Contrarian Stock Market Investing News - Featuring Bargain Stocks » soft commodities

Subtle Differences Can Double Your Money

Adam Lass — Thu, 14 May 2009 16:30:48 +0000

In a market like this one, it pays to note the subtle differences between ostensibly similar assets. For example, there are car stocks and then there are car stocks. (Yes, I am writing about cars again, but not for the whole column, honest!)

Right now you can buy shares of General Motors (GM:NYSE) with a most unusual provenance: They used to belong to GM Vice Chairman Bob Lutz, GM North America President Troy Clarke, GM Vice Chairman Thomas Stephens, and Group Vice Presidents Gary Cowger, Carl-Peter Forster and Ralph Szygenda.

You Can’t Fix Stupid

Now I know we are supposed to think of stock shares as perfectly fungible. And it’s quite impossible to know for a fact that the shares you might be buying today actually came from some GM exec’s personal hoard.

Still, there is a touch of something – I’m not quite sure what: irony? fraud? despicable contempt? – to the idea that Bob Lutz is being allowed to sell off his last $131,000 in GM shares on the open market. Surely he has some sort of inside scoop as to when GM will declare bankruptcy?

On the other hand, one must also wonder as to who on Earth would be so stupid as to buy Bob’s shares, which have actually lost another 38% since he sold them.

But You Can Buy Smart!

And then there are Ford (F:NYSE) shares. In few days, you will be able to buy 300 million shiny new shares. This has the market in a bit of a tizzy. The very idea of an American car company deliberately diluting shares in these hard times is – well – delightful, really.

Ford’s health benefit responsibilities are under-funded to the tune of a couple of billion dollars. This doesn’t exactly show up as debt on the books. If the guys at Ford’s C-suite wanted to, they could just as easily sweep the whole issue under the rug. (Heck, GM did exactly that for decades!)

But they’d rather face up to it now and get it out of the way. Did they whine? Did they simper? Did they go to the government for a cheap loan? No!

The Rich Get Richer

If you had Wall Street’s resources… their inside information… their media connections… and their financial muscle, you could make a killing, too.

This brings me to the incredible opportunity the U.S. Government has presented us. Let me tell you about it…

Do the Right Thing

They are doing what American blue chips are supposed to do: They are raising capital on the open market, and using that capital to dramatically strengthen their company.

They can do this because unlike GM shares, which are hovering somewhere around a dollar (61 cents less, by the bye, than Bob Lutz got for his shares), F shares have gone up 547% over the past few months.

Right now F is down a tad on the news of these new shares. This is pure foolishness: First of all, the inherent value of all shares will rise in the end because Ford is using the cash to retire what is, in essence, debt.

And second, Ford’s market cap is somewhere in the vicinity of $14 billion, so it ain’t but so much dilution in the first place. My advice? Ford is on the straight and narrow path, and how many American companies can you say that about these days? Buy more here at $4.75 and smile when it hits $10 this fall.

Vive la Différence!

This ability to detect subtle clues can clue you in to all sorts of wonderful opportunities. For example, the difference between a cup of coffee at Starbucks and a cup of coffee out of the coffee maker at home is a critical clue that many in the commodities biz completely overlooked.

Everyone knows about the collapse of Starbucks (SBUX:NasdaqGS). It was the canary in the coalmine for the crash of 2008. SBUX completed a double top in November 2006 (well ahead of the rest of the market) and went on to peel away some 82% over the next 24 months.

The guys who study these things figured: “No one wants a morning cup anymore, so that’s it for coffee and sugar.” Wrong again! No one wanted a $5 cup of coffee. But a 10-cent cup at home? Heck, I’ll take two, honey, with tablespoons of sugar in each.

A Sweet Ride

In the end, demand has remained high, but supplies of both sugar and coffee are coming up wildly short.

The spot price for generic coffee has climbed to $1.28/lb, making for a 22% rise since December. Still think folks have totally abandoned the good stuff? Colombian beans have hit a two-year high of $2.20.

