Frailty of monetary policy under delusional Keynesians is evident whenever we think about Agri-Food. Price increases for Agri-Foods may be causing measures of consumer prices to rise in many countries. That “inflation,” which it is not, is causing some discomfort for politicians around the world. The textbook response, per the ineffective and inbred Keynesian economists, is to tighten monetary policy, perhaps raising interest rates. We ask one simple question: How does raising interest rates cause the supply of Agri-Food to rise, forcing prices lower? Will higher interest rates keep the price of shoes from rising?

“Prices for cattle hides are on the rise as leather demand rebounds and global supplies fall, boosting the returns of meat packers and cattle producers.”

“Federal[U.S.] data show hide prices are at their highest level in nearly a decade, jumping 24% in the last year to $82 apiece. Further gains are likely this year as U.S. supplies begin to shrink and consumer demand for leather continues to recover, . .”

“Helping to fuel the jump in prices has been a growing middle class in China, Vietnam and other Asian countries where consumers are increasingly buying leather goods as incomes rise. As economies around the world recover from deep recessions, consumers are again shelling out for luxury leather goods.”

“U.S. Commerce Department put the value of cattle hide exports in 2010 at $1.373 billion, up 67.7% from a year earlier when low prices allowed the number of actual hides exported to hit a record 35.6 million pieces.(Commodity News for Tomorrow, 4 March 2011)”

If clothing retailers think cotton prices are a drag, wait till they see what happens in the shoe department. Price of hides and shoes cannot rise sufficiently to induce cattle breeders to expand herds. Such is the Joy of Agri-Food Price Inelasticity. No matter how high the price of shoes might rise, ranchers will not raise more cattle to satisfy demand for leather.

How will QE-2, QE-3,or QE-4, in a chain of futile an

d doomed policies, or raising interest rates hold down price of chickens? In the above graph is portrayed the price of broilers, table chicken, in the U.S. As is readily evident, even to a Keynesian economist, chicken prices have broke out to upside.

Prices for chicken had long been flat, held down by the brutal, price suppressing  power of a group of oligopolistic chicken purchasing companies. All that worked, till grain prices rose dramatically. Profits of chicken raisers disappeared faster than the grain fed to the chickens. Producers had no choice but to unload those chickens into the market. Prices collapsed under that selling. First round effect of higher grain prices is lower meat prices as producers sell animals to avoid feeding them.

Now, it appears, the second round effect has developed. With smaller flocks the buyers have lost some power, and prices have risen dramatically. Could $1.25 per pound chicken arrive in the near future? Quite possibly, and one better enjoy that cheap chicken sandwich at your favorite restaurant while one can.

Investors that missed the latest, but surely not the last, round of excitement in Agri-Equities may get another opportunity this Summer. Agri-Food prices, on average, have dipped to their lowest level in five weeks. That correction is likely to continue well into the North American growing season.

Traders and buyers had simply become too bearish on supply, bullish on prices, in the short-term.  Buying of wheat and corn may have been panic driven, and in excess of true needs. Latest USDA WASDE, World Agriculture Supply Demand Estimate, simply did not have enough bear food in it for the supply bears. Next important report is the U.S. planting intentions report due 31 March. It will probably also fail to nourish the supply bears. Add a little of Japan’s misery, and we have likelihood of a continuing correction in Agri-Food prices.

Tier One Agri-Equities, large multinational Agri-Food companies, have risen in conjunction with the rally in Agri-Food prices. Likely that they will correct along with Agri-Food prices, as they did after the 2008 run. Tier Two Agri-Equities, Chinese Agri-Equities, then performed the best. As they are over sold relative to Tier One Agri-Equities, investors should be preparing to add to Chinese Agri-Equities in the near future.

01/20/11 Tampa, Florida – I was intrigued by the title of the essay “The Cheapest Thing on Earth” by Nathan Lewis here at The Daily Reckoning.

I was interested because I thought that such a tasty trivia tidbit could come in handy, like this morning when I could have used it as a distraction when my kids were calling me “cheap” because I wouldn’t open up my wallet and give them another king’s ransom for some new dumb reason; I forget what, but there was a lot of crying and wailing about it, whatever it was.

This is where I could have said, to throw them off, “Cheap? What do you know about cheap? Do you know what is the cheapest thing on earth? Huh? Do ya? Huh? Do ya? Yes or no?!”

Instead of providing me with the answer, he starts off with a pop quiz! Damn!

And when I say “pop” quiz, I mean exactly that, as he says, “Quick: name an asset, publicly traded, that is the cheapest in a hundred years.” Pop!

I, of course, had no idea, and instead of admitting it, I quickly read ahead, hoping to immediately find the answer, only to be surprised when he taunted me. “Houses?” he asks. “Nope. Stocks? I don’t think so. Commercial real estate? Bonds?”

