Deutsche Bank announced late yesterday that they were pulling the plug on the PowerShares DB Crude Oil Double Long ETN (better known as DXO). Most ETFs and ETNs die out because they can’t attract enough investors. DXO seems to have suffered the opposite fate.

In the new clampdown on commodity speculators, it’s no huge surprise to see the world’s most popular double-long, leveraged ETN fold suddenly. Deutsche Bank didn’t specifically claim that the Commodity Futures Trading Commission put the kibosh on the DXO, but their press release did cite a “regulatory event” as the principal reason for the closure.

Set to close on Sept. 9, DXO is now hemorrhaging. We’re not sure which is worse for share prices: its imminent closure or that it’s double leveraged a commodity that’s currently plummeting.

Deutsche Bank has other popular commodity trading vehicles, like DBA (agriculture) and DBC (general commodities), that could suffer a similar fate. Both of those funds rely on a position limit exemption, which the CFTC revoked last month. Caveat emptor.

“Anytime the government intervenes like this in the financial markets, they destroy efficiency,” says Resource Trader Alert’s Alan Knuckman. “The action by the CFTC to limit position sizes will only make the problem worse by decreasing liquidity. Markets need more speculators — not less — to lessen the impact by any one entity. For example, the elimination of short selling in the financial stocks in the fall of 2008 caused more damage by dragging out the inevitable for companies that made disastrously poor decisions.

“The CFTC will force trading to move to the over the counter market, which lacks transparency, or to foreign exchanges. Volume and open interest could decline here in the United States and make transacting business more difficult and costly in the future. The present tight bid/ask spreads ensure smooth market entries and exits for all. Without the ability to execute a solid trading plan efficiently, the risks increase for all participants.

“With the current and effective monitoring rules, we know exactly who and how players are positioned. Under the proposed political pandering, that data will disappear from the public eye.”

Source: ETF Reckoning Day?

This pushed up the price of Canada’s Potash Corp (NYSE:POT). It hit a peak of $240 in July. Since then, the share price has collapsed by almost two-thirds. It is now trading below $100.

These kinds of corrections are creating great bargain in the stock market today. But Andrew Snyder says Potash Corp’s liquidity problems could see it tumble even further in the short term.

This from Today’s Financial News:

The downturn in the stock market is impacting nearly everybody, but some companies are really taking it on the chin. Many businesses are getting hammered by valuation cuts of 60% or more.

If I had to pick just one company that exemplifies the global economic pinch we are enduring, it would be the Canadian powerhouse, Potash Corp. of Saskatchewan (NYSE:POT). The firm, which produces various fertilizers and feed products, is a mirror of everything that was great about the global economy and what is now violently sour.

Over the past five years, Potash shareholders saw their positions rise by more than 1,500%. The stock was on an unbelievable run. Thanks to a booming economy, product demand was through the roof.

Ethanol was fairly fresh to the market, prices for corn were hitting all-time highs, and farmers could not get their crops planted and out of their fields fast enough. They needed lots of fertilizer.

Now, the company’s future does not look nearly as bright. The ethanol fad has come to an end and farmers are realizing they have way too much corn on their hands. Demand for Potash’s products has plummeted. And so has its share price.

Shares that were trading for highs of over $240 in June are now going for less than $100. It is a drop of over 50% in just a few months. Some investors see this as just the start of an even larger plunge. Others think this is a great opportunity to get shares at a discount.

I agree with the bears on this one. There are various fundamental reasons for the company to be considerably overvalued, but the glaring error bulls are making is not gauging the company’s current liquidity. In other words, they are looking at today’s balance sheet and not anticipating what it will look like tomorrow.

The check is in the mail

In a market roiled by credit and debt problems, it is absolutely vital to understand a company’s ability to pay its short-term bills. After all, if it cannot make payroll this week, next week is going to be an even larger problem.

A company’s current asset ratio is a good measure of short-term bill-paying ability. It is a measure of the amount of cash available versus the amount of bills to be paid.

