When you hear the word "Commodities", what comes to your mind ? You will certainly come
across with those EXPENSIVE crude oil, gold, silver, copper, and uranium. But, there is
another group of Commodities, that is still relatively INEXPENSIVE. It is Agricultural Crops
including : corn, wheat, soybean, sugar, etc. As Tom Dyson stated in his 6-27-06 "Daily
Wealth" article, the grain prices have never been this cheap when it is adjusted for inflation.
And if without adjusted for inflation, grain prices have recently just bounced off lows close to
their 1986 prices. You will then ask why so. It is because of the HIGH INTEREST RATE and
NOT MUCH WEAKENING U.S. Dollars. The former factor cut down the profit level of farmers
and the latter factor made U.S. crops too expensive for successful export. Can this situation
be changed ? That is the HOT Econo-Politics argument. Just about 9 months or so ago,
Secretary Snow was somewhat successful in pushing down the value of the Green Buck
against other world currencies in order to improve our poor balance on the trade payment.
Now that Secretary Snow is gone and Fed Chairman B. Bernanke is continuing
Ex-Chairman Greenspan's policy to push the interest late higher and higher. Before
Chairman Bernanke was confirmed for the Fed position, it was reported that he did not care
much about INFLATION CONTROL. Did he change his mind now ? The true story is that
inflation control is only an excuse in front for our government, and it is really more involved
with GEOPOLITICS. Every body knows that Japan has been in deep recession for some
ten years. Its economy has just started to recover. If we push U.S. dollars too cheap,
Japanese recovery will cease because their goods will getting to be too expensive.
Therefore, to cooperate with Japan, Fed has to keep pushing the interest higher to
PREVENT U.S. currency from going down too much. Under these circumstances,
you know how and why our innocent farmers get caught. A recent observation starts to
show that more and more farmers are QUITTING. Following this, the demand and supply
business rule will kick in and push the prices of Agricultural grains to go HIGHER ! On
the top of this, the demand on Corn, and its price, will increase because our Government
MANDATED the use of Ethanol mixed with gasoline. I hope you can agree with
T. Dyson and I that Agricultural Commodities are good for next phase investment. To this
end, pay your attention to ADM, BG, MON, DLP, ALEX, or ANDE. If you are more
interested in ETF, go for DBC.
Do keep your eyes open.
from H. Lien @ Financial Sciences, Inc.
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