Big Buying Opportunity in the Grains Once Calm Returns to World Markets

Montreal, Canada

Over the last few weeks, agricultural commodities have suffered steep losses. Heading into March, most soft commodities were already hugely overbought, mostly on expectations of further supply shortages in things like coffee, sugar, cocoa, wheat and corn.

The “risk off” scenario has encouraged a host of speculators and other investors to close their positions following a barrage of bad news ranging from the ongoing Japanese travesty, the oil spike and turmoil in the Middle East.

The entire commodity universe got pounded over the last several days – including recent high-flying leaders like corn, silver, coffee and sugar.

But as calm returns to world markets eventually, the grains will dominate the headlines. Expectations for a bountiful South American harvest over the next several weeks might disappoint the market.

Corn and soybean production estimates are declining in Brazil; in the United States, hard wheat prospects continue to suffer from drought. Plus, government hoarding in many countries in the emerging markets will only tighten long-term supplies.

Corn, I believe, offers tremendous leverage to global demand and declining supplies, courtesy of federal mandates to supply the ethanol industry; over 35% of the American corn crop is used to feed ethanol at the pumps. Combined with declining global supplies and rising demand, you’ve got the ingredients for a sustainable bull market.

In addition to corn, another great buying opportunity resides in livestock or lean hogs and live cattle. That’s because meat and pork prices have to rise further as herds consume more expensive feeder – and corn is a primary input. Also, seasonal demand lies upon us as Americans