And sugar is putting them both to shame: White sugar has risen 52% since December to its three-year high at $450 a tonne.

How to Capitalize on the Coffee Guys’ Mistakes

Now I would be the last guy to tell you to buy coffee or sugar futures, because, quite frankly, I am terrified of getting an e-mail asking what to do with the truckload of beans that just showed up.

But these are most enlightened times, and there are Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs) and Exchange Traded Notes (ETNs) for most everything these days, including coffee. The name (oddly enough) is the iPath Dow Jones-AIG Coffee Total Return Sub-Index (JO:NYSE). The fund has been falling pretty much nonstop on the idea that coffee was going to tank. But now that coffee is clearly still the drug of choice, I suspect those fortunes are about to experience a real sea change.

Last price on my ticker is $39.01 a share and quite frankly, the volume is as thin as all get out. But if a body were to enter tenderly over several days, I imagine they could enjoy quite a ride.

Source: Subtle Differences Can Double Your Money

Depressed Oil Prices Approaching Speculation of a Lifetime

Eric Roseman — Wed, 18 Feb 2009 17:15:54 +0000

From its high of $147 a barrel last July, West Texas Intermediate Crude oil prices have crashed a cumulative 74%. That ranks as one of the worst absolute declines for any asset since the onset of deflation last July as investors dump most commodities, except gold, silver and several other soft commodities.

Oil prices now trade at a five-year low.

If oil prices overshot on the way up to US$147, then the opposite is certainly true today with prices at US$36 a barrel. At some point, crude oil will bottom; the odds of a spectacular bounce occurring is highly likely as global governments spend trillions of dollars at the same time to desperately boost economic growth in 2009-2010.

China, which is the world’s second-largest consumer of oil after the United States at 9.4 million barrels per day, is now importing the lowest amount of crude oil this decade amid a softening economy. U.S. demand has also declined sharply to less than 19 million barrels per day.

Did Crude Overshoot on the way down to US$36?

According to the International Energy Agency (IEA), oil consumption in 2009 will decline to its lowest levels since 1982.

The IEA cut its demand outlook last week as the global economy continues to deflate since the fourth quarter. The Paris-based agency now projects oil consumption will decline by 570,000 barrels per day to 84.7 million barrels. Just 12 months ago, the world sat on a net supply deficit of about one million barrels.

More than any other nation, China has seen the largest spike in net oil consumption this decade. Chinese oil consumption has increased by 3.2 million barrels per day since 2000, accounting for a third of the total increase in global demand.

The Chinese are also in the midst of their biggest expansion of credit in history following the passage late last year of a US$541 billion dollar stimulus package. That spending should at least boost short-term demand for oil assuming consumption in the United States is also supported by the government’s recent passage of the $878 billion fiscal spending package.

Even the biggest bears will concede that concerted global government spending will buy at least a few quarters of economic growth later this year or in 2010 – and that should boost oil prices. Combined with additional supply cuts by OPEC and a host of cancelled exploration and development projects over the last few months, oil prices are bound to bottom shortly.

The above chart shows oil prices dating back to 1997. In 1998, amid the tail end of the Asian economic crisis and the Russian debt default, oil prices bottomed at an incredible $10.50 a barrel. Ten years later, at its peak, oil climbed a cumulative 1,300%.

I think it’s highly unlikely we’ll see 1998 prices again, unless another major bank fails or worse, a major sovereign borrower defaults in this cycle. This remains a possibility in a brutal deflationary environment.

Yet, if the time to buy an asset is when prices are low and in near disrepute, then crude oil fits that bill right now. When the time comes to buy oil, look to the oil futures or oil futures related ETFs. They’ll give you much more bang for your buck than most oil stocks.

Source: Depressed Oil Prices Approaching Speculation of a Lifetime

Gold, Silver Rocket up in After Hours, Surging Equities Help

Doug Casey — Fri, 14 Nov 2008 13:59:48 +0000

It was a schizophrenic day for gold and silver, which could do little right during regular trading but couldn’t be stopped in the after hours action.