To calculate current ratios, simply divide current assets (those available in the next fiscal period) by current liabilities. If the result is above 1, a company can pay its bills without taking on more debt. Below 1, there are problems ahead.

Potash’s current ratio as of last quarter is 0.88.  It has roughly $2.4 billion in bills, but only $2.1 billion to pay it with. In this credit market, a shortfall of $300 million is a figure worth being concerned about.

In a normal credit market, analysts would glance at that figure, discount a few cents off share price and move on. But when $300 million can be extremely hard to come by, it is a huge red flag to potential investors.

Stay away from Potash until this credit crunch loosens. By then, share price could be much cheaper and you will get in at fantastic levels. Invest now, and you could be in for a turbulent ride as the company figures out how to make up its short-term liquidity needs.

In a month or two, Potash will be a great buy. Until then, there are much better investments out there.

Companies make drastic decisions when times are tough. You do not want to be part of the problem if you do not have to be.

Source: Potash Corp. (POT): Liquidity Trouble Ahead?

Slowing growth and inflation problems means the short-term outlook for commodities is not pretty. But over the long term, scarcity of resources is strongly bullish for commodities prices.

This is a great chance to add commodities stocks to you your portfolio and hold for long-term profits.

This from Chris in Penny Sleuth:

Jeremy Grantham heads up GMO, a respected money manager. Grantham has been largely spot on in the big-picture sense of staying bearish on stocks for the last eight years or so. He is bullish long-term on commodities. In his latest quarterly letter, Grantham makes some good points about the future of commodities and emerging markets.

His conclusion first: “In the short term, slowing world economic growth combines with credit, currency and inflation problems to dominate the outlook and offer poor prospects for emerging markets and commodities. Longer term, the reverse is true, and they look like the assets to own.”

It is mostly the long term (looking out a couple of years) that interests me, although I obviously don’t aim to step into any immediate problems if I can help it.

Longer-term backing for commodities demand comes from two sources, Grantham says:

The first is that if enough people enter economic take-off at approximately the same time, as 2.3 billion Chinese and Indians have now done, then the pressure on resources might happen to increase marginal costs slightly faster than technology could offset them.

This has already happened. It’s why the price of oil, for example, is so much higher than historical averages. All that demand hits very quickly, but it takes time to bring new supply to market. In the interim, higher prices result.

This seems well-known already. Most investors realize that behind the commodities boom stands surging demand from countries such as China — former ‘runts’ now muscling in on the global dinner table.

The second reason is more interesting. Grantham believes that the global growth spurt has come at the expense of eating away at some hard-to-replace resources:

“Underground water resources that currently sustain some of our most productive land but, like a metronome, tick off a reduction of several feet each year; rain-fed waters that, although renewable, are finite and already so overused that previously valuable lakes retreat to sometimes disastrous local effects and river volumes, once seemingly limitless, are now fought over; subsoil, which took thousands of years to form, is depleted through casual use (in the Midwest, for every bushel of wheat produced, it is said that a bushel of subsoil is lost. Our farmers are in the mining business! Yes, the soil is incredibly deep, but it is still finite); high-grade mineral ores are fully developed, the very best are long gone and all are irreplaceable; previously fertile land has often been overgrazed and turned into desert.”

At Mayer’s Special Situations, we’ve been on the water beat since this publication began in summer 2006. We’ve also watched the agricultural boom unfold, and we’ve picked up nice profits along the way. We are, in fact, still invested in these ideas.

Along with these ideas, oil, natural gas and base metals all have become more difficult and expensive to produce. Recently, we’ve had to sit through a pretty tough correction on the commodity names. Stocks in these sectors have sold off in a big way this summer, as I’ve noted. Based purely on fundamentals, though, these stocks haven’t looked this cheap in years.

But short term, such drawdowns are common on the way to eventual higher prices. Grantham, too, says as much:

“The prices of commodities are likely to crack short term, but this will be just a tease. In the next decades, the prices of all future raw materials will be priced as just what they are: irreplaceable. Oil, for example, will never again be priced on the marginal cost of pumping a marginal barrel from some giant Saudi oil field, as has been the practice for most of the last 100 years of oil production. Real cost is always replacement cost, and oil, a precious feedstock for chemicals and fertilizers, simply cannot be replaced.”

