confirmed.

Picking a top is a dangerous and sometimes expensive game as clients and readers know in the indices of late. On a disappointing jobs number tomorrow look to gain bearish exposure. Our favored play for clients remains June ES puts.

Impressive action in sugar today as a mid-day reversal puts prices back in the green, gaining over 2% today. According to some informed floor traders we spoke to there appears to be large buying in out of the money July and October sugar calls; we will potentially be moving next week in that direction…stay tuned.

Based on the close today we suggested taking off all shorts in cotton; depending on your entry/exit it should we a small loss or a small profit.

The weather over the weekend and if farmers in the Mid-west can get into their fields will set the tone on grains next week. We will be advising to exit May shorts once we feel a bottom has been established in corn. Fresh entries should be looking to buy December corn when a bottom is in which we feel is imminent. The KCBOT/CBOT wheat spread continues to move in the right direction; when KCBOT trades at a premium start looking for an exit door.

Aided by dollar weakness and positive fundamentals out of Europe and Asia metals traded to fresh highs. June gold finished at its highest level in 2 weeks back above the 100 day MA. Use $1115 as support with $1145 as resistance. May silver hit $18 for the first time since late January. We expected this and higher levels in 2010 but we anticipated a correction prior to. The only exposure clients have are July $2 call spreads so we welcome a move higher but we would prefer to see a probe lower to get exposure with futures. The most recent move from $16.50 to $18 in the last 2 weeks was certainly not expected from me. The June US dollar is below 81 closing just under the 20 day MA as it appears sellers are overpowering buyers.

Continue to trade European currencies inversely depending on your viewpoint as I am content on the sidelines until we get a clearer picture. The only constant remains weakness in the Yen; losing 3% in the last 8 days. Continue to sell rallies that are capped at 1.08.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Written By:

By: Jordanna Sheermohamed, M.S Meteorology
Weather and Climate Consultant for MB Wealth Corp. and Matthew Bradbard

The highly anticipated annual planting intentions report is about to be released, and with it, pivotal information regarding some of the hottest commodities traded on the market today.  How are the markets going to move as a result of the farmers’ crop trends?  How is the current, and more importantly, future U.S. meteorological patterns going to affect the planting and harvesting of the intended crops?  Should farmers delay their plantings for a more beneficial growing season?

The latest mid-month discussion from the International Research Institute (IRI) for Climate and Society indicates that there is a 90% chance, according to both dynamical and statistical models, that El-Niño conditions will continue through March, April, and May, which are prime planting time frames for key commodities such as corn, cotton, and wheat.

The latest ENSO Diagnostic Discussion, released monthly by the Climate Prediction Center/National Center for Environmental Production/National Weather Service (CPC/NCEP/NWS), also indicate that El-Niño impacts will gradually fade throughout the remainder of the U.S. Spring season and shift into ENSO neutral conditions, particularly by the beginning of summer.   Some of the effects that will continue to be observed include the following:

§ Higher than average precipitation in the Southwest

§ Higher than average precipitation in the South-central States

§ Higher than average precipitation in Florida

§ Below average precipitation in the Pacific Northwest

§ Below average Precipitation in the Great Lakes region

§ Above average temperatures across the northern U.S.

§ Below average temperatures across the south-central and southeastern states

The National Agricultural Statistics Service (NASS) and United States Department of Agriculture (USDA) released a report in 1997 titled, “The Usual Planting and Harvesting Dates for U.S. Field Crops” which specify how the states compare to each other in regards to commodity production, as well as most active planting and harvesting dates.

Cotton, which is grown on the 36^th degree parallel,  can be found growing all the way from Northern Florida to the Carolinas, and as far west as California. Texas, one of the leading producers of U.S. cotton, depends on dry tropical to subtropical climates for a productive cotton crop.  Initial soil conditions necessitate ample moisture.  Since cotton uptakes an abundance of soil nutrients and moisture, careful crop rotation planning can allow for year round use of field acreage.  The forecasted increase in precipitation in most of the cotton growing regions is good news to farms that tend to depend on Mother Nature to assist in their crop needs. Colder than average temperatures across the Southern central and southeastern states could be a problem as planting season is nearing halfway over.  Most of the U.S. cotton growing regions have seen a long winter this year so far, which will probably result in a decreased cotton crop output or possible further delays in planting in the more northern cotton growing states such as Tennessee.