There may have been some delayed reaction to the declining dollar and rising crude prices, or a correlation with equities markets which were off sharply (the Dow dipping briefly below 8000) before staging a late monster rally.

Analysts have no way of knowing just what they’re seeing.

Dale Doelling, chief market technician at Trends In Commodities said that “if this rally is able to sustain itself, the Dow should rally to at least the 9,500 level and I expect gold to be able to rally back above the $900 level.” But, “This is all dependent upon what happens tomorrow. If this ends up being a one-day event, all bets are off.”

There’s even a little guarded optimism out there.

“Markets, all of them, seem to be acting as if the hedge fund liquidation may have hit a cataclysmic bottom,” said Ned Schmidt, editor of the Value View Gold Report.

“With the Federal Reserve pumping funds as fast as they can, gold has extremely good fuel for a run higher [in] 2009,” Schmidt added.

But pessimist Dennis Gartman, editor of the Gartman Letter isn’t budging. “The gold market is telling us that deflation has ravaged the base metals, the soft commodities, the grains,” Gartman says, and also “telling us that depression is possible and even likely, and that deflation is the order for the day.”

Source: Gold, silver rocket up in after hours - Surging equities help

Cashing in on Commodities: Life’s Little Luxuries are Costing More than Ever Before

Jennifer Yousfi — Tue, 03 Jun 2008 12:44:56 +0000

This is the fifth installment of a new Money Morning series highlighting investment opportunities in the global bull market in commodities. Soaring prices of grains, dairy and meat have been grabbing global headlines. But other commodities have been on the rise as well.

I’m not talking about the increases in daily staples that make the front page, but those little extras that make daily life just a little bit sweeter – coffee, cocoa and sugar.

We might not need them, but we definitely want them. And inflation is putting upward pressure on the price of these soft commodities just as it is on oil and grains such as wheat and rice.

Coffee is Big Business

It doesn’t take an investment expert to realize Americans love their coffee. It’s no longer a drink just to wake you up in the morning. Starbucks Corp. (SBUX) helped create a cultural coffee phenomenon, introducing consumers to espresso drinks. Now it seems like every city street corner has its own gourmet coffee shop selling specialty coffee beverages, often for upwards of $4 a cup.

But it’s not just the extra foam on top that is making that cup of coffee cost more. The price of coffee beans has more than doubled in the past few years.

According to U.S. Department of Agriculture (USDA) data, the New York spot price for Brazil’s Arabica coffee is up 20% over last year’s annual average of 110.72 cents per pound. Just five years ago in 2003, the annual average was only 50.82 cents per pound.

The USDA said in its recent Tropical Products: World Markets and Trade report that U.S. imports of coffee and coffee products increased 14% in 2007 to $3.8 billion. Meanwhile, exports were at a record $513 million, but that’s still a huge trade imbalance.

But there’s hope for those who are looking for a cheap cup of joe before year-end. Brazil’s 2008 coffee crop is just starting to be harvested and is already forecast to be one of the best ever, producing almost 50 million bags of coffee.

“With Brazil’s larger production this year, world coffee output is expected to reach 133.25 million bags while consumption is seen at 126.0 million. If these figures are realized, it will result in an 8.25 million-bag surplus for the 2008 crop year,” wrote James Cordier & Michael Gross, Optionetics.com. “This is not a record surplus, but it should be enough to knock prices down into a new trading range for the second half of the year.”

If coffee prices head lower this year, then the buyers of the raw beans are going to be the ones to benefit. You might want to consider:

Green Mountain Coffee Roasters Inc. (GMCR): The bulk of U.S. coffee exports are of the roasted variety and this company is getting its share of that export action. It recently announced expected sales growth of 42% to 47% for its fiscal third quarter and reaffirmed its positive outlook for the full-year. Year-to-date, shares are up just a little over 1%, but are up 35% over the past five years. Green Mountain also owns the popular Keurig single-cup brewing system and sells many varieties of coffee to fit it.