I don’t take as hard a plumb line as old Grantham does. I believe there is, even now, lots of room for innovation and replacement. Oil, for example, is replaceable in a broad sense. We can get energy from a broad array of sources. But it’s not an easy or painless transition.

Slowing economic growth is the bigger issue. That’s problematic for most commodities, short term. The market, though, is probably punishing the commodity companies too severely. That creates some interesting opportunities.

You can more easily pick up stocks trading for discounts to readily ascertainable net asset values now than anytime in the last five years, in my view.

It doesn’t mean making money in commodities is a lock or that it will be easy. Lots can go wrong with individual companies, and the drawdowns will probably be more than most investors can stomach. But longer term, looking out a few years, I think an investor will be happy with the portfolio assembled in the doubtful summer days of 2008.

Source: Vancouver’s Laboring Drunks

If the reforms that come out of the meeting are strong enough potash could see a major boost, according to emerging markets expert Irwin Greenstein.

Irwin says there are nine major potash players worth a look. Depending on the outcome of the CPC’s Beijing powwow, Potash could become one of the best indirect China plays out there.

Potash is a major component in fertilizer. It has greatly benefited from the emerging market boom, as people overseas move up to the middle class. That means more meat on the table and the adoption of Western diets, such as fast foods, which are laden with meat.

As a result, meat consumption in China has tripled in the last 20 years to 70 million tonnes and is expected to grow further.

The connection, of course, is that cows, pigs and other farm animals are fed grains, which need fertilizer to grow.

The price of phosphate has hit $1,000 a ton, up from $365 last year, according to Green Markets. The price of a ton of potash has gone up over 200%.

China is susceptible to potash prices. Earlier this year, China agreed to pay $576 per ton of potash, up $400 from its previous deal in 2007, to Canpotex, a potash export cartel protected by an exemption in Canada’s Competition Law.

As China Daily reported, the CPC decided China must unswervingly push forward rural reform. In this process, efforts must be made to consolidate and strengthen agriculture to solve the issue of feeding more than 1 billion citizens.

The CPC now wants to rely more on domestic production over grain imports. The goal is to accelerate agricultural modernization and protect farmers’ rights.

Between droughts, pollution and the August 2008 earthquake China’s agricultural sector has experienced dramatic setbacks. During the earthquake thousands of hectares of farmland were destroyed, millions of farm animals died, grain stores collapsed and thousands of pieces of machinery were rendered useless.

A considerable share of wheat crops could not be harvested due to the lack of labor. Much of the wheat harvested before the earthquake – around 350,000 tonnes in Mianyang Prefecture – was damaged in the collapse of grain stores.

In addition, thousands of greenhouses have collapsed, causing severe losses of vegetable crops. Vast seed growing areas in the province have also been badly hit by the earthquake

Pesticides and fertilizer shortages endanger food production, according to the UN’s Food and Agriculture Organization.

January 2007 saw China impose new taxes on grain exports. The duty on corn and rice has been set at 5% – a complete about-face from when Beijing was giving farmers sizable tax rebates for their grain exports.

Although China is the world’s biggest grain producer, it has been immune from the food inflation running rampant throughout the world.

Potash may be one of the best indirect China plays you can make.

Potash is used in 150 countries. Only 12 countries produce it. The US is the top potash importer, followed by China, India and Brazil.

Saskatchewan is the largest potash production region in the world, and many of the top potash producers are traded on the TSX.

Some of the companies worth investigating include:

– Potash One Inc. (TSX:KCL)

– Potash North Resource (TSX-V:PON).