Corn, found primarily grown in Midwest, especially in Iowa and Illinois, consists of about 30% of the world production. Large amounts of water, either through crop irrigation, or natural rain is needed for fruitful crops.  Predicted wetter conditions in the southeast and western portions of the Midwest will aid farmers this upcoming season.  Precipitation amounts will be coupled with ideal temperature conditions which should yield on time productive corn crops this growing season.

Kansas, a key player in the U.S. winter wheat supply, won’t be addressing planting conditions until its growing season which runs between mid-august through mid-September. North Dakota, which is said to produce more than half of the U.S. Spring Wheat supply, is forecasted to receive drier and warmer conditions this upcoming growing season which should be good news for farmers.  Wheat is sensitive and has little resistance to temperatures outside of its normal growing range.  A late start in spring growth would be ideal as there would be a less likelihood of a late “frost” bringing destruction to already-growing crops.

The expectations for the USDA’s planting intentions report next week are as follows:

Wheat: Projected Acres 53.376 Million / Average estimate 51.9-55.0 / Last Year 59.133 Million

Cotton: Projected Acres 10.09 Million/ Average estimate 9.50-11.0 Million / Last Year 9.15 Million

Corn: Projected Acres 89.189 Million/ Average estimate 87.0-91.0 Million / Last Year 86.5 Million

Our current positions for clients in these markets are as follows:

Wheat: We have no outright positions but have positioned some clients long December KCBOT wheat against a short in December CBOT wheat expecting KCBOT to be at a premium to CBOT. This should work as long as the trend remains down.

Cotton: Clients are advised to have short exposure in cotton as we feel prices should come under pressure eventually taking prices back to the mid 60’s on the December contract. Analyzing the daily chart we see stiff resistance just above 75 cents.

Corn: December corn has been range bound for the better part of the last month wondering between $3.85 and $4.15; we sit at the lower end of that range as of this post. We are advising clients to have long exposure via July call options and December futures anticipating a trade up to $4.50 in the coming months.

While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

CBOT Wheat:

Cotton:

Corn:

Indices look overbought but have for weeks now…brave clients are sticking with the June put options. Today they purchased June 1050 ES puts for $550/per. Sugar came within 17 ticks or 16 cents and then closed 9% off that low. Buyers were active but I want to ensure this is just not another head fake before trying to get clients long again.

May cotton is back below the 20 day MA losing 1.50 cents today. We are expecting further down side and have a target or 78.00 and then 76.00. OJ paired losses but did close lower now for 7 out of the last 8 sessions dragging prices back below the 50 day MA. We have told clients that we are interested in re-visiting longs under $1.30.

Treasuries were hit hard across the curve today; likely due the exorbitant auctions. We may NOT get the opportunity to sell from higher levels as we had expected but if prices continue south it will be without our clients. Corn and KCBOT were the lone agriculture commodities to keep their head above water today.

You know the deal; we are suggesting long exposure via futures and options in July and December corn. Some of our clients that trade spreads may be interested in this: long December KCBOT wheat against a short in December CBOT wheat at 7-9 cents under expecting the spread to flip and KCBOT to be at a premium.

Let cattle rally a little more and look to fade the rally; June would need to be contained at 94.00 and August at 92.00 or we would abandon the trade. Lean hogs continued lower; we expect a trade under 70.00 in April in the coming sessions. Precious to industrial metals were hit today; gold 1.70%, silver 2.6%, copper 1.5%, palladium 4.7%, and platinum 1.8%.

We are looking for more downside pressure in this complex especially if the dollar can stay above 82.00. The significance of the 82 level in the US dollar index serves as the 50% Fibonacci level for the last 2 years. Use 81.25-81.50 as support with 84.00 as the next stop on the upside.

The Yen got hit the hardest today and though I did not take people seriously who were whispering par just weeks ago this could happen. We are pricing out bearish plays for clients. If the Loonie can break the 20 day MA; at .9740 in June we should be on our way to a nice winning trade on clients June puts.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.