Starbucks Corp. (SBUX) and McDonald’s Corp. (MCD): Starbucks will likely benefit from any dip in coffee prices. Meanwhile, McDonald’s has been aggressively entering the specialty coffee arena and is set to give Starbucks a run for its money when it comes to lattes and espressos served on the go.

The Cost of Cocoa

You may have noticed that your candy fix, much like your caffeine fix, has cost you more lately. On average, the cost of high-quality chocolate, which has a higher cocoa content, has increased over 6% in the last year, according to Nielsen data.

That’s because the cost of cocoa has more than doubled since the beginning of 2007. It can be shipped in powder, paste or liquid form and commands $2,600 per metric ton on New York’s Intercontinental Exchange, up from $1,700 at the start of 2007.

And while cocoa is certainly subject to the same conditions that can affect other crops such as poor weather conditions, the huge increase in price, at least for this commodity, doesn’t seem to be a simple function of supply and demand.

For the year ending in September, the International Cocoa Organization only expects a 51,000-metric-ton shortfall, which can be made up with existing stock, The Wall Street Journal reported.

“The fundamentals do not justify this price, and I haven’t heard of any other explanation other than [investment] funds,” said Hagen Streichert, a German government official and the spokesman for cocoa-buying countries on the International Cocoa Council.

Many analysts and management from some of the leading global chocolate manufacturing firms including Cadbury PLC (ADR: CBY) and the Swiss firm Chocoladefabriken Lindt & Spruengli AG are pointing the finger at hedge fund investments. Volatile equity markets and tight global credit markets have led funds to seek out alternative investments in commodities.

“In my lifetime, it’s an entirely new phenomenon,” Stephanie Garner, a cocoa trader for Sucden, a broker owned by Sucres & Denrees SA, on the London International Financial Futures and Options Exchange told The Journal, speaking of the sudden increase in cocoa futures contracts. “It’s to a large extent a fallout of the credit crunch.”

It’s hard for the average investor to find a pure cocoa play. There are some exchange-traded funds that focus on the price movements of cocoa, but they trade in London and aren’t open to most U.S. investors. However, Africa produces most of the world’s cocoa supply, so an ETF focused on that region could be a good choice:

SPDR S&P Emerging Middle East & Africa ETF (GAF): This ETF seeks to replicate the movement of an equity index based on the Middle East and African equity markets. The fund uses a passive management strategy to track the total return of the S&P/Citigroup BMI Middle East & Africa index.

England’s Green and Pricey Land

Merryn Somerset Webb — Tue, 27 May 2008 14:13:51 +0000

It’s all doom and gloom in the British residential property market. By contrast, farmland values are rocketing at a record pace.

In 2007 for example, prices rose by a whopping 25.3%, according to estate agency Knight Frank, posting the second-highest annual rise on record. As a result, an acre of farmland that only cost £3,000 three years ago can now fetch around £7,000, according to James Laing of Strutt & Parker.

But why has farmland – traditionally a money pit – suddenly soared in value? The obvious reason is the rising price of what is grown on it, including soft commodities such as wheat and corn. In addition, Irish and Danish farmers have helped to push prices up by buying British land in place of their own, which has now become too expensive. Irish buyers, for example, represented 4.8% of all buyers in 2007 – up from 2.5% the previous year – while Danish buyers accounted for 10.3% of purchases, compared to 9.3% in 2006. Many British farmers are also getting in on the act by expanding acreage to achieve economies of scale. This is hardly surprising when a tractor costs more than a top-of-the-range Mercedes.

Then there are the rich City workers who have been buying farmland partly as an investment, partly as a lifestyle choice and, in some cases, as a way to avoid tax – farmland owned at least two years after the purchase date escapes inheritance tax, provided it is still used for agricultural purposes. So, “it seems there has never been a better time to become a ‘gentleman farmer’”, says Emma Simon in The Daily Telegraph.