– Potash Corporation of Saskatchewan Inc. (TSX:POT)

– Agrium Inc. (TSX:AGU)

– Mantra Mining Inc. (CVE:MAN)

– Raytec Metals Corp. (CVE:RAY)

– Anglo Potash Ltd. (TSX:AGP)

– Athabasca Potash Inc. (TSX:API)

– Migao Corp. (TSX: MGO)

If prices causes ethanol plants in the Midwest to close, it could flood the market with unused corn, says Tom Dyson. Expect to see a big fall in corn prices in the near future…

Even without ethanol plants closing corn prices are already starting to fall…

A friend of mine owns a farm in Iowa. He first invited me to visit in November 2006. At the time, I was interested in grains. Corn was trading at $3.30 a bushel… and soybeans were at $6.50 per bushel. I knew they had to rise.My friend grew corn and soybeans on his farm. He explained to me how corn and soybean prices hadn’t gone anywhere for 10 years… And many of his neighbors and the locals in the town had long since given up on making any money growing crops.

He took me to see an ethanol plant a few miles from his farm. We stood and watched a bulldozer raking a huge pile of corn. Every few minutes, another semi would pull up and deliver another trailer load of corn.

This ethanol plant had just popped up. The year before, the government had banned MTBE – a poisonous chemical – from gasoline. Refiners had used MTBE in gasoline to prevent engine knocking. Ethanol also prevents engine knocking. So oil refiners started adding ethanol to gasoline instead.

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Then George Bush signed the Energy Policy Act of 2005. This new law required refiners to mix 4 billion gallons of ethanol into the gasoline supply in 2006… and 7.5 billion gallons by 2012. Energy security was the reason. Oil prices spiked in 2005 when Hurricane Katrina struck New Orleans. President Bush wanted to develop a new source of energy to protect America from future supply disruptions. He chose corn ethanol.

But the U.S. didn’t have enough ethanol. So in the first months of 2006, the ethanol price jumped, and dozens of new ethanol plants materialized to profit from the increase.

When I saw how much corn this ethanol plant was consuming and how many ethanol plants were under construction, I knew a major bull market was about to kick off in the grain markets.

Today, corn is at $7.20, and soybeans are at $16.20.

The sudden high grain prices are causing major shifts in the commodity markets. I wrote about hogs in my last column. Hog farmers can’t afford to feed their pigs. They’re selling their pigs for whatever money they can get for them. Piglets go on the farm dump.

Hog farmers aren’t the only ones hurt by these high grain prices. Expensive corn kills ethanol plants, too. I heard from my friend in Iowa recently. He told me there’s a rumor moving around the Midwest farming communities: 16 ethanol plants are about to go bankrupt. He says it will release 500 million bushels of corn onto the market.

The corn story is all over the media. There’s no one left to buy. And my friend says the corn on his farm is so green and healthy, it makes his “eyes hurt.” If all this corn floods the market at one time, the price of corn will plummet.

I’m not going to make any short bets on corn. The corn market is rising in a parabola, and there’s no telling how high it could go. But I am going to switch my attention to other sectors of the agriculture market. Like meat. Agriculture will be in a bull market for many years to come. There’s going to be a shortage of meat. Hogs and cattle are my favorite plays right now.

Good investing,

Tom

P.S. In the latest issue of International Strategist, I show readers the best way to invest in hogs… and profit from the fall in corn. I think we’ll double our money in the next 18 months. Click here to learn more.

Source: Why Corn Prices Are About to Fall… And How to Profit

Corn is the problem. The June floods in Iowa wiped out 2% of the U.S. corn crop, and corn prices spiked to more than $8 a bushel – four times the average corn price of the last 30 years. With corn at $8, it costs $150 to fatten a hog. But the meatpackers only pay $100 per hog. So the finishing farms lose $50 on every pig they raise.

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Right now, finishing farms are liquidating their herds and going out of business.

So farmers are getting stuck with piglets. When I went to Iowa a few weeks ago, I heard of farmers throwing piglets in the trash… or using them as compost. For the first time in his life, the farmer doesn’t have enough money to make his interest payments.

So the farmer contacted his lender and explained the situation. The loan officer advised him to sell all his land, liquidate the sows, and look for a job.

But Tom says this is a short-term trend. Once a shortage of hogs begins, the price of pork will follow corn to record highs. And this is when investors stand to make a big profit…

When corn goes to record highs, pork must also go to record highs. That’s because pork is corn refined. You could say a pig is just a sack of corn with four legs.

