China in the Vanguard

Monday started off on a really bullish note for resource complex starting with weekend data from China showing a huge upturn in the fortunes of the domestic economy. Dizzy on bank lending and government stimulus, the nation sucked in 55% more imports during December. But that was just for starters as customs data showed the first rise in exports since October 2008 indicating that the focus of the recovery is no longer predicated on the domestic Chinese economy.

While we’ve known this for some time, this data is another jigsaw piece in the global economic recovery. China imported the highest ever volumes of crude oil and soybeans while it sucked in heavy amounts of iron ore and copper. In other official data China reported sales of more than 13 million autos and light trucks for all of 2009 meaning it sold 46% more vehicles than the previous year. For the first time ever or at least since the launch of Henry Ford’s Model-T, another nation sold more cars, buses and light trucks than were sold in the United States. Consumption in the use slipped 21% to 10.3 million units. 

Copper futures failed, however, to breach last week’s peak at $3.54 per pound, which was the highest price since August 2008. Rising inventories in the face of this rally makes us and clearly others a little cautious. Copper is a real buy for the brave right now.

Monday’s data helped set in motion the type of trading that has characterized much of last year. Equity prices around the world advanced on confirming signs of spreading economic health. But U.S. equity markets had a mixed day with commodity-linked companies facing a mixed pattern by the close. The S&P 500 index made a two-point increase by the end of the day.

Gold mining companies rose in line with a rally in gold and silver prices. A Reuters precious metals and minerals index rose 1.1% as investors bought into shares of companies exposed to rising industrial and precious metals prices. The U.S. dollar index slipped helping increase the appeal of gold, which rose $12.50 or 1.1% to $1,151 an ounce.

Grain prices were mixed as a sharper decline in the dollar was pared and investors continued to position for Tuesday’s all-important USDA report. This will show the most current estimates on supply and demand for corn and soybean crops.

Traders will also see the first estimates of how much fall acreage was planted with the winter wheat crop. Despite the surge in soybean sales to China during December, the February contract tanked on Monday as investors went short into the report, which is due 7:30amCT Tuesday. Wheat prices continued to rise - an ongoing theme in the early days of 2010 as funds rebalance across the grains.

Meanwhile an end in sight to the freezing nights in Florida helped unleash wave after wave of speculative spelling in March orange juice futures. At one point the contract was down by its revised 20 cents daily limit as speculators peeled off their sweaters and made a mad dash for the exits. Theory has it that a drop beneath 28 degrees Fahrenheit for more than 15 minutes is enough to cause permanent damage to citrus.

Many farmers had apparently taken preventative measures to limit damage by spraying their trees with water in an effort to insulate the fruit from inclement weather. According to one estimate today, less than 10% of the overall crop may have been damaged as a reult of the cold snap. Forecasters say that the cool temperatures are set to move on.

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