Commodity Forecasts

 Some commodity forecasts.

Rice vs Wheat

Chinese eat rice. 

Rising Food Prices Pushing Up Potash Stocks

Agriculture prices have been going up since the beginning of 2014 and I think that if this trend continues, we will see demand going up for potash, which is used for agriculture.
The chart below monitors the food prices. You can see the recent surge in 2014. Many foods went up like coffee, sugar, even wheat.

RJA agriculture

If we chart the agriculture index RJA against the largest potash producer Potash Corp., then we get this.

Food (RJA) Vs. Potash (POT)

We see a correlation here between food prices and potash prices. Food prices are obviously a leading indicator for potash sales and as a consequence we can say that higher food prices will push up potash prices.

So if you want to bet on higher potash prices (because of the recent surge in food prices), then you should buy the potash companies like Yara International, Potash Corp. or Allana Potash.

Status on the CRB Index

Just recently, sentiment in the commodity market has been positive. Capacity utilization improved, the CRB index started to move upwards, chances on QE3 are improving, the dollar index moves into a top formation. In this article I will discuss the prospects in each sector of the CRB index.

On Tuesday 17 July 2012 the capacity utilization rate came in at 78.9%, up from 78.7% the previous month. As I noted here, the capacity utilization rate is a leading indicator for inflation. This inflation will start to be visible next year as there is a lag between the capacity utilization rate and commodity prices.

The different sectors in the CRB index composition are: petroleum, agriculture, metals and natural gas. I will analyse them one by one in this article.

Chart 1: CRB Index

Agricultural Commodities Break Down, Start of Another Great Depression?

When we take a look at history and go back to the Great Depression, we find that agriculture is a leading indicator for the economy. During the recession in 1930 we saw that agriculture prices declined very rapidly (for example cotton prices dropping 18% in just one week). A few years after that, the Great Depression initiated at full force with bank deposits being frozen. This started the Great Depression of 1932.

Today, the same is happening with agricultural commodities. Cotton dropped 10% in 1 week and is now down 20% in two weeks time. All other agricultural commodities have been very weak since the start of 2012 with the exception of soybeans.  The CRB index has also hit a new 2 year low.

Weakness in agriculture today is the evidence that the Great Depression is now being repeated. The only commodities that went up during the Great Depression were gold and silver, along with the gold/silver mining shares.

I will analyze 8 key agricultural commodities here: Agricultural Commodities Breaking Down, Start of Another Great Depression?

Agriculture turning around?

At the beginning of 2012 agriculture prices are starting to turn around after the big correction that occured in 2011. Speculators have started to add net long positions in agriculture due to drought concerns in South America. Global demand is still going up.

Soy Bean prices are going up on dry weather in Brazil and Argentina.

Palm Oil prices benefit from the problems in the Soy Bean crops.

Cotton prices are improving but are still weak. Cotton prices are bottoming out though.

The rubber market is likely to continue the uptrend due to bad weather conditions. Demand for rubber is strengthened by the buying up to the Lunar New Year.

Wheat prices are still weak due to large wheat production.

Coffee prices had a surge in 2010 and were correcting in 2011. Prices will remain firm though due to supply shortages.

Sugar is in an uptrend, but speculators are turning bearish.

Corn prices are weak due to a surplus in inventory, but seem to be bottoming out.
Rice prices are turning in a downtrend as India starts exporting more rice to the world.

Overall, we can say that agriculture prices are in the process of bottoming out, but I wouldn't count on making money here because wheat, corn and cotton (the three biggest agricultural commodities) are still in oversupply.

RJA Rogers Agriculture ETN