But there’s a lag. Right now, everyone’s selling hogs. The finishing operations are selling their herds, and the farrowing operations are dumping their sows. It is pushing down live hog prices.

But in nine months – when the market has worked through the excess – hogs will be in short supply. And that’s when hog prices will start setting records. This shortage will last for two years, because that’s how long it takes to bring a commercial hog operation from scratch to production.

In 1998, the last time the hog business washed out like this, live hog futures jumped from 10¢ to 70¢ in two years. I expect we’ll see something similar this time around…

The hog ETF is the easiest way to invest in hogs. It trades in London. The symbol in Yahoo Finance is HOGS.L. Experienced traders should look at the futures market. A lean hog contract trades in Chicago on the CME.

“We are in the early stages of what will become a big mess for producers” of food products, including meat-and-dairy offerings, Greg Wagner, a senior analyst at Ag Resource Co., told the Dow Jones News Service. Over the next few years, retail food prices “will rise like never before.”

This explosion in prices that’s hitting the U.S. consumer right in the pocketbook is due to spiraling global demand, a nose-diving greenback, soaring energy costs and a big surge in the price of grains that are used both to feed meat-and-dairy herds and as a raw material in ethanol, the crude-oil alternative for which demand also is escalating.

Meat-and-Dairy Prices Meet the Global Commodities Boom

U.S. consumers are finally feeling the pinch of the global commodities boom – especially when it comes to meat-and-dairy prices. Indeed, after decades in which food prices rose at a very predictable average-annual pace of 3%, U.S. consumers in the past two years have suddenly experienced the kind of food-price uncertainty that’s long been a hallmark of less-developed economies.

In the past two years, retail milk prices have spiked more than 20%, cheese has jumped by nearly the same amount, and Grade A eggs have rocketed nearly 70%. Beef, pork and poultry prices all have escalated sharply.

And don’t expect your grocery bill to go down anytime soon.

In fact, in a study released only two weeks ago, former ConAgra Foods Inc. (CAG) Chief Economist Bill Lapp predicted that food prices will advance at the record-breaking pace of 9% a year from 2009 until the end of 2012. At that rate, food costs – once 10% of the budget of a U.S. household – could rise by 40%-50% or more over the next couple of years.

Lapp, now with Advanced Economic Solutions, says the U.S. government mandate for ethanol production is “the most significant factor driving corn and other agricultural commodity prices to record levels.”

(The U.S. ethanol initiative relies on corn as a key ingredient – unlike Brazil’s very successful ethanol-fuel program, which is based on sugar cane. As Money Morning has reported, scientists in the United States and other countries are looking at ways of developing ethanol from cheap-and-plentiful prairie grasses).

The expenses that go into bringing a food product to the supermarket shelf right now represents about 19% of each dollar a U.S. consumer spends on food. Over the next five years, that number is expected to jump to 29.9%, Lapp says.

And the single-biggest expense of food production is corn.

Lapp also points out that today there is no grain stock buffer in storage—in the United States or around the world—to mitigate the explosion in corn prices, which have hit a record $7 a bushel.

Almost half of U.S. produced corn goes to feed livestock, which means the prices of meat and dairy products are highly correlated to the price of corn.

Growing global demand helped cause corn prices to escalate from less than $2 a bushel in 2005 to $3.40 a bushel last year – and then to double to nearly $8 a bushel this year. In fact, the most popular corn-futures contract hit a record price of $7.9925 a bushel last Friday, before skidding back on Monday. Even so, corn prices were up 26% in June alone, the single-biggest monthly gain in 20 years, according to Bloomberg News.

