Agora Financial’s Rude Awakening

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Dubai, UAE

• The real drive behind soaring commodities and how you can grab a piece,
• Planting reports from the world’s food basin – what you need to know,
• From Minneapolis to the Middle East with Kevin Kerr, your “guest pass” to a secret “millionaire’s Market” and plenty more…

Joel Bowman, from Abu Dhabi in the Persian Gulf, reports…

“Global wheat stockpiles are at 26-year lows and U.S. wheat stocks are at 59-year lows,” Kevin Kerr of the Resource Trader Alert told your editor as we cruised down Sheikh Zayed Road here in Dubai this morning.

“We’re looking at some real shortages here with a demand that is nowhere close to waning,” he continued. “Similarly, soybean stockpiles are at multi-decade lows and, as you know here in this part of the world, global rice stockpiles are at their lowest levels since back in the 80s.”

While Kevin admits that some of the drive in soft commodities, or “ags,” is due to speculative money, he sees real demand pushing prices higher in the future. And where there is real demand, Kevin informed us, there is real opportunity.

“But it’s not as easy trading these markets as it used to be,” Kevin continued as we whizzed by the Burj Dubai, the world’s tallest building. “Prices have ramped up and people are finding it harder and harder to know where to place their bets without losing their shirts in the process.

“Personally, I like to use options to play the commodities so that I can limit my downside. This year we’ve had some stunning plays in the Resource Trader Alert, but I wouldn’t recommend those getting started rush in without knowing exactly what they’re doing. Volatile markets can be brutal, but they can also deliver spectacular returns if you know what you’re doing.”

We were returning to Dubai after a conference up in the UAE capital of Abu Dhabi at which Kevin addressed a bunch of mega-fund managers. These guys run tens of millions of dollars and wanted Kevin’s inside track on how to put some of their money to work in the markets he’s traded for over two decades.

We asked Kevin to lend us a few more thoughts on the opportunities ahead for this year’s profit season. His comments are below. Enjoy…

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——————————————–

The Food Crisis, A First-Hand Report
By Kevin Kerr

I am racking up the frequent flyer miles this year. My travels in 2008 have taken me to exotic locales like Singapore, Hong Kong and Dubai, as well as somewhat less exotic locales like the American Midwest. But guess what, the Midwest is the place that’s making the headlines in Singapore, Hong Kong and Dubai. The soaring price of agricultural commodities like wheat, corn and soybeans is one of the biggest news stories on the planet right now.

But ag commodities aren’t just a huge news story, they are also one of the most exciting trading opportunities of 2008 and beyond.

Whether my travels take me to the Middle East or the Midwest of the U.S., the stories are very similar. Most people are concerned about the rising costs of agricultural commodities. And they should be. The commodity boom is real. It is not a bubble, no matter how many folks wish that it were.

In fact, now you have all of these dollar bulls coming out and saying that the worst is over for the dollar and that the commodity bubble will soon burst. They say that the commodities markets are simply speculator-driven. I disagree. Do you remember as a child wishing for something, wishing so hard, yet it didn’t come true? Wishing for something to happen does not mean it will be so. (I never did get that red bike.)

The dollar will probably bounce a little higher, but the same problems that drove the dollar into the basement will persist, and even worsen. The Fed can’t just snap its fingers and wipe away a credit crisis with some stimulus checks. Too many folks are subscribing to the idea that the consumer will somehow come to the rescue and spend our way out of recession. That’s pure fantasy.

The hope that the commodity bubble will burst is also a fantasy. The fact of the matter is that we are in a new paradigm for commodities and the old-school thinking about how commodities used to be traded has to be changed. And this is true of most commodities — none more so than the agricultural ones. Sure, speculation is a part of this puzzle, but to say it’s all speculators and hedge funds that are causing the run-up is a sad mistake.

As I sit here writing this column, I am watching CNN out of the corner of my eye, and on the air is Jonathan Stevens, a baker from a Massachusetts company called Hungry Ghost Bread. He is starting to grow his own wheat and encouraging his customers to do the same. Not a bad idea. For a 50-pound bag of organic flour, he used to pay $25, but now pays around $60. So in back of the store, the bakers are now growing their own wheat. Now, while farming in your backyard may not seem very practical, it’s becoming part of a new reality: If you want to be sure you have the food you need – absolutely sure – you’ll want to grow it where you live.

Most of the world’s inhabitants already understand this essential reality. America’s are just starting to re-discover it. In fact, we’ve even made up a new word to describe this ancient necessity of growing food where you live. The word is “locavore” and it means someone who eats food grown locally. Wow! Very trendy!

Demand for ag commodities is real and it is worldwide. Meanwhile, supplies are stretched thin. So any “supply shock” has the potential to cause prices to soar even higher. A new supply shock might be developing right under our noses. The planting season here in the U.S. is getting off to a very bad start, as the weather has been awful. Torrential rains have flooded many fields, making planting impossible. The U.S. Department of Agriculture
reports that only 10% of the corn crop west of the Mississippi has been planted, compared to a five-year average of 35% for this time of year.

Plantings for soybeans, spring-wheat and rice are also trailing behind their five-year averages.

Therefore, this year’s corn crop could be extremely disappointing. Some of the other crops might also disappoint. In my trading service, Resource Trader Alert, we are betting on much higher prices in soybeans and corn, and we are using option spreads to take advantage of this.

My annual meetings with Midwest farmers are always helpful. But my recent meetings with farmers in Minnesota were particularly helpful. Not only did I gain some insights about this year’s crops, I also learned a great deal about the soaring prices of fertilizers and other farming “inputs.” The long and short of it is that input costs are rising about as fast as commodity prices. So many farmers are getting squeezed.

And these rising input costs are here to stay, which probably means that rising grain prices are also here to stay. Yes, prices will fluctuate dramatically. But the bull market in agricultural commodities is very, very real.

Why deny it? Why not trade it?

[Joel's Note: Attendees at the conference Kevin spoke at yesterday paid $10,000 per ticket to learn how he does what he does. Now, these are guys who run tens, sometimes hundreds of millions of dollars, so that’s not going to break their bank, but it’s not something everyone can afford.

In addition to his media appearances and conference globetrotting, Kevin has been a regular guest editor here at the Rude Awakening over the years. As a special offer to our readers, Kevin has opened up a “guest pass” offer to what he calls the secret “Millionaire’s Market.”

If you’re interested in grabbing a slice of this year’s profit harvest, we suggest you give Kevin’s offer some thought. Click Here To Learn More. 

We’ll be back with another dose of your usual Rude insights tomorrow.

Until then…

Cheers,

Joel Bowman
Rude Awakening