Holy Rice Shortage!

Thought is was only third world countries with rice problems? Well, in some cities, San Francisco and the Bay Area in this article, they are not exactly rationing but they are asking their customers to not hoard any rice and to only consume based upon their normal habits. Interesting. Where do you think the price of rice is heading?

Record High Natural Gas Short Positions

According to the April Committment of Traders report, June Natural Gas contracts have a record number of short positions open, greater than 182,000 (non-commercial) open short positions to be exact (closer to 182,000). Just for comparison there are roughly 130,000 open long positions in crude oil in this same report. Energy across the board is on its way up, and if these traders get caught in a short squeeze, that could be quite a rally to the upside. Food for thought. I wish I had a link for you here, but for some reason I'm having trouble uploading the table or the link to this information, I'll have to try again later.

An Interesting Perspective On Biofuels

I was reading through the Hard Assets Investor again today (as I do every day as you may have noticed) and came across this interesting look at biofuel prices and the correlation to rising commodity prices.

Hard Assets Article

Anyways, I just thought that this was interesting given that so many people just assume that the run up in commodity prices is based upon using food to create fuel. I hate to disappoint them, but it looks like food prices will continue to rise this year.

No Room For Error With Corn This Year

I just got done browsing through another one of my favorite regional publications, the Delta Farm Press, and there was a piece in there from yesterday reiterating the seriousness of the corn shortage. There is basically no room for error according to the report. So if you think that perfect weather and bumper crops are on the horizon, then get short corn. Otherwise start coping with the thought of December corn testing levels at and above $7.

More on Rice

This article in the Financial Times is very brief but says all that it needs to: rice traders are panicking. And why wouldn't we? I sold all of my contracts this morning because any buying up on a frenzy is likely to end in the same fashion. Even if all of this increase in cost is rooted in fundamental analysis and there really isn't enough to go around and this increases the price of rice, there's just something about the manner in which this is happening that smells of nasty correction. I'm not alone. While watching Fast Money on CNBC earlier this week, Dennis Gartman stated that he doesn't want any part of it either. He's focusing in on energy right now, and I for one tend to agree with him, not that it takes a lot of guts to agree with a bright guy like that, but for what it's worth, rice will likely tumble back to earth and land with a thud.

World Unrest Over Food Prices

When I read this article posted on CNN.com, all I can think about is not an end to rising food prices, but more problems ahead.  When governments step in and try to institute price controls, this will only drastically limit supply, so the only other option is for governments to pay the open market price and subsidize the remainder of the price to its citizens.  Bear in mind, if you are feeling emotional or feel there may be moral implications to making money off of this, then be comforted by the fact that most nations produce enough rice for their populations, it is the remainder that needs to be filled or the amount that gets fed to animals to create more food that is bid up in open markets globally.  This is increasing the price of subsistence for many people struggling to make it into the middle class and eat more than just a bowl of rice.  However it is also not just the open markets setting these prices, so again, take heart.  If there was truly enough supply then this would not be much of an issue.  The major culprits here are not free markets and profiteers, they are global growth in the face of global shortages in food supply.  Simply put, profits are made in inefficient markets, not ones with well defined supply and demand.  Currently we have a dearth of supply and enough demand to incite riots.  

I'd get long soft commodities here.  And on the way up for some time.

Grim Outlook From Jim Rogers

This is an interesting interview conducted by Hard Assets Investor with Jim Rogers.  Jim is known for being very outspoken and quite a powerfully worded individual, but just wait until you read this little gem.  He really socks it to Bernanke, Greenspan, and the entire Federal Reserve Banking system as a whole!  Essentially it is his contention that if left on this path, the United States will end up as bad as Germany after World War I where just over a billion Marks would have bought you a postage stamp.  Perhaps he's right, but as an American citizen, I sure as heck hope something, anything, happens to prevent this from happening.  It's a short read, but entertaining.  