By this time I was pretty peeved, and getting bored, too, as I was sure that if it was, indeed, none-of-the-above, then this was going to devolve into something about investing in something obscure, the significance of which would elude me even if you explained it to me over and over again, in a company I never heard of, and, probably, in a country I never heard of, either.

Just before I gave up reading in disgust, he dared to taunt me one more time, the bastard! “Not too many, are there?” he asks.

At this final insult, my mind screamed, “Damn you! Damn you to hell! Tell me now, or I will fire off a flaming email that will be both highly insulting and vaguely threatening!”

I could almost hear his cruel, mocking laughter as he rudely called my bluff, and further insulted me and my false bravado with, “Now here’s a tougher one. Name an asset that is near the lowest price in all of human history.”

Arrgghhh! In all of human history? By this time I am angry and distraught, mostly angry, that somebody was exposing my stupidity and ignorance!

Suddenly, I am gasping for air and screaming that if he doesn’t tell me the answer pretty soon, I am going to start hearing those voices in my head again, and (now that you mention it) if I listen really closely, I can almost hear them already, way off in the distance, screaming to be heard and obeyed.

And we all remember how it turned out the LAST time that happened.

Obviously intimidated by the sudden revelation of the strange, powerful forces he is unleashing, he quickly announces, “The answer is: wheat”!!

I admit that I personally put those two final exclamation points at the end of his sentence as an emphasis, both to indicate surprise and to remind you that there are surely significant ramifications of this “price of wheat” thing, the horrors of which I never allow myself to even think, except during sleep, and then hopefully only when I am dreaming of being with some beautiful young thing, and maybe with some of her friends, too, who are all naked and sweaty and grunting and heaving and writhing around in some surreal bacchanalia of some kind, where the only interruption is the masses of people outside wailing and crying that “The price of food is up so much that we are burning things and looting grocery stores in mindless anger and desperation, and we are looking for the Fabulous Mogambo Seer (FMS) to pledge our undying allegiance and love because he predicted that this inflationary hell is Exactly What Would Happen (EWWH) when the stupid Federal Reserve kept creating more and more fiat money, creating astonishing amounts of money, creating outrageous amounts of money, creating So Much Freaking Money (SMFM) for so, so long that We’re Freaking Doomed (WFD)!”

I can reliably report, thanks to these dreams, that the sound of people starving to death is a real “mood killer,” perhaps on a par with the horror that wheat is now at the highest price ever, even going back to Biblical times, which is probably why those old Bible-era people were always “breaking bread,” and eating unleavened wheat crackers, and consuming miscellaneous cheap wheat products instead of having, you know, a few tasty tacos or maybe a pizza once in awhile, which I figure must have been because they were very expensive or something, which is why you never hear of anybody eating them.

Anyway, I immediately used this new information-as-icebreaker at the supermarket, and told the cashier, as she rang up my groceries, “I’ll bet you don’t know that wheat is at its lowest price in recorded history, but climbing fast because the horrid Federal Reserve is still creating So Freaking Much Money (SFMM) that the terrifying, heartbreaking misery and suffering of inflation in the prices of subsistence prices of items, like wheat, is guaranteed! Guaranteed, I tells ya!”

She just dragged my frozen burrito across her laser scanner, the irritating “beep!” noise only underscoring her complete lack of interest.

I went on, helpfully adding that they also said, “Actually, the entire agriculture complex, including corn, beef, pork and beans could fit this description.”

Again the lonely “beep!” as she listlessly ran my bag of Oreo Double Stuf cookies through the beam, her face never changing, not even to make the time pass with idle conversation about, for example, how much she adores cute old guys who buy such delicious cookies, or how my eyes twinkle so charmingly, or even to say how she noticed I kept looking at her boobs. You know; anything.

Giving up, I took my groceries in hand and parted without giving anyone my usual advice, which is to “Buy gold and silver right now, using whatever money you can glean from your stupid little job, because inflation is going to eat us alive, and a weird, distorted economy will make it even more hellish, all thanks to the horrid Federal Reserve continuing to create so much excess money. And buying gold and silver is so easy that a bunch of bored, underpaid worker-bees in a low-margin business like you can do it! In fact, it’s so easy that even morons say, ‘Whee! This investing stuff is easy!’”

The Mogambo Guru
for The Daily Reckoning

Read more: The Surprising Price of Wheat http://dailyreckoning.com/the-surprising-price-of-wheat/#ixzz1BeDFywQk

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.

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:

Trading in commodity futures and options involves substantial risk of loss. Past performance is not indicative of future results.

You cannot have your cake and eat it too! Either circumstances in the economy are getting better and we need to start looking for an exit door or we are still in for a sh-t storm and then no action is necessary! If the Fed sees the economy improving than why leave IR at an “excessively low rate for an extended period.” Inflation subdued by what measures? Pass me what Ben and the gang are smoking. Crude gained by 2.5% today, ideally this is a one day wonder but tomorrow will tell. Talking to some big energy traders today they expect a range from $76-82. We will continue to play options for clients on rallies thinking that we will head back to the lower end of that range.

