Email of the day (2)
"I wanted to first of all thank you for the wonderful work you provide us with, which is most insightful. I have been a successful trader for many years but struggled last year until I changed some of my research and joined your web site.
"I wanted to touch on 2 commodity related issues - firstly you mentioned expecting platinum to rise now that palladium had done so. In fact I think we are moving away from a situation where all commodities rise in tandem, and we need to be more selective. Consequently I would urge your readers to read up on the supply/demand issues relating to palladium and platinum (via for example a simple Google search on "palladium supply demand 2013". You will see that there is likely to be a significant deficit in palladium for the next 5 years which should propel prices higher. The same is not true of platinum which is roughly in balance and therefore one would not expect a similar bounce in price.
"The main reason for writing is that I am at a Moneyshow in Orlando and am hearing some compelling reasons for buying agriculture/grains. Apparently China is becoming a major importer of most of grains and this is likely to continue, esp given the rise of the middle class which you cover, and their propensity to each meat. Global supplies are at all time lows as a result of droughts in Russia, US and Australia within the last few years, likely related to climate change, although since this is an emotive subject we can at the least state that droughts and disasters are very clearly on the rise statitistically. Further I have been told that the water level underground in the US are no longer being replenished at a sustainable rate. Apparently Phosphor will run out within 30 years. This is the major ingredient in fertiliser. These last 2 points I have been told but not verified yet.
"Further of course population growth continues, and a respected trader Dennis Gartman gave a speech saying that China was buying many agricultural products any time they dip, such that negative news does not cause corn or cotton to drop in a big way in price, and thus provides a safety net. However I do not follow religiously weather patterns across the globe and so have always been reluctant to buy the soft commodities. I wondered what your opinion was and esp whether there are etfs or soft commodities (thru IG) that one could buy. I am wary also of rolling forward contracts in these things which are usually expensive. I have been advised to buy cotton, corn, and an ETF JJG which comprises soybeans, corn and wheat and is currently breaking out of a correction. Any thoughts would be most welcome, and thanks again for your excellent daily comments by both you and Eion. Keep it up!"
David Fuller's view Thank you for your generous feedback
and long may your trading success continue.
I certainly agree that we moved away from a temporary environment when all commodities moved higher, as one can easily see on the unweighted CCI Index, which had an important peak in April 2011, and what looks like a potentially important low in June 2012.
I think you are currently right about the supply perceptions for palladium versus platinum. However, these factors are in a constant state of change, as you will have seen in the article above, mostly on a gradual basis but sometimes much faster due to events. For instance, a lengthy mining stoppage in South Africa, while seldom a probability, could certainly create at least the fear of a platinum shortage.
Also, Eoin and I pay attention to what Fullermoney has long described as commonality. Briefly for now, we feel that related items such as precious metals are often easier to predict than individual items, because there can be a herd instinct. For instance, if platinum follows palladium higher, and I think it will, then behavioural thinking will most likely cause traders to become more bullish of the sector's current laggards - gold and silver. (Note: a Search of this site, upper left, fourth item down, will produce 283 mentions of commonality, a few of which will be more lengthy discussions.)
I think some of the presenters in Orlando, where I spoke a few years ago, are hoping for a '3-peat', as they say. We have been in a mostly bullish commodity cycle for most of this century, as we can all see on the CCI chart above. Eoin and I are hoping that crude oil has peaked, at least in real terms, but grain supplies are low, as you point out, and crops too often in the mischievous hands of weather gods. China's most recent winter was particularly severe and rulers in dictatorships fear food shortages more than many other threats. Also, the unprecedented printing of major fiat currencies continues. By coincidence, I was saying to Eoin this morning that I am more concerned about another outburst of commodity price inflation, now that CCI is firming once again, than Europe's ongoing problems or most of the other headline stories.
Re your last points, I think it is incredibly difficult to predict the weather, beyond the banal - 'bad stuff will happen'. There are a few weather-obsessed analysts in the Collective, and I mean that kindly, who are quite good regionally in terms of persistent conditions such as droughts. However, few of us have the time, patience or diligence for such studies. I try to listen but mainly prefer to look at price charts. If I bought any of the commodities you mention in conclusion, it would be cotton because the price is relatively low and it appears to be base building (see also Eoin's comments, below).