Commodities Essential - April 5, 2011

Corn pops.

 Check out the yellow grain - there’s nary a bearish word being spoken out there regarding corn. (And you thought gold was a guaranteed return on your investment!) This recent epiphany explains the last couple days of surging prices …

That is, the USDA shook things up on Thursday with their quarterly grain report. Stocks of corn were reported at levels lower than anticipated - 6.522 billion bushels versus 6.7 billion bushels. And now everyone is freaking out about Friday’s WASDE report produced by the WAOB of the USDA. 

Investors fear the USDA will consequently cut this season’s (2010/2011) ending stocks from an already extremely tight estimate. I suppose the fears are validated. The stocks-to-usage ratio sits at 5.0%, which matches the low point of 1995/1996 … itself a post-war record low. Get your corn flakes while you still can!

Some consolation comes in the form of increased plantings of corn. The planting this season is expected to be the largest since 1944. But almost everyone seems to agree that an expected increase of 4.5% will not be sufficient … 

Commodities Essential. 5 April 2011


 Because of corn’s recent price spike, some technical backing and filling might be in order. To perhaps mitigate that technical price action, let’s jump into DAG which gives exposure to corn, wheat, soybeans and sugar prices. The prices of these other commodities will be buoyed by the same fundamentals that support corn (more or less) as well as the demand driven to them because they serve as substitutes for rising corn prices. DAG is also a 2x-leverage ETF, meaning it moves twice as fast as the underlying price index