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hardnox
Advisor

stick a fork in it

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=dbc&insttype=&freq=&show=

 

Chart is DBC, a CRB index tracking ETF.

 

Heading into the final death swoon for the 30 year commodity bull cycle.

 

Good news is it should be over soon. There's some logic to say around the end of the year as the last commodity indec bulls get carried off on their shields and tax losses get booked. Anyway. probably within a few months.

 

That doesn't mean individual commodities will track that but it is a significant factor.

 

We should then see the 10+ year bottom of the 30 year cycle where there will be rogue bulls in various commodities along the way but not a generalized trend floats all boats sort of thing.

 

For grains, I'd say think about the marketing strategies that worked in the '80s and 90s- sell profitbale levels when they present and when there's a big rogue move get sold out as far as you can. Otherwise the 10 years will feel like Dog Years.

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5 Replies
BA Deere
Honored Advisor

Re: stick a fork in it

I don`t see a 30 year bear cycle coming and not sure if that is what you are saying.  If we have a widespread drought hopefully next year, we might have what you could call a `strong dead cat bounce` and that would ultimately prolong the real day of reckoning a year or two.

 

If next year is a nat corn yield of + high 160`s and bean yield in the high +40`s.  And assuming the rest of the world is good and demand doesn`t spike for whatever reason, then there is going to be pain, fringe areas will go back to pasture, bottom 20% producers will go broke and the remaining left will have to cut costs and cancel their "straight planting" subscriptions.  You can`t put on fungicide and watch a steering wheel that turns itself if corn is $1.75/bu...it just won`t work.

 

Meanwhile the world population is marching towards 9 billion.   Now maybe we won`t again in any of our lifetimes, but after 2 or 3 more years of the average producer`s prices below C.O.P.  Inputs will have to come down and burdensome supplies will be cut in the combination that there will be small profitability.

 

We see with oil production being cut in the Bakken, maybe developed wells will run to maintain cost but I can`t see any new developement of cheap oil. Opec won`t continue forever giving us a free ride, cause when their oil is gone, all they have is a desert.

 

It`s always darkest before the dawn.  Just my 2¢

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elcheapo
Veteran Advisor

Re: stick a fork in it

....I already need a spotlight to see
hardnox
Advisor

Re: stick a fork in it

World stocks/use ratio for all grains back to near 2000 levels and above that in absolute terms.

 

A fair amount of buffer there before anyone gets too excited.

 

There will be rallies, prmarily weather related, along the way but in the past it has taken 10-15 years to rebuild a base for the next cyclical bull move. That would be my guess.

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hardnox
Advisor

Re: stick a fork in it

Further BTW, I think the pop in some of the softs is a heads up that the overall commodity selloff is not too far from a bottom- stuff drifts down with the rest of the sinking boats then pops hard when it finds its gone too far for its own individual fundamentals.

 

The same will happen to grains someday but the question is from where- nothing in the individual charts or sub index to make that call yet.

 

Crude is the most important market and my best case is we'll see an historic low there sometime in the next six months.  Grains probably track that better than other marketsbut can do their own thing.

 

My biggest fear is that we'll see a spring set price .50C/1.00 (C/S) under last year. Then the FarmDoc budgets gave a $100/acre loss on good land and $300 rent- the scenario I present would give you the same on $200 rent.

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Jim Meade / Iowa City
Senior Advisor

Re: stick a fork in it

Technicals are like looking in the rear view mirror.  The road ahead may not look anything like the road behind.  Climate change, population growth, world unrest, economic confusion - there are so many things that can work on the demand as well as the supply side.

 

Looking ahead, it may be we're in for several more years of rough times and we may have to get sharp about marketing in a sideways market to tryi to get nickels and dimes whereas we used to look for dollars.

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