Corn Poised to Best Oil, Gold on Food, Fuel Demands

July 10 (Bloomberg) - The September harvest in the U.S. will produce enough corn to fill every one of the thousands of Midwest silos, or cover South Carolina, West Virginia, Maryland and Rhode Island with an inch of grain.

That prospect has money managers at Pacific Investment Management Co. and Ospraie Management LLC drooling. They're betting the surplus will disappear within two years, causing prices to double for the first time in a decade. Corn will outperform oil, copper and gold through 2008, said Christopher Wyke, 51, manager of Schroders Plc's $62 million commodity fund, which doubled the returns of the Goldman Sachs Commodity Index this year. Pimco and Schroders are increasing investments in corn because of a surge in demand for ethanol and livestock feed.

Consumers of corn are "going to have to compete with the rival demands of either fueling the world or feeding the world," said Dwight Anderson, 39, who manages $4 billion at Ospraie in New York and previously worked at the hedge funds of Julian Robertson and Paul Tudor Jones. "We are going to see record agricultural profitability."

Even after reaching an 11-month high of $2.7275 a bushel in Chicago last week, corn is barely half the peak price of $5.135 set during the rally of 1995-1996, the last time prices doubled.

December corn was up 3.5 cents at $2.6925 a bushel in electronic trading, as of 1:39 a.m. in Chicago.

Compared with other commodities, corn is a bargain. The cost of a barrel of oil is equal to 28.4 bushels of corn, compared with 4.7 bushels in June 1998. An ounce of gold will buy 238 bushels, more than double the 105 bushels in 1998.

"Cheap" Corn

"Grains are cheap, cheap, cheap," said Brent Harris, 46, who runs Pimco's $14 billion Real Return Strategy Fund in Newport Beach, California. "Ethanol demand is cranking up" and threats of crop damage from hot U.S. weather are increasing, said Harris. His fund has topped the returns of the Dow Jones- AIG Commodity Index by an average of 5 percentage points a year since its founding in 2002.

The price of corn has jumped 23 percent this year, exceeding the gain in gold, which reached a 26-year high in May.

Oil rose 24 percent since the end of last year to a record $75.78 a barrel last week. The Standard & Poor's 500 Index of stocks is up 2.1 percent. The last time corn outperformed oil, gold and the S&P was in 2000.

"Agricultural products will broadly outperform energy and metals over the next three years as supply restraints worsen," Wyke said, forecasting corn prices may jump another 50 percent.

The biggest boost for corn is coming from ethanol, which the U.S. government ordered be used as a fuel additive to extend gasoline supplies.

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"HOUSING; SCHMOUSING", by Dennis Gartman, June 15, 2006
HOUSING; SCHMOUSING: The US housing market is, in the vernacular, "in the dinger." Houses simply are not selling as they were; brokers are not answering unsolicited bids for houses they had listed only hours before... and if they are getting calls at all it is from irate, impatient sellers whose houses have been upon the market for days and weeks and now even months. It is a market turned upside down in a very short span of time, and anyone surprised by that fact is naive.

The simple concerns are these: History is not kind to those builders who are late to the market; who build projects into the euphoria that always exists, building for demand that seems almost certain "to be there" when the project they've dreamt about is finally brought to fruition; who build on borrowed money, on optioned land, building larger and more expensive homes and condominiums, certain that the market will readily accept their wares... and that their profits can be rolled over into newer land purchases, and newer condominium projects at even higher prices ad infinitum. The "jig," however, as they say, is up. For the past several months, the last projects have come on stream (with more on the drawing boards) but the buyers have stood down. Inventories of un-sold houses are rising apace, and buyers have decided that it is far, far better to wait for lower prices than it is to stand up and pay "market" for those homes on offer.

The signs were first to be noted in the hottest of all markets here in the US: Las Vegas and Reno, Nevada and Phoenix/Scottsdale, Arizona. According to our always bearish friends at The Daily Reckoning (the difference being that this time they are right), in the Phoenix area, a year and a quarter ago there were but 5,000 homes on the market. By March of this year, there were 35,000 homes on the market, and now there are 40,000... and the number is rising.

Rents, on the other hand, have lagged so far behind the prices of homes and condominiums that there are virtual bargains galore in every major market in the US. Even here in Tidewater, Virginia, where we've lagged far behind the rest of the nation as far as escalating housing prices were concerned, prices had gotten to levels that are simply unsustainable. Two years ago, housing here sold at discounts to Raleigh, N. Carolina, which is by most estimates a nicer, more upscale area than is this; however, the demand for water views (which we have in abundance) has pushed Tidewater, Virginia property values to levels that are now material "premiums" over Raleigh... or Charlotte...or Jacksonville. Such is the endgame of speculative bubble.

At the same time, rents here, or in Raleigh, or Charlotte have held steady.. if they've risen at all, pushing the rent/own ratio out to untenable levels and allowing potential buyers of property the ability to breathe deeply, delay action, and wait for even lower prices in the future.

This will end in tears, we fear, and it will not end nicely for the nation's consumers or the nation's banks.
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5 Reasons Why Futures Contracts Give You A Powerful Trading Advantage

On October 11, 2003, I listened to Mike Campbell interview Jim Rogers, the famous investor/traveler, on the Moneytalks Radio Show . Jim was making the point that he thought the bull market in commodities was going to continue when Mike asked him what he thought was the best way to play that trend. Jim replied, "The best way is to buy futures contracts."

He went on to say that futures markets aren't dangerous — that we hear horror stories about them because people use too much leverage — that it's better to use less leverage — that you can buy commodities just like you buy shares of major companies — you can pay cash or put up 50% of the value of the contract — you don't have to use a lot of leverage.

When Mike and I talked a few minutes later on the same radio show we continued on the topic of why the futures markets are the best way to trade commodities. We talked about the efficiency, the liquidity, the transparency, the low transaction costs and the "pure play" aspect of buying commodities instead of buying shares in companies that produce commodities. I also made the point, agreeing with Jim, that people often use too much leverage when they trade the futures markets — that the essence of my "22 Absolutely Essential Rules For Trading Success" was all about "playing good defense" while trading futures.

After the MoneyTalks Radio Show I decided to write down why I think that futures are the best way to trade commodities — and a variety of other markets as well. Here are my five reasons why futures contracts give you a powerful trading advantage.

The principle futures markets trade huge volumes and attract global participation. This liquidity allows traders to get into and out of the market in a very efficient manner — bid/offer spreads, for instance, are amazingly tight, allowing traders to buy and sell huge size without penalty. In the gold futures market, for example, the bid/offer spread for a 100 ounce contract of gold is typically only 10 to 20 CENTS an ounce while in the cash market (banks or coin dealers) the spread on 100 ounces of gold is often as much as 10 to 20 DOLLARS per ounce.

Transaction costs in the futures markets are also tiny compared to most other markets. Individual investors typically pay commissions of $50 or less to BOTH buy and sell a futures contract (which can easily have an underlying value of $50,000 or more).

People can open a futures trading account with a futures broker in much the same way that they can open a stock trading account with a stockbroker.

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