April 16, 2021

Commodity Insight: Repeating myself: ‘Buy stuff’

The first weekly column I penned this year was entitled “World has a supply problem.” The opening paragraph read as follows: “Grain prices on the final day of 2020 ended on a bullish note seldom seen in the final trading sessions of any year. But in the first week of 2021, the new year, grain prices moved even higher. In fact, the first three trading sessions of 2021, soybean prices rose as much as $1.20 bushel and corn prices 50 cents. The reason for the stiff gains is as clear as gin. The world has a supply problem because global and domestic supplies of soybeans and corn are razor thin.”

Each week this year the outlook for a host of markets has only become even more bullish. Allow me this week to review, to touch upon what I have already posted in this newspaper. I am doing so to illustrate how the world does indeed seem to have a supply problem regarding commodities, per se.

The second column I penned was entitled “More bullish yet.” Here is the opening paragraph: “The U.S. Department of Agriculture recently released a World Agricultural Supply and Demand Estimates report that was wildly bullish for the grain complex. The USDA lower ending soybean stocks near pipeline levels, which means the United States is on the verge of running out of supplies. They also cut its average 2020 corn yield projects by 3.8 bushels per acre, the largest reduction in more than a quarter of a century. Grain prices, in turn, soared sharply higher on the news to their best levels in five to seven years.”

My next column was “More often right than wrong.” I wrote: “If the recent reports from the USDA regarding export sales of soybeans and monthly domestic usage are close to being accurate, the United States will literally run out of soybeans by July 4 or so. The United States may have to import soybeans as a result. That is assuming, of course, the USDA data regarding exports and domestic usage is correct. And I bet they are because history shows the USDA is right more often than wrong.”

The next column I posted was “Nothing is too high it can’t be bought.” I quoted famed speculator Jesse Livermore as saying, “Prices are never too high to begin buying or too low to begin selling.”

I then wrote: “No doubt, there is a shortage of virtually all commodities. That is why the world’s food bills keep on rising. And though values appear lofty, ‘prices are never too high to begin buying or too low to begin selling.’”

The very next column was titled “It’s all looking one way for commodities.” I wrote: “There are more and more indications that the long-term outlook for the commodity markets is higher. In fact, a number of international financial institutions with excellent long-term track records are jumping aboard the theory that a supercycle, similar to the one from the late 1990s to the early 2010s for commodities, is well underway.”

I ended the column above with a bit of a warning: “However, with all that being said, a big worry for the markets is the fact that more and more press is being given to the possibility that a supercycle is unfolding. A rule of thumb with investing or trading is this old saw: ‘When everyone is leaning the same way, get the heck out!’ And generally speaking, a conviction is indeed growing that ‘it’s all looking one way for commodities.’”

The Wall Street Journal recently published an article about the costs of materials to build a home are rising sharply — price gains for paint, drain pipes, roof shingles and flooring have shot up more than 80% since October. Needless to say, home prices are also on the rise.

But it was the Fed that put the icing on the cake following a policy meeting. From CNBC News: “The Federal Reserve kept rates anchored near zero and maintained the current pace of asset purchases, following the conclusion of this week’s meeting. Officials also upgraded expectations for GDP growth and inflation and cut estimates for the unemployment rate. More members foresee rate hikes in coming years, but not enough to change the forecast for none through at least 2023.”

Historically, the Fed gets what it wants. What it wants now, and what it is forecasting, is a stronger economy, higher inflation and a promise not to hike rates through 2023.

Such a monetary policy can be summed up in a few words. The Fed is saying loud and clear to investors, ag producers and speculators to “buy stuff.”

That policy is no surprise.

I have been touting since last October to “buy stuff.” And I still say it, but with a louder voice.

Check out commodityinsite.com to learn about the stuff I am suggesting to buy.