It sounds like a broken record but we like scaling into longs in Nat gas at these low extremes. What will be the catalyst one client asked today to turn around prices…I do not know but this the short trade feels too crowded!

Indices were sideways to up on most of the session and are still trying to digest the Feds non-action to decide where from here. I’ve thrown in the towel trying to predict a top but some of the cycle analysis that we’ve read of late courtesy of some of our clients predicts going into April it could get ugly.

Sugar made fresh lows, futures traders should have been stopped at a loss when we broke last weeks levels. We are holding off on all new entries until this market bottoms. On a rally if we get one in the coming weeks we will be looking to cut losses on call options for clients.

Let Treasuries rally 1 1/2-3 handles before selling! We will have an interest in 30-yr bonds closer to 120′00 and above 118′00 in 10-yr notes.

Green across the screen in agriculture today with corn up by 1.0%, and wheat and soybeans by 1.60%.Corn is a buy; in options we like July and futures December. We sill think there is a possibility to see a trade close to 38.00 in May soybean oil to exit for clients; we will give it till the end of this week.

Metals caught fire today likely because of the pressure on the dollar and strength in outside markets. April gold, May silver and May copper all gained virtually 2% each. We do not trust the upside and the only way we see it following through is we get a hefty break in the dollar…stay tuned.

That being said the dollar index broke the 2 previous days lows and the trend line that had held since the first week of December. The Euro and Pound should benefit the most as they have been hit the hardest. The Euro could make a stab at 1.3950/1.40 and the Pound at 1.5500; next significant resistance levels.

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

Sometimes traders can make money by not being in a trade. It is ok to be in cash when you cannot find a trade that you are comfortable with. That is not to say we are not trading we have just been trading more options than we typically do and scaling down our size.

$81/81.50 continues to act as a ceiling for April crude but that fact that prices have not broken down more we could see one more gasp at higher ground. We suggest refraining from short futures unless you are willing to ride prices up $1.50-3.00. We prefer a top to be set before we re-visit shorts for clients. That being said we still like $5 put spreads as they allow a bit more flexibility without the inherent risk of a potential overnight loss.

Whenever I trade natural gas I am remembered how unforgiving this market is; today prices were lower by almost 4%.

Clients have a small long position in futures and are willing to stomach it with plenty of margin if need be. The June $5.50 call spreads we started buying at $2000 are now closer to $1200. We still like the trade and expect it to be a winner but the same position can be bought at a 40% discount. Until prices break above 1125 or below 1111 in the S&P we have no new trade suggestions. Our bias remains down and clients continue to sell rallies and buy puts.

Sugar closed below the 200 day MA today; that being said we would refrain  from long futures and buying calls until an interim bottom is made. Clients that are already long via calls could take some heat in the short run but we still think a violent trade back to 26 cents in May is viable. Cotton looks like a sell at these levels; we are thinking a move to 75/76 in the May contract this month. Could the Euro-dollar be rolling over? We’ve been fooled before but this trade should remain on your radar.

Agriculture turned south today with corn down almost 1%, soybeans 2.25% and wheat 2-2.50%. We advised clients to spread off some of their corn exposure by shorting May against their December. Being they have a large corn long position we also wanted to get short something in agriculture in case of a larger break. What we opted to do was buy in the money May soybean oil puts. If soybeans continue lower and Crude oil comes off as we’ve been anticipating there is no reason why we cannot see soybean oil retrace back to 38.25-38.75. Live cattle were higher but failed to get above yesterdays highs. The Goldman roll starts tomorrow so being we have record open interest in cattle we think that April could come under pressure in the coming sessions. Clients remain long puts and short futures looking for 89.00 in April.

April gold was down just over $10/ounce today, we are operating under the influence that yesterday and interim top was made and a set back to $1085-1100 is in the cards. Clients have no long or short exposure in gold presently. With silver taking the January high and February low a trade to $17.35 serves as the 61.8% Fibonacci retracement level in May silver. We like silver in the medium to long term but a correction back to $16.50-16.85 is not out of the question short term. The reason we choose to trade spreads often in gold and silver is because the flexibility it allows in case a trade moves against you. Likewise if you are right out of the gate on direction you still make money just less than an outright.

Continue to fade rallies in the Pound though we do not suggest trading without stops. We are using the 5, 15, 30, 60 minutes charts for entry and exit. The Yen was lower by almost 1 point today; clients hold June puts expecting a trade near 1.10 in the coming weeks. As for central banks both the ECB and BoE kept rates as is; the ECB at 1.0% and the BoE 0.50%.

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

Note that in the last few months, commercial traders (who are usually early but right) have increased their long positions significantly. In fact, this is the largest commercial net long position in a long, long time. This means that the stronger hands are hugely long the market. We should also point out that public opinion shows only 39% as bullish on Wheat. When will Wheat rise? It is hard to know but there is strong evidence that this market will be higher by summer time.