Friday, August 6, 2010

"Wheat's in a sweet spot, but run may not last"

Wheat was up again overnight and is getting close to an arbitrary number we mentioned on Tuesday.*
I've been in voyeur mode** for the last two days which meant leaving a buck on the table.
From MarketWatch:
The recent run-up in wheat prices on Russia's severe drought may seem like a flashback to 2008, but stark differences with that boom-bust period have placed today's crop of investors on even more treacherous ground.

For starters, there is no shortage of wheat in the world and deflation, not inflation, is the forefront of macroeconomic concerns. Read recent commentary on deflation.

Several top wheat-exporting countries have forecast bumper crops, and the U.S., the No. 1 exporter, is sitting on its largest stockpile of the grain in two decades.
That suggests investors tempted by the recent rally may find themselves in an even more volatile trading environment than 2008.

Corn and other grains hit records that year, supported by rising demand for corn-based ethanol, surging oil prices, and new exchange-traded funds backed by commodities - only to make spectacular drops, in some cases losing half their value.

Commodities analysts are viewing the recent Russia-related wheat spike in a much different light.
"All this means is that importers are going to have to seek another (country of) origin," said John Kleist, a broker and analyst at Allandale Commodities Research and Trading Co., a brokerage in McHenry, Ill. "We have sufficient supplies to meet demand."...MORE
*In "Wheat prices ease after Russia predicts stable exports" and "...Speculators ‘Hunt What’s Moving"" there was a quote via Bloomberg;
...Wheat futures may advance by more than 20 percent to as much as $8.50 a bushel as drought in Russia curbs supply and speculators “hunt what’s moving,” according to CWA Global Markets Pty....
I commented:
Should prices see $8.50 the opportunities on the short side would almost be a lock.
I say almost because the serious money in commodities can pretty much get prices to where they want them, at least for short periods....
And went into a slightly skewed [slightly? -ed] and abbreviated version of the Hunt bros. attempted corner of the silver market and the risks one ran should the 'commercials' take a position opposite yours.
In the case of wheat the big dogs are Louis Dreyfus, Bunge, Glencore, ADM and Cargill.
I continued:
...the head of one of the world's largest grain traders said "Those boys don't know what deep pockets are".
The "commercials" had been shorting into the Hunt bros. buying and the grain trader was at the top of the "commercial" heap....
...Bunker Hunt filed for bankruptcy in September 1988 as did his brother and Placid.

At the time the grain trader spoke it is probable that the various branches of the Hunt families comprised the wealthies "family" in America.

That's why I say "almost" a lock.
**One of my mentors could not stand indecisive traders. He loathed them almost as much as he loathed losses.
If one said about an instrument "I'm watching it" he'd bellow "You like to watch? What are you, a freaking voyeur?" Except he didn't say "freaking".
If you were asked about implementing a certain strategy and said "I'm thinking about it"  the response was "What are you, a freaking philosopher?", again substituting a different word.