Since many of these commodities are real physical products that we use for consumption purposes, it’s no surprise that these markets rise in price whenever investors suspect an oncoming deficit.

Specifically, grains and other foodstuffs are at the mercy of Mother Nature from the time they are being planted until they can be brought to market. Right now is one of those critical periods, and with that in mind, we’re going to discuss the sectors that are most volatile during these summer months.

Get Going With The Grains

Applied to the commodities market, “the grains,” consist of corn, wheat and soybean futures and options contracts. We see the most speculative interest in these markets from all kinds of participants as what happens often happens fast, with big rewards for those people who know how to play it right.

From May to October, the grains go through their most critical growing cycles, when they rely heavily on ideal weather conditions in order to produce the most bountiful crops.

Of course though, we all know the weather doesn’t always remain ideal just because we ask it to.

And even when the sun does shine when it’s supposed to and the rain falls perfectly on schedule, there’s usually one reason or another to forecast doom and gloom… a shortage of one element, an over-abundance of another, factors that can hinder the crops from meeting their full potential.

Those same variables that have farmers tense and impatient during the summer months, give investors plenty of opportunities to profit though, as the uncertainty more often than not leads to manic moves in the market.

Why The Bulls Are Set To Run Once Again

Most of the speculators who play these markets are bullish in nature, so a majority of them are placing bullish bets, either in the form of outright long futures contracts or long call option contracts.

Right now might be one of the best times to get into the grain markets on the long side. Not only are we right smack in the middle of summer – a season known for it’s weather anomalies – but the prices of corn & wheat have just undergone a five-week massacre to the downside.

With corn and wheat futures hitting very oversold levels, it makes your chances of being profitable with a bullish trade, that much more probable.

If you need further proof, take a look at the daily charts below of December 2009 corn & wheat futures contracts.

Notice how each commodity appears to have fallen off a cliff since early June. This was due to the most recent government supply/demand data showing sizable supplies and planting intentions for each.

Their Panic Is Our Profit

Over my 17 years in the commodity business, I’ve found that nothing can get in the way of a bull run whenever there is a perception that a crop will get wiped out if growing conditions aren’t perfect. It happens every summer, and this one shouldn’t be any different.

If you’re on board with me in this and want to take part of the speculative fever, then your best bet is to go with options contracts that trade on the floor of the Chicago Board Of Trade (CBOT). Stick with limited-risk call option strategies that are for the December 2009 expiration cycle or beyond, as they provide enough time for any major weather scares to still produce a good upside run.

You can look at the December 2009 corn options with strike price levels from $3.50 and higher. And use the December 2009 options that have strike prices of $5.50 and higher for wheat.

Outright call option purchases and call option spreads are a great way to get your feet wet in these markets.

Soybeans, which probably see the most volatile moves during the summer, did not get hit as hard to the downside recently as corn & wheat, so the advantage isn’t as high in that product right now for bullish bets.

Although soybeans could rise as well with any weather interruptions, we like the chances better with corn & wheat.

Orange Juice Futures Could Still Climb Higher

On a final note, I want to draw your attention back to the analysis we did on the orange juice market in the last Commodities Corner.

Right on cue, orange futures have blasted higher in the last few sessions to the tune of 1800 points, putting any recent call option purchases from last week squarely in the black.

This market could remain active over the next few months as the weather, in the form of hurricanes, can send this market to dizzying heights.

Good trading!

Source: How To Play This Government Report And The Ensuing Commodities Craze

Felipe Reis, an analyst for Banco Santander SA (ADR: STD), yesterday (Monday) slashed his target price for the U.S.-listed shares by more than half, stating that the worldwide outlook has become “more challenging.”

Reis, who previously had placed a year-end 2009 price target of $40 a share Vale’s U.S.-listed American Depository Receipts (ADRs), now says the shares of the Rio De Janeiro-based mining-and-metals heavyweight will trade at $18 at next year’s close. If you’re keeping score, that’s a reduction of 55% from his prior target. But it still represents a 59% gain from yesterday’s closing price of $11.32 a share.

”We are adjusting our estimates for Vale in order to reflect the more challenging scenario in the commodities market,” Reis wrote in a research missive, noting that the reduced target price takes into account “the significant global economic slowdown.”

In related news yesterday, Merrill Lynch & Co. Inc. (MER) cut its 2009 economic-growth forecast for Brazil to 2.9%, from a previous estimate of 3.1%, as the lagging effect of scarcer credit may be deeper than thought.