Signs Of A Bottom In The Equities Market

Why is it important to us commodity futures types what is going on in the equities world? I mean, after all, these past several months have seen some fairly impressive gains in virtually every commodity sector while the equities markets have all faltered and sold off into almost any and all perceived or actual strength. Okay, so perhaps I'm being a little too over-generalized here and most of us do recognize that equities markets are interrelated, however it is much more intertwined this time than in the past. The key link in the chain this time is credit. No matter what the investment vehicle is (equities, bonds, futures, forex, commodities, etc.) the major firms and hedge funds need access to capital in the form of credit in order to leverage their investments. Now you're starting to see it. With major sweeping changes in credit requirements, firms are having to sell assets to raise capital in order to de-leverage themselves out of some of their positions. This has all been talked about before, so we'll move toward discussing the end in sight here.

This article in New York Magazine written by Jim Cramer talks about the establishment of a bottom in the financial markets taking shape. At the bottom, some normalcy is restored and we can start mending fences. Perhaps this will mean a more responsible and less leveraged move will be made into commodities heading forward, maybe not. But either way, with new regulations in place, hopefully we won't have to see another historic selloff in this commodities market in order to free up capital for the hedge funds out there. Then again, here's hoping and nothing is for sure... that's for sure.

Commodities In The News

You know it's a big story when commodity prices start hitting everyone's radar. However in this case, it is not likely to mean a huge selloff, these are merely more reasons why commodity prices are likely to continue much, much higher. You can check out these articles, or you can see that simultaneously they both appeared on the main page of the famous Drudge Report.

Here are the links to the articles referencing the skyrocketing prices of corn and rice.

Corn

Rice

Current Thoughts

After the planting report and some time to cool my brain on vacation, I have come back with a few general thoughts about the directions of some of the commodities coming up here in the days, weeks, and months to follow. Here's where I'm at right now, please feel free to add or comment on anything you see and help steer me out of a bad decision if you can help:

CORN: Well I guess it all depends on how you interpret the concept of planting reductions in 2008. It would appear as if most of the midwest has slightly favored soybeans over corn this year. Being a midwesterner I'm not truly amazed by this for one principal reason: rotation. The past few years have been boons for ethanol plants buying up corn crops for record high prices and several farmers have even sacrificed a normal crop rotation for the possibility of windfall profits from growing corn multiple years in a row. Now, even with high prices being possible, the threat of depleting the soil for future generations of crops is simply too costly a thought and it's time to get something else in the ground. I would look for corn prices to end up higher at the end of the year even with a hearty harvest.

COTTON: Cotton prices soared, soared, the past few weeks and then plummeted back to earth just as fast the past few days. My take on this is as follows: supply will be short and the price is due for a climb out of it's current levels. However, it soard too high too fast just before a whole new wave of credit and margin concerns hit the broader markets. Then, hedge funds and institutional owernership had to pull out of the most profitable positions to pay down some margin calls. Cotton got killed because it was where most of the money was. Volume is back down as is the price and I think this is a great place to be positioned in the coming weeks to months.

RICE: I am a very big fan of rice and it has made me some great money, but the same principal concerns me here that we have seen elsewhere. Lots of other people have made money in rice too recently and I'm afraid that if the time comes, this may be the next target of profit taking and we could see prices plunge downward. Not sure it will happen, but then again, most people didn't think it would happen to any of the other softs either.

This is just a few random snapshots from my brain at this moment and where I think we're looking coming up soon. I am staying away from soybeans and coffee at the moment because even in a volatile market the swings here can give you a nosebleed. I'm also still interested in lumber once the fundamentals return. Housing is pretty much starting to carve out a bottom in the overall marketplace and therefore demand will go no lower so we may very well be observing a low in the price of lumber. Keep an eye on it, I know I will be.

Vacation Time

I apologize for the lack of notice on the vacation, but I'm back now and ready to roll.  But I did want to mention the importance of being able to step back and watch the markets for a while.  My plan was to be in an all cash position while on vacation and I timed that accordingly with the 2008 planting report.  When that report comes out, it can be a volatile day of trading, which it turned out to be.  Soybeans went limit down, corn was wild, cotton skidded much lower, and rice started limit up but settled lower at the end of the day.  Crazy day, but a good day to be in all cash.  The overall moral of the story I'm getting at here is that there is some money to be made in high volatility, but more to be lost.  There is no shame in being out of the market and often times it is good for your nerves.  Every now and again, I find it good to spectate.  Give it a shot.