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Agriculture runs and runs and runs

Corn ran 13.3% in one day as the closely watched USDA report lowered the estimated US output by 4% which will slash US stockpiles of the foodstuff to the lowest levels since 1996. Oats, barley, soy and wheat also ran sending DBA (+6.3%), CORN (+14.6%) and others on a tear while TSN and SFD got dropped like ugly sisters.

The key reason attributed to the shortage was a convergence of adverse weather around the world this year (hot, dry, wet, etc), though this can hardly be a surprise. In the world of infinitely fast information and literally hundreds of millions of individual market players, what are the chances someone didn't say "hey, maybe crop yields will be 4% lower this year?" Those of us searching that are looking for signs of global monetary policies (such as US-QE) showing up as price inflation, which it inevitably has too, are watching this carefully.

For example, if the price of corn just rose 13% in one day, does this count?

Looking back a bit here, assuming interest rates 'had to rise' (especially in the near term) is one of the most painful calls of my life (the other was betting heavy that GS and MS were going to fall in Oct-2007, I missed this one by 1 lousy year!)... It is obvious now that the Feds can, and will, manipulate interest rates to all time lows and keep them there (for the time being), but this does not mean that inflation will not be seen elsewhere.

IT IS POSSIBLE TO EXEPERIENCE INFLATION WITHOUT RISING INTEREST RATES. Case in point, all this hoopla around the currency wars, essentially a game of international musical chairs of sorts: a race to the bottom before there is no longer any more ink in the press and this whole debt charade goes (potentially literally) nuclear. However, this can take a Frustratingly. Long. Time (the Feds have a shitload of ink). But let's not miscalculate anything here: gold is at $1,350 for a reason, up 350% from 2003, which was coincidently the time that "banks" began rubber stamping NINJA loans to anyone who could fog a knife. After gold, I predicted agriculture would be next. Now that it turns out I might be right, I have stepped out of the woods, shaved the beard, shaken off the $20k in unfortunate late-summer losses (really it was all about money management and not picks-- getting greedy and all), and put my mountain-manned soul-searched being of the past two months to work for the common good.

So with that I'll thank my lucky stars for being long CORN (stock) and DBA Jan11-28 calls and look forward to what next week brings. A crash back down means more hibernation on the inflation bandwagon, but a further run is reason to watch very, very carefully. The times are potentially, as they say, 'a-changin.'

So on to next week and beyond, one initial point to contemplate on the prognostication front: DBA left a nasty "evening star"-esque candlestick pattern back in June 2009. This is indeed troubling as the last few months mirror the run-up to this previous one closely. However, overlay this chart with gold and something eerie is seen: a divergence around that same point in time, Agriculture went down and sideways as gold soared. If one of these plays catch up to the other, then something is going to move, and soon.

Is the hibernation over?


Disclosure: mentioned in the post