The Brazil exchange-traded fund, theiShares MSCI Brazil Index (NYSE: EWZ), was the focus of a recent Money Morning “Buy, Sell or Hold” column, and soared as much as 42% in six days after it was recommended as a “Buy.”

Source: Hot Stocks: Despite Lowered Target, Vale Still Poses Potential 59% Gain, Analyst Says

Editors Note: “Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the sixth installment of this ongoing investment series.

More from Bloomberg:

The dimming outlook signals consumer spending, which accounts for more than two-thirds of the economy, will deteriorate further, deepening the U.S. slump.

“The economy feels like it is contracting at a rapid pace,” Lewis Alexander, chief economist at Citigroup Global Markets Inc. in New York, said in a Bloomberg Television interview. “It’s clear that consumers have really been affected by the volatility we’ve seen in the last six weeks.”

The report underscores voter discontent with the country’s direction heading into the Nov. 4 presidential election. A majority of voters think Illinois Senator Barack Obama, the Democrat, will be better able to handle the economic turmoil than Republican rival John McCain, according to polls.

The Daily Reckoning’s Bill Bonner warned yesterday how the crisis that started on Wall Street was rapidly spreading to businesses and consumers all across America.

The next stage will come when consumers go on a rampage of thrift. Credit cards will go in the trash. Malls will be silent. Sales clerks will fall asleep on the job – and then be fired. Higher unemployment. More foreclosures. More bankruptcies.

And when Americans don’t shop, it will be products Made in China that they aren’t shopping for. That’s why the depression will be worldwide – the first ever.

“China, India, Brazil and Russia (the BRICs), the biggest emerging economies, export most of their products either to each other… or to the developed economies [mainly, the USA],” continues La Prensa.

Yes, Dear Reader… our “Crash Alert” flag is still up – even though the stock market, the housing market, the financial market, and the commodities market have already crashed. But now, there’s another flag up on our mast, a black flag. On it is a white duck laying on its back with its feet up in the air.

It is our way of warning you: “Global Depression Alert” it says at the bottom.

.

If you thought the big money in commodities had run its course, think again. Right now, a desperate search is underway to locate supplies of the world’s newest commodity.

It’s so scarce that dealers won’t reveal to anyone where they score their supplies. But thanks to my inside contact, I’ve discovered the inside scoop. Now it’s your turn to get there first and easily triple your money!

I’ve recently identified this unique “black market” commodity situation, and if you are one of the first to jump on this opportunity you could see your investment grow exponentially. Allow me to explain…

You see, the blazing-hot commodity I’ve uncovered is in a brand-new part of the raw materials sector is desperate to get a hold of… but simply can’t find a healthy enough supply.

The little-known commodity is vital to many multibillion-dollar corporations’ bottom lines. Names like BHP, La Forge and Rio Tinto all stand to lose billions of dollars each month if they can’t replenish their supply NOW!

The Commodity Crisis You Won’t Hear About on CNBC

You’ve heard about skyrocketing oil prices, and $2,000 gold predictions. In short, we are in the middle of a massive global commodity boom.

But this new crisis is one few have heard about. This precious information has been kept under wraps by these companies because of the fierce competition for their dwindling supplies. In fact, the shortage of this commodity is getting so critical, industry insiders fear a dangerous black market is looming.

Thanks to my global network of contacts, I’ve managed to pinpoint the absolute best way to play this new commodity crisis. With classified information from one such well-placed contact, I’ve just uncovered a document that could be worth a substantial amount of money to this company I’m about to recommend… which could, in turn, mean a massive fortune for you.

Because you’re a valued Taipan Daily subscriber, I wanted to get this information to you before it hits the mainstream media. That way, you can get in first and enjoy a very lucrative ride.

This is an extremely time-sensitive situation, so let me give you a quick overview of the opportunity…

Secret Location Revealed!

I just received an overnight delivery of a packet of information, sent to me by my trusted source, which reveals the location of a vast reserve of this new “black market” commodity. It is certain to give one of these companies a giant leg up on the competition.

The fantastic news is that the company I just uncovered is set to make a killing and could deliver early investors a 127% gain in the next few months.

