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July 3, 2006
The following two maps are from the USDA and labeled as "U.S. Vegetation Condition". Basically, these satellite images present a picture of how well our crops are developing. The map on the left covers the period June 15 to June 28 of last year. The map on the right covers the same period just ended this week. The scale runs from grey/dark brown (low vegetation) to dark green (high vegetation). Most of the USA's crops are grown from the Midwest towards the East Coast. It can certainly change, but there is obviously a monstrous difference in crop development between this year and last year...and we are still a LONG way from harvest...
              Last Year 6/15/05-6/28/05                               This Year 6/14/06-6/27/06
Generally, in futures, there is nothing more dynamically bullish than the combination of agricultural markets and unfavorable weather...For what it's worth, I am not a meteorologist and Atlanta, Georgia is not the Midwest, but June, from start to finish, felt more like August...
I continue to recommend owning the four major crops (Corn, Cotton, Soybeans & Wheat) produced here in the USA. You can certainly expect volatility (witness recent sharp sell-offs in Corn and Wheat) but I firmly believe all of them will trade substantially higher over the next six to twelve months. During the next year, with demand skyrocketing, world stocks are projected to be the tightest in decades in Corn, Wheat and Cotton...While there are currently ample Soybean supplies on hand, soybeans are at $6.00, not $8.00-$9.00, and if the rest of these markets do go up, Soybeans are not going to just lie there and do nothing.
The following charts are from earlier newsletters but are worth another look....Stocks to Use Ratios give you an idea of how tight (or not) a particular commodity's supplies are...In Corn, stocks are tighter than they have been in at least 40 years, wheat at least the tightest in 25 years, and cotton for at least the last 10 years (and probably getting worse due to weather problems).
chart: Hightower Report               
China is probably shifting from being an exporter to an importer this year. This is a MAJOR development....                          
chart: Hightower Report 
chart:Hightower Report
Put all these pictures together and I think you have to own these markets. Aside from basic fundamentals, I still expect more and more of the billions of hedge fund money now in the commodity arena to be shifting towards the Corn, Cotton, Soybean and Wheat markets...and I probably don't have to tell you that all that "hot" money has resulted in more than one runaway commodity market during the last few years....I would also note I have long observed many major moves either gather steam or get started following holidays.
Here are what they all look like this morning...

All of these markets are at different stages as to how they are moving...Although Soybean Oil currently seems to be the strongest, and Cotton the weakest, there is no way to know which (if any) of them will turn into the barnburner. My basic thought is they should all be bought (use Soybean Oil in the Soy complex) which would cost roughly $4300. If any one of them does take off, and the other three end up totally worthless, you should still come out a winner...If several, or all of them, get going, the profit potential is obviously quite large...and conversely, it goes without saying, if they all go south, you will then lose on the bet. 
I don't know what is going to happen here, but if there was ever a year you could make a substantial bull case for any of these markets, this has to be one. With the USA being the world's number one agricultural exporter, and the current extremely tight world stocks situation, and what that Vegetation Condition chart looks like? If you have the risk capital, and the temperament to stick your neck out in the insanity of the futures markets, this sure looks like one hell of a good place to put your money on the table....and see what happens.
Give me a call if you want to look at the idea, or any part of it....
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