PARSING THE COMMODITY MOVERS

Commodities- Logic Advisors of Upper Saddle River, New Jersey, predicted in a Bloomberg news interview last Friday that commodity prices might rally a further 12% during 2009 courtesy of a breach of the 50-day moving average. More investors will be lured into a self-feeding rally by possible gains as the price of the widely watched Reuters/CRB index closed above its medium-term average. As theory goes greater liquidity is created by profit-hungry investors all piling into the same venue at the same time. Almost one week ago we told readers to Jurojin Weekly something similar.

"Many traders will watch the widely-followed CRB Index, which bounced from the support we mentioned last week and now is banging its head on its 50-day moving average. A better commodity index to watch might be the CCI Index - an EQUALLY-weighted index. It shows that outside of energy, the rally in commodities is broad and strong." - Jurojin Weekly, July 21, 2009.

The evidence has been building for some time that the recession is becoming a distant memory, and although we'd take issue with the simplicity of such a line of thought, we always strive for great opportunities based upon tailoring market views. After all there is precious little point in swimming against the tide. However, we do like to also predict those turning tides from time to time.

When investors think commodities they tend to think energy and industrial products such as crude oil, gasoline and copper. Prices of these commodities have really taken to heart the recovery signs for the global economy and these prices continue to climb. In fact in the energy market, traders continue to ignore flashing warning signals over a surplus of supply and choose to let equity markets dictate that recovering economies will need ever-greater amounts of energy. The fuel gauge refuses to go down, so to speak.

A couple of commodity prices reacting very much to an improvement in supply conditions are bucking the broad commodity price trend at present.

Cotton - An initial burst of optimism over an under supply of cotton has driven prices well off their lows. The prospects for farmers to make more by planting corn and soybeans led to cotton being overlooked when initial planting intentions were reviewed earlier this year. Textile demand was also weak and suffering from warehouses billowing excess capacity and kept prices down and speculators continually leaning on prices to see how far down they could push them.

But low and behold, farmers were not lulled into neglecting poor old cotton and as a result are now staring at a 13.9 million bale crop, which exceeds the official 13.25 million bales forecast by the U.S. Department of Agriculture. The cotton counting crop starts August 1. Analysts now expect the 2010-11 crop to be even busier at 16.3 million bales with farmers encouraged by firmer prices.

For now though, the 26% jump in prices so far this year over fears that production has fallen faster than demand is faltering on predictions that wonderfully moist weather in Texas and the south east is making for ideal conditions after an encouraging amount of rain. Crops in California, Arizona and New Mexico are responding well to present conditions after an excessively hot start.

Corn and soybeans - Meanwhile it's turning out to be a near-perfect stress-free season for crops such as corn and soybeans. Beans can be found lazing in moderate temperatures while corn crops are enjoying the intermittent rainfall. Earlier in the year, the return of global demand rescued price weakness and confidence suddenly helped lift agricultural prices with accelerated fears over crop shortages inviting waves of speculative buying.

But record planting and land use saw the mania stop and the ideal temperatures forced pessimists to abandon positions over the last two weeks with a seven-month low created last week. Corn and beans could still see lower prices later in the season in the event that the weather continues to mean less crop stress and could intensify crop yields if the August sun allows the ripening process to produce more ears of corn to ripen. 

The Supreme Council of the Secret Order of Jurojin