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In just a moment, I’ll tell you how to get your hands on this report. But first, let me fill you in on more about this situation…

This won’t be the first time a commodities stock has delivered huge gains. In fact, commodities stocks have been on fire for the past two years:

• Consol Energy (CNX:NYSE), the No. 1 play on coal mining, skyrocketed 140% since the beginning of 2006!
• Freeport McMoRan Copper & Gold (FCX:NYSE) shot up 119% since 2006!
• Kaiser Aluminum Corp. (KALU:NASDAQ) jumped 65% since 2006!
• Randgold Resources Ltd. (GOLD:NASDAQ) exploded returning a hefty 200% since 2006!

And now it’s about to happen again with the commodity company I’ve discovered.

Your Last Chance to Receive This Urgent Information

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Source: Beat the ‘Black Market Commodity Crisis’ With This Little Known Resource Gem

Recently, at a party in New York, I mentioned that I had been talking to various groups in the United States and Europe about investment opportunities in the commodities market. Before I could get out one more word, a woman interrupted me. “Commodities!” she exclaimed, with the kind of incredulity in her voice that Manhattanites reserve for people moving to Los Angeles. “But my brother invested in pork bellies and lost his shirt. And he’s an economist!”

Everyone seems to have a relative who took a beating in the commodities market, and this fact (or fiction) is considered sufficient reason that no sane person would ever risk playing around with such dangerous things. That this particular victim was also a professional economist makes the warning seem even more ominous. I, however, couldn’t help laughing.

Billions of dollars are invested in the commodities market every day. Without the commodity futures markets, many of the things that you depend on in life, from that first cup of coffee in the morning to the aluminum in your storm door to the wool in your new suit, would be either scarce or nonexistent, and certainly more expensive.

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There are several other bromides out there for why “ordinary people” should not invest in commodities, and I want to lay these myths to rest, once and for all, so that we can get on with the more interesting business of how you can begin to make some money investing in the next-generation asset class.

About That Relative of Yours Who Got Wiped Out — He was inexperienced. You can learn. Most likely, he was buying on thin margin — the minimum deposit a broker requires to take a position in a particular commodity — and when the market went against him he lost big-time.

Here’s how it happens: Like stocks, commodities can be bought on margin. Unlike stocks, however, where by law you have to put up at least 50 percent of the price of the shares, the margins on commodities can be even lower than 5 percent: You can buy $100 worth of soybeans for $5. If soybeans go up to $105, you’ve doubled your money. Beautiful. But if soybeans go down $5, you’re wiped out. Not so beautiful.

Experienced, smart speculators can make tons of money buying on margin. They also know that they can lose tons, too. But they can usually afford it. Your relative was in over his head. If he had bought $100 worth of soybeans in the same way that he can buy IBM — for $100 (or maybe even $50) — he would be happy when it goes up $5 and a lot less sad should it go down $5.

Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy. But if you read your history you’ll discover that technological advances are as old as history itself: The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from U.S. ports around Cape Horn to Hong Kong in 80 days; within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power; and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet — and prices in the commodities market still went up.

In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor — and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets.

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When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn’t enough prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear.

“But My Stock Broker Tells Me That Investing in Commodities Is Risky.”

Tell me again about all those Cisco shares you owned back in 2000. Or JDS Uniphase, or Global Crossing? So many risky stocks made the turning of the new millennium a not so happy time for many, who watched their portfolios evaporate.

If you do your homework and remain rational and responsible, you can invest in commodities with perhaps less risk than playing the stock market. You don’t need me to emphasize that investing in anything is a risky business. But let me point out something that you might not have realized: There has been more volatility in the NASDAQ in recent years than in any commodities index. Cisco, Yahoo! and even Microsoft have been much more volatile than soybeans, sugar, or metals. Compared with the risk record of most tech stocks, commodities look safe enough to be part of any organization’s “widows and orphans fund.”

And let me remind you of one more important difference between commodities and stocks: Commodities cannot go to zero, while shares in Enron can (and did).

Regards,
Jim Rogers

Everyone seems to have a relative who took a beating in the commodities market, and this fact (or fiction) is considered sufficient reason that no sane person would ever risk playing around with such dangerous things. That this particular victim was also a professional economist makes the warning seem even more ominous. I, however, couldn’t help laughing.

Billions of dollars are invested in the commodities market every day. Without the commodity futures markets, many of the things that you depend on in life, from that first cup of coffee in the morning to the aluminum in your storm door to the wool in your new suit, would be either scarce or nonexistent, and certainly more expensive.

To be sure, investing in anything has its risks. A lot of Ph.D.s in economics lost money in the dot-com debacle, too. (On New Year’s Day in 2002, the Wall Street Journal published its annual survey of economists for the upcoming year. Although the economy had been sagging for almost a year, not one of the 55 economists thought that it was in for a serious decline. One hundred percent were wrong – and proof that Ph.D. economists are as prone to mob psychology as the rest of us.)

