Commodities Make The World Go Round – Time To Be Greedy

I think it is time when everyone is running S*** scared.

When crude gets smashed, we should be sitting up and not hiding.

Retail players cannot get too serious about commodities in their daily portfolio because none of us are weather or politics experts and my opinion is that commodities are meant to be USED and not Traded.

But once a year, retail players stand a fighting chance. During the days when we see blood on the street. When the market is in panic and illogical, there are opportunities abound.

If you had bought Crude for 2019 delivery 6 months ago, you would be in the money today.

WTI Crude current curve vs 6 months ago

The price then for a Jun 2019 delivery contract was US80.54 a barrel and it closed yesterday at US84.41.

I ran through the various agriculture commodity curves and realise that we are in nice territory to be buying.

Corn – looking much cheaper than 6 months ago and finally sloping up into the future

Wheat – looking much cheaper than 6 months ago and sloping up into the future

Soy beans – looking way cheaper than 6 months ago and holding steady into the future

Sugar – looking way cheaper than 6 months ago and sloping up into the future

Only coffee, cocoa, cattle, lumber and hogs look expensive but I am guessing that the prices are not going to crash anytime soon.

We live in an electronic age but I do not think humans are built to subsist on electricity or petroleum yet. But this age of electronics and free markets has also resulted in commodity markets come increasingly under the control of hedge funds and traders, experts in squeezing prices higher and lower in the business big agriculture that has no place left for the small farmer.

We are talking about the business of feeding 7 billion in the world who need daily intakes of carbohydrates, proteins and minerals and who waste 1/3 daily. http://www.theglobeandmail.com/news/a-third-of-global-food-supply-is-wasted/article21103168/?cmpid=rss1&click=sf_globe

Big Oil is responsible for a lot of the food we grow as farming depend on the fertilisers, pesticides and mechanical equipment. And now that global oil prices are tanking, we have to ask ourselves would agriculture profit or suffer from it ?

As for metals, we have Chinese steel as cheap as cabbage these days and its a shame we do not have Cabbage futures to compare against. A significant point to note. http://www.ft.com/intl/cms/s/0/cd91ea1e-5381-11e4-8285-00144feab7de.html?ftcamp=published_links%2Frss%2Fglobal-economy%2Ffeed%2F%2Fproduct#axzz3GGpi3P2e

But I do not think cabbages are going to get cheaper too, as with pigs and cows and chicken and fish.

It would be a simple matter for commodity producers to turn off the tap and stop digging, mining, growing and fracking. When the operating costs exceed the selling price.

Yet oil at these price levels is not a matter of demand and supply but more of politics and business. Saudi Arabia has been slashing prices which has led to price wars with the biggest losers seen as Russia and the shale producers in America. The biggest beneficiary has been seen importing more as imports to America climb. http://www.bloomberg.com/news/2014-10-01/oil-imports-to-u-s-seen-climbing-as-global-price-slumps.html

There are agenda behind this as the US supports the Middle East in bombarding the ISIS insurgents and in return, Russia may fall into a recession.

Shale producers are now exposed as charlatans as their numbers come to light and their costs come under scrutiny. Bloomberg ran a piece on reported holdings and the numbers told to investors and the government differ vastly. http://www.bloomberg.com/news/2014-10-09/ceos-tout-reserves-of-oil-gas-revealed-to-be-less-to-sec.html?hootPostID=56a3a3be271e5d6534db5060c3f95d93

 

I do not think we can run away from oil, food, mines and the forests that the world will be running out of eventually. And I much rather own an oil field (or part of) or a farm (or part of) than the biggest building in Manhattan or prime London real estate.

Oil has long term support at 78.

From the last peak in June this year, the WTI has fallen from 107 to 80 which is about 25% off its high. The Brent, which is more important to Europe and us, has fallen much more, from 113 to 82 now (-27%).

On the other hand, fuel tanker rates have not fallen by much, indicating that commerce is still healthy.

I am bullish on the producers but less sanguine on the ancillary businesses. For there will be widespread casualties in the small little firms that will be hard hit by the price collapses. By this I mean the firms in the ancillary businesses are well, in the supporting roles such as oil and gas shipping providers and the folks in the rigs business (Singapore has plenty of those) who are at risk of contract failures.

We shall have to wait for the casualties to roll in.

For the moment, I prefer to go for the hard commodities themselves and the ETFs that embody the underlying eg. ETFS Agriculture (AIGA LN), Powershares DB Agriculture Fund (DBA US) and all the crude oil ETFs.

And I will have to end off now before I get too carried away. Just remember that the S&P 500 is only down 7.7% from the peak.

And to all the analysts out there now pressing the unproductive panic button on the price crashes, try filling your car up with toilet paper and serve you right for putting out all those buy calls on Ezion and gang.