The trouble is, the best time to buy land cheaply may have passed by now. With crop prices on the up as the world clamours for food, farmers are in no hurry to exit – the proportion selling fell from 62.3% in 2006 to 58% in 2007. Farmland enthusiasts might, therefore, be best off in a broader agriculture fund, such as CF Eclectica Agriculture, or an ETF such as LSE:AGAP.

A week in the property market

• The Royal Institute of Chartered Surveyors (RICS) has predicted that house prices will fall by 7% this year, while sales will plunge by 40% if the mortgage shortage doesn’t ease.

• Savills, the estate agent, thinks house prices may drop by 25% over the next two years unless the Government intervenes.

• Estate agents now have an average of 73 unsold properties on their books – the highest number Rightmove has ever recorded.

• Rightmove announced that asking prices rose by 1.2% this month, taking the annual price rise to 2.20%, with an average house now costing £242,500. But Rightmove also conceded that this month’s figures are skewed by “discretionary spring sellers” of large homes, which actually “mask year-on-year falls in six out of ten regions”.

• The latest housebuilding figures from the UK Statistics Authority show that housing starts – new homes being built – fell 21% in the last quarter and are 24% lower than the first quarter of 2007. Completions are down 18% compared to the same period last year.

• “Nowadays, there is no money in it at all…we were completely shafted,” said home inspector Nick Cowley, quoted in The Sunday Times complaining about his fate, and that of his colleagues, after the Government delayed the full introduction of Hips.

Source: England’s Green and Pricey Land

There Is No Commodities Bubble Say Economists

Contrarian Profits — Thu, 08 May 2008 19:09:40 +0000

There is no commodities bubble, at least according to the majority of economists surveyed by The Wall Street Journal.

This from the WSJ:

Fifty-one percent of the respondents said demand from China and India was the prime factor in soaring energy prices, and 40% said demand was the chief contributor to rising food costs. Constrained supply was cited second most-often; 20% blamed supply problems for higher food prices and 15% for increasing energy prices.

“It’s a combination of demand and supply issues,” said Joseph Carson of AllianceBernstein.

“Soft commodities are now the best-performing sub-set of the commodity bull market,” says Eric Roseman in the Offshore A-Letter.

“The world’s supply is withering. The demand for these precious commodities is booming in emerging markets, while the world’s crop yields are plunging, trade restrictions are suppressing supplies and the bio-fuel craze is stealing crops for energy, rather than food.

Read on to find out about the blizzard of commodities ETFs launched over the last 12 months. These new ETFs allow both individual and institutional investors access to hot commodities like coffee, wheat, sugar and corn, to name only a few.

Food Crisis Hits America: California Food Rationing

Contrarian Profits — Thu, 24 Apr 2008 12:00:13 +0000

The food crisis — caused by sky-high rice prices and grain prices — has now hit Americans, prompting many visitors to this site to ask: Is there a rice ETF?

According to the Washington Times, “Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy.”

Meanwhile, reports the paper, “Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry.

The reports of food rationing in California come as US rice futures hit record highs.

Many smart investors are asking: Is there a rice ETF? And the internet is hopping with questions about the existence of commodities ETFs to profit from the situation.

Soft commodities are now the best-performing sub-set of the commodity bull market,” says Eric Roseman in the Offshore A-Letter.

“It’s the perfect storm for investors — especially when just about everything else in the investment world has continued to post big declines since last July.

“Commodity service-providers have launched a blizzard of commodities ETFs over the last 12 months. These new ETFs allow both individual and institutional investors access to hot commodities like coffee, wheat, sugar and corn, to name only a few.””It’s agricultural Armageddon,” says ETF expert Mike Burnick.

“The escalating food crisis is easily the biggest problem facing Asia and other emerging markets — much more troubling than the credit crunch. After all, people in these nations can do without bank loans or new credit cards, but they can’t stop eating!”

Food Crisis Worsens as Rice Prices Surge

Contrarian Profits — Wed, 23 Apr 2008 14:43:21 +0000

Rice prices have hit fresh records after World Bank officials said Thailand, the largest exporter of the grain, may restrict exports, worsening the global food crisis.