There are several other bromides out there for why “ordinary people” should not invest in commodities, and I want to lay these myths to rest, once and for all, so that we can get on with the more interesting business of how you can begin to make some money investing in the next-generation asset class.

About That Relative of Yours Who Got Wiped Out – He was inexperienced. You can learn. Most likely, he was buying on thin margin – the minimum deposit a broker requires to take a position in a particular commodity – and when the market went against him he lost big-time.

Here’s how it happens: Like stocks, commodities can be bought on margin. Unlike stocks, however, where by law you have to put up at least 50 percent of the price of the shares, the margins on commodities can be even lower than 5 percent: You can buy $100 worth of soybeans for $5. If soybeans go up to $105, you’ve doubled your money. Beautiful. But if soybeans go down $5, you’re wiped out. Not so beautiful.

Experienced, smart speculators can make tons of money buying on margin. They also know that they can lose tons, too. But they can usually afford it. Your relative was in over his head. If he had bought $100 worth of soybeans in the same way that he can buy IBM – for $100 (or maybe even $50) – he would be happy when it goes up $5 and a lot less sad should it go down $5.

Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy. But if you read your history you’ll discover that technological advances are as old as history itself: The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from U.S. ports around Cape Horn to Hong Kong in 80 days; within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power; and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet – and prices in the commodities market still went up.

In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor – and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets.

Even a revolutionary technological breakthrough in a particular commodity-related industry will not necessarily lower prices. For decades, drilling below 5,000 feet or offshore was virtually impossible. Then in the 1960s the Hughes diamond drill bit was invented and an explosion of technological advances in oil drilling and exploration followed. Drilling efficiency – and oil deposits – were available that had been unthinkable before this technological breakthrough. Soon there were wells 25,000 feet deep and offshore oilrigs multiplied around the world. Yet oil prices went up more than 1,000 percent in the 15-year period between 1965 and 1980.

When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn’t enough prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear.

“But Isn’t It Only Speculation and the Lower Dollar That Are Inflating Prices?”

Certainly, speculators who jump in and out of commodities can push up prices. And the dollar has been a pale remnant of itself – down against the euro almost 40 percent from the beginning of 2002 until the start of 2004 and at a three-year low against the Japanese yen. Since commodities are traded in dollars, a weak dollar will make prices appear higher. Crude oil rose 64 percent in dollars over that two-year period, but only 16 percent in euros.

But the dollar strengthened in the spring of 2004, and a funny thing happened: Commodity prices kept going up. The global recovery, particularly in Asia, was for real. We are now watching a fundamental structural shift in commodities markets, and it is called “supply” – and “China,” a nation that will be consuming extraordinary supplies of all kinds of commodities for years to come. I will explain why in more detail in a later chapter. For now, however, here’s the story: dwindling supplies and increasing demand.

And the dollar has nothing to do with either. Let me also re-mind you of the 1970s, when inflation in the U.S. was about 10 percent a year, the dollar wasn’t buying anywhere near what it used to, and the economy was in a major recession – and commodity prices kept rising. We’re talking another long-term bull market in commodities, and neither speculators nor a weak dollar can make that happen. Speculators can have a short-term effect only. For example, if they drive up the price of oil artificially, oil producers with excess supplies will gleefully dump their oil on the market driving the price back down. Both the dollar and speculation can have a marginal effect, but the market itself is bigger than they are.

–Yet central banks faced with deflating asset prices bubbles and illiquidity in inter-bank lending markets can’t just sit around and do nothing, now can they? But when lowering short term interest rates no longer has the effect of adding liquidity to the system, what can you do? That’s where quantitative easing comes in.

–The Bank of Japan engaged in quantitative easing to try and inflate Japan out of its decade-long deflationary spiral. It worked, sort of (although the results aren’t really in yet.) Could the Fed do the same thing and what would the consequences be?

–First off, the Fed funds target rate is 2.25% and the discount rate 2.50%. So we still have 225 basis points to until zero. But trouble in the credit market persists.

