DRY HEAT
Timothy Hughes | 602-859-4100 | thughes@pricegroup.com

10/14/11 General Comments: What dictates the perceived value of a commodity in U.S. dollar terms Supply and demand are the obvious choices and then there is the value of currency used to purchase the commodity. That last part brings up the biggest questions in my mind. Where are we in the life cycle of the U.S. dollar and how that relates to my trading decisions The dollar was taken off of the gold standard in 1971 when it was 1/35th an ounce of gold. The fiat currency cycle begins. Forty years later the dollar has lost about 98% of that value. Fiat currencies ultimately fail by hyperinflation, war or monetary reform. I believe that we are still in the deflationary stage that comes after the “easy money” credit bubble has burst. We are probably close to moving on to the failure stage. I don’t know how that will play out but I think the central bankers here and abroad will print money, like their lives depend on it, to pull out of bankrupting debt default . Basic commodities will follow their natural supply/demand cycles but should also be pushed higher by a steady stream of new money creation.
Leverage can be a wonderful thing but it can also kill you in volatile markets. Expect volatility.

Corn : Global stocks are a 51.9 day supply according to the bearish data from the USDA. However that is still the tightest supply of the last 38 years and appears to be trending down. As of this writing the Dec contract is still up more than 38 cents for the week. I expect corn prices to trade between $6.00 and $7.00 as we finish harvest.
Soybeans: USDA cut the production number and talk of Argentina, China and Brazil shifting soybean acres into corn will continue to be supportive. Futures trade volume continues higher than corn and open interest is climbing.
Cattle: This market acts bullish regardless of daily news that isn’t so friendly. Beef retail reluctance as cheaper chicken is getting the most retail ad space this month. Box volume is running 32% under last week and packer margins are the worst of the year. The already low herd numbers will get tighter when we begin rebuilding the herd and that is always in the background waiting to punish a bear.
Treasuries & US $: The dollar has broken into my support area. If you bought it at 77.00 or better, I would risk it to just under 76.50. This trade may fly in the face of what I have written in the General Comments above but I believe there is going to be a final flight to safety (dollar and treasuries) as the bailout of the banks in Europe either fails or is completed and their debt is transferred to Germany and France. I believe either way ultimately works in our favor. At least for a while. I am still waiting for one last push up to test the old highs in the bonds before establishing a short position.

Have a great weekend.

Questions Ask Tim Hughes today at 602-859-4100

Free-Subscribe to receive Weekly Newsletters via Email