November 25, 2009

Here are a few interesting charts…

Tight supplies and speculative buying led to record soybean prices last year. Those prices are now leading farmers to plant record worldwide soybean acreage production in the coming year, with global  acreage increasing by almost 19%...That increased acreage should result in supplies being anything but tight though 2010 as can be clearly seen on the chart below…

There are ALWAYS soybeans left over at the end of every crop year…The Stocks to Usage Ratio presents a picture of what percentage of annual consumption those “ending stocks” are expected to be. If that percentage is low (meaning not much left in storage as you await the new crop to be harvested) this would be an influence toward higher prices…Conversely, if that percentage is high (meaning there will plenty of beans still in storage, that is, NO tight supplies) this would be an influence toward lower prices…

 

To be clear, in the 2006 crop year, the Stocks to Usage Ratio was the highest ever and Soybeans spent most of that year trading between $5.50 and $6.00 a bushel…For the 2009 crop year (begun in September) this Ratio is estimated to be the second or third highest on record…And I maintain that, sooner or later in the next 3-6 months, this simple fact will have resulted in Soybeans, Soybean Oil and Soybean Meal all having traded SHARPLY lower from current levels.

 If you want to make further comparisons, here’s a chart of Soybeans for the last 20 years…

 

On another brief note…Gold

 

Here is some technical chart voodoo type analysis…

Charts are a tool in trading. They do reflect the meeting of buyers and sellers and there are very good reasons why some of the classic, almost identical formations can be found over and over and over in all of the markets…And while I am fully aware that using technical analysis to determine the all important, “what comes next”, is by no means an absolute, infallible “science”, I do believe the charts can lend valuable perspective.

Last spring I began to notice that Gold was almost the mirror image of several major charts I remembered from the past (some people can recall football scores, I have charts stuck in my head), one being prior to the Bond market collapse in 1986-87, and the other, much more recently, being the Dow leading up to its crash from the 14,000 area several years ago.

Here is the comparison…

The time frames are different…The Dow is a monthly chart going back some 10 years, while Gold is on a weekly basis going back about 3 years…but if you visually trace their movements, the similarity is quite obvious…Perhaps this is coincidental, but there is also the distinct possibility, that, after a very long period of new all time highs being rejected many times, when each of these markets finally did break free into new highs, what was created was that final “unanimous certainty” by the masses of each market being a “buy”; this doesn’t mean they have to think it’s a buy right now (after jumping $200 in the last 7 weeks, it would obviously have many traders calling it “overbought”), but they DO all finally get on board with the story, and they all DO consider any downward movement as a “retracement”, an opportunity to “buy” (ESPECIALLY when they hear stuff like the GOVERNMENT OF INDIA just bought 200 tons and are wanting 200 more!)….when it fact, the whole game is actually over and the gold market may actually be heading back to $500-$600 an ounce…Hoards of investors will sit on the ETF’s, gold stocks and/or coins they buy as the market dribbles lower, thinking this is only a “pullback” in a bull market because the all the opinion out there makes so much sense…But unfortunately, the “pullback” will turn into something far, far nastier than they’d ever imagined…

I don’t know if gold is “done” yet…Per this chart perspective, there is an argument for seeing the market “sit around”  up here for a while (same as the Dow did before it started down),  but I do very much believe the next big percentage move in Gold is on the downside…with a target, for starters, at somewhere around the $750 area.

I do have many more reasons for my opinion other than this amateur chart stuff, but I’ll save them for another day (thank you, Bill). I will quickly note that, more often than not, the money is made in commodities when the investing world is “surprised” in one way or another…And let’s face it, as I’ve said before, when you’ve got hucksters on TV telling you, “Now is the time to buy”, the biggest “surprise”  (to the masses/talking heads) would NOT be gold at $1500…It would be exactly the opposite.

Happy TG to you all,

Bubba

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