“Corn costs have doubled, from $4 a bushel to $8, while energy costs have gone through the roof,” economist Glen Langan told BloggingStocks.com. “This will force many producers out of the market”

“Only the most efficient, modern producers will survive, with a few exceptions,” Langan added. That will “easily push meat and poultry prices 20% higher or more from current level… Dairy is harder to predict, because it’s more localized, but there will be dairy price increases, too”

Beefed Up Meat & Dairy Prices

The high cost of feed has also strained the markets for such dairy-product prices as milk, cheese and yogurt. And with good reason, since 65% to 75% of dairy farmers’ production costs are for feed, Chris Galen, a spokesman for the National Milk Producers Federation, told The AP.

The USDA’s June issue of the “Livestock, Dairy and Poultry Outlook” confirms that view.

“Milk production is forecast to rise only fractionally (about 0.5%) in 2009, as higher feed costs are expected to slow growth in milk per cow and as cow numbers decline slightly,” the “Outlook” read.

Meat producers also are watching their shares get tenderized by higher costs.

Even at current prices, U.S. beef producers already have to allocate 60% to 70% of their operating budgets to feed costs, The Associated Press reported. The huge costs are putting some of the smaller operations out of business, and others are cutting back on the number of cattle they hold. Cattle futures touched record highs last month as a result.

In fact, production levels for beef, pork and chicken are all being outpaced by consumption, according to the “Livestock and Poultry: World Markets and Trade” report from the U.S. Department of Agriculture. And that has strained the bottom line of many meat producers.

“Corn is in trouble because of the wet spring that has drenched the midwest,” says Justice Litle in Taipan Daily.

Yesterday, the USDA said in a report that American corn output will be down significantly from last year’s estimate.

And that forecast was put together before the biblical drenching the Midwest suffered in the past week, when another 12 inches of rain flooded already saturated fields.

All this is sending corn futures soaring. Looking at the chart, you can see how corn has gone ballistic. Also, on the bottom of the chart, RSI (a momentum oscillator) has just given a bullish buy signal.

After this latest rainout, many corn farmers will switch to soybeans, which can be planted until the end of June with less impact on yields. And that means the corn that does grow will be much more valuable.

Jurojin already recommended our subscribers go long corn last week — after it bounced higher off of its 50-day moving average. Now, they’re racking up nice open gains, and our first profit target looms dead ahead.

Is it too late to get in on corn? Not by a long shot. We’ve seen this kind of horrible start to the crop year before — in 1993. Then, traders were slow to react to massive flooding.

The best way to play this is corn futures or options on corn futures. If you aren’t in the futures market, you could try the PowerShares DB Agriculture ETF (DBA), which tracks a basket of corn, wheat, soybeans and sugar.

“Corn is going to go higher,” says John Mauldin in his Outside the Box.

Bad weather has meant that not enough got planted, and that will probably hurt yields in the fall. This is going to mean even higher meat prices and ethanol prices. Corn ethanol is such a bad idea. This is what happens when government decides to mess with the market.

Anecdotal inflation note: I eat two chicken fajita pitas without cheese from Jack-in-the Box for lunch about three times a week (after the gym!). I throw away the pita bread and just eat the chicken at my desk. The last three days the price has been the same, but the amount of chicken is noticeably smaller, perhaps 25% smaller. Where’s the hedonic price adjustment in the BLS statistics for that? A friend of mine notes that the filet from his favorite steak house is now seven ounces instead of eight. But the steak is still the same price. Maybe portion control will finally get America to go on a diet.

Production will increase 17 percent from a year earlier to 1.78 billion bushels, the most since 1998, the U.S. Department of Agriculture forecasts. About 4 percent more acres were seeded from September to November, the agency said. Wheat prices have tumbled 45 percent from a record $13.495 a bushel on Feb. 27.

“High prices beget low prices,” said Dan Kuechenmeister, a manager of the commodities department at RBC Dain Rauscher in Minneapolis. “We’ve seen a lot of wheat planted, and we’re finally going to get a decent harvest.”

Prices will rise again, so now is a great time to invest in a livestock ETF, says Ian Davis in The Growth Stock Wire: “Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.

“So when the uptrend finally begins, how should we play it?”

Read on how to profit when this upswing kicks in with this livestock ETF.

“When the gold price rises, jewelry gets more expensive,” says Tom Dyson in DailyWealth. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF.

“Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”