The price of rice, which has doubled in the past year, jumped 2.3% in Chicago today.

“Soft commodities are now the best-performing sub-set of the commodity bull market,” says Eric Roseman in the Offshore A-Letter.

“It’s the perfect storm for investors – especially when just about everything else in the investment world has continued to post big declines since last July.

…

Commodities Trading: Gain from Grains, Despite the Falling Dollar

Eric Roseman — Fri, 11 Apr 2008 16:14:19 +0000

No other asset class comes close to commodities over the last six years. Not stocks, not bonds, not real estate and not even most emerging markets. In fact, even during the worst credit crisis in the United States in 60 years, commodity benchmarks continue to hit new all-time highs in 2008.
Since commodities posted an historic bottom in 2001, prices for many raw materials, like grains, have literally gone through the roof.

And it’s not just in dollars, either.

As the U.S. dollar dropped versus most foreign currencies over the last six years, including the mighty euro, commodities (mostly priced in dollars), have also risen in euro. In fact, commodity prices are rising in ALL of the world’s major currencies. This justifies the bull market.

Commodities Trading: Better than stocks… better than bonds…

And although the broader commodity indices have rallied sharply since 2002, they pale in comparison to some record-breaking individual commodities. These high performers include base metals, precious metals, the energy complex and recently, several soft commodities.

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Since the bear market low of November 2001, crude oil prices have skyrocketed 440% and natural gas has rallied 261%. Copper and lead prices have surged 454% and 352%. Gold bullion has climbed 260%. Silver has gained a cumulative 396% and platinum has surged 407%. Read on to learn more.

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Farmers Are Lovin’ this Global Struggle for Food

Mike Burnick — Fri, 04 Apr 2008 21:17:38 +0000

Right now, countries around the world are facing food shortages. There’s just not enough to go around, when prices of corn, soybeans, rice and other basic staples are soaring in price.

Agricultural commodities have been stellar performers in recent months, while commodities soared as a whole. However, increased volatility has crept into the grain markets here too. But there’s good reason to believe that any downside in soft commodities will be limited by the fact that we are in the midst of a global food crisis.

Yesterday, rice prices jumped to fresh record highs, and corn traded near its highest level ever. Soybeans and wheat also advanced strongly. Bloomberg reports that “Indonesia, the world’s third-largest rice producer, may join China, India, Vietnam and Egypt in curbing exports to secure domestic supplies.”

What we’re seeing now is nothing short of a full-scale global power struggle to secure valuable food resources which are growing scarce. Rice for example is the staple food for about three billion of the world’s people, mostly in poorer, developing nations. Since 2005, the prices of food staples (including rice) have soared 80%.

This is triggering sharp inflation spikes throughout the developing world – which in turn has sparked troubling social unrest. Consumer prices in China rose 8.7% in February to an 11-year high. Inflation in India is at a 13-month peak.

The United Nations is warning that “36 countries, including China, face food emergencies this year, as stockpiles of grains such as rice drop to a 26-year low.” The World Bank points to social unrest in 33 countries around the world because of “the acute hike in food and energy prices.”

Of course population growth, along with rising living standards around the world, is one of the key “demand factors” most often cited for soaring food prices. Another factor to keep an eye on is soaring input costs – which is keeping upward pressure on prices from the supply side too.

U.S. farmers, for instance, are paying much higher prices for diesel fuel to power their combines, nitrogen fertilizers to nurture their crops, and livestock feed. In fact, while commodity prices received by farmers jumped 17% year over year in March – the costs incurred by farmers to grow grains and livestock soared 11% over the same period.

These higher “input costs” will inevitably get passed along over the next few months in the form of…you guessed it: Even higher agricultural commodity prices.

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. My colleague, Eric Roseman, will be hosting a special FREE teleconference next Thursday at 12 noon EDT to show you exactly how to pad your commodity portfolio as this global struggle for food continues. It’s absolutely FREE to join us. Simply click here to let us know you’ll be listening in next Thursday.