DRY HEAT
Timothy Hughes | 602-859-4100 | thughes@pricegroup.com
11/4/11 General Comments: I have been writing for a while now about my feelings of a breakdown of the European Union and it’s currency. I have also referred to the US dollar as a “safe haven” as the problems with Europe escalate. The U.S. dollar will ultimately have the same problem as the Eurodollar. Too much debt and who will want to finance those mistakes any longer. There are always huge opportunities created from huge disasters and commodity markets offer one of the best methods to take advantage of those opportunities. Many of you know that our government has changed the method of reporting economic indicators since 1990, e.g., CPI and M1. Mr. Bernanke would have us believe that the so called core CPI has remained around 2%. The more inclusive inflation measure CPI-U (Urban measure, which includes food and energy) has reached 3.9%. However, if inflation was calculated in the same was as it was in 1990, the CPI would show inflation rates above 11% according to Shadowstats. If CPI , as measured in 1990, keep rising at recent rates then 2012 looks to be a dangerous year for the US dollar and perhaps interest rates as well. There will be many opportunities to profit in commodities.
Corn : Corn remains in congestion roughly between $6.60 and $6.32 for the last 8 days. I still expect a test of $7. Export sales yesterday were just Ok but commitments seem headed to exceed USDA’s forecast. Next Thursday’s USDA production, supply and demand report should make us break out of the price congestion area.
Soybeans: After breaking below $12 and then rallying back yesterday, in the face of weak export sales, the beans were a little suprising. I believe the Thursday USDA report will not show much change in production. I am not sure what to do with the chart action so I will continue to wait for a signal.
Cattle: There has been good demand for Choice beef lately and overall record demand for U.S. meat exports. Import tariffs are dropped in Asian markets and in Mexico. As someone who grew-up in the cattle business, it is amazing to watch the prices for fat cattle and feeders today and because of the overall numbers in the US cattle herd I don’t expect any substantial downside anytime soon. I expect prices records to keep being broken. The cattle business has always been cash intense but with grain and feeder cattle at current prices even the big corporate operations must be sweating the funding requirements and risk. Today (Friday) I am watching the market for a close in the December contract at $125.00 or higher to break out of a wedge formation on the chart and confirm much higher prices ahead.
Treasuries & US $: I think the General comments above summarize my feelings on these markets. I have begun nibble at a short position in the 5 yr. T Note. I could be a little early but risking a small amount at this point. There could still be a flight to safety here if and when the European defaults become more apparent but the inflation creep will also become more of a concern. The timing for trading these conflicting factors is difficult but could be very rewarding. Have a great weekend.
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