–Remember that Primary Dealer Credit Facility (PDCF) the Fed set up for Wall Street investment banks to borrow from? Who could forget it really? In the week ended April 23, borrowing from that cash take-out window averaged $US10.73 billion…per day. No wonder financial stocks had a good week on Wall Street

–And what about the Term Securities Lending Facility? Remember that one? That’s where primary dealers can exchange dodgy mortgage-backed debt for the Fed’s not-so-inexhaustible supply of U.S. Treasuries for fixed periods determined at an auction. Total borrowings from that Facility are just under $US160 billion. The Fed offered another $75billion in Treasuries this week. $59 billion worth were scooped up.

–How is the Fed’s supply of Treasuries holding out? It’s got about $548 billion to go. Will this be enough to sustain financial institutions that keep reporting surprise losses? Hmmn.

–In quantitative easing, the Fed would target longer-term interest rates by abandoning its clever pretence and simply printing brand new money to buy bonds and bank assets. This is a bare-knuckled banking attempt to restore “liquidity” to the financial system. Despite the Fed’s best efforts, this is still evidence that the credit markets aren’t quite right. There was a spike in the over-night rate banks charge each other to borrow (LIBOR) late last week.

–Our point? The credit crisis is still very much alive and unwell. It’s just going on behind closed doors. This gives the stock market the cover to behave as if everything is okay. We report. You decide.

–By the way, it’s obvious that further rate cuts by the Fed and quantitative easing would be unwelcome by central bankers in Europe, who rightly fear inflation more than deflating asset prices. Dollar rallies should be viewed with deep scepticism. But even the greenback will get a break every now and then. Traders in gold are taking profits…and probably waiting for the next wave of the crisis to break. It will.

–Speaking of which, new home sales fell to 17-year lows in America. The decline of 8.7% from the month before was worse than expected. But the truly disappointing news is that median prices for new homes fell 13.3%, the biggest decline in 40 years. And get this, sales were 36% lower than March of last year.

–Ouch. The lower price is good news in the sense that we’re closer to a “clearing price” at which some new buyers would begin thinking of getting back in the market (if they can get a mortgage from the newly-stingy banks). But with inventories of homes sufficient to last 11 months at the current rate of sales, sellers still outweigh buyers by a lot.

–The worry now is that declining median prices for new and existing homes drag more mortgage holders under water. That is, folks who are making their mortgage payments just fine right now may nevertheless see the value of their asset dipping below the value of the mortgage. What will they do then?

–While America’s housing-based economy slowly dis-integrates, we have the strange spectacle of Chinese students being bussed to Canberra to drown out and obscure pro-Tibet protestors at the Olympic torch relay. One Empire falls away into disrepair. Another one rises.

–This whole torch relay has become a bit of farce, hasn’t it? But we admit it’s an entertaining one. Did anyone really think that Chinese people would enjoy having their government and their games bashed by the foreign press in a systematic fashion as the torch makes its way around the globe? They are reacting in exactly the way you would expect of a nation whose pride has been insulted, with anger.

–This offended national pride is irrational and thus very common. When we trotted around the globe in 2003 doing research for our book the Bull Hunter, we found that every where they went, people were proud of where they came from. Most thought that there country was the greatest country in the world. France, England, Japan, India, China and of course America…every one of them has a myth of national greatness that makes people stubbornly and stupidly defensive of their moronic national politicians. What a fraud.

–Just why people confuse the goodness of a people with the greatness of national government is a mystery. Perhaps it’s simply a tribal pride thing. Governments shamelessly manipulate this sense of wanting to belong to something greater. And so the Chinese are notifying the world that not only are the Olympics the achievement of a great nation and a great people, but you had better respect that. There’s no “or else,” at least not yet.

–Australians, to their great credit, do not seem to engage in this national greatness kind of chest thumping. Even today, on ANZAC day, we note as an outsider that it’s seems less like a celebration of abstract patriotic national values and more like a celebration of the sacrifices people make for one another when they are swept up in events over which they have no control. At least that’s how are choosing to interpret it.

–”China told to shelve mine deals,” reports Jennifer Hewitt in today’s Australian. That’s interesting. “At least 10 Chinese companies have withdrawn foreign investment applications to buy into Australian resources companies after pressure from the Rudd Government. The Government has in recent weeks made it plain privately that it wants more time to consider the issue of the national interest in terms of ownership of the Australian resources industry.”

–Resource nationalisation happens, even in free markets. Will it happen in Australia? Well, the resources aren’t much good to the national economy if you don’t create jobs to mine and produce them so you can sell them for export income. But perhaps the Rudd government has a point it would like to make about the emerging character of the Chinese-Australian relationship. We have no idea what that point would be. But, “back off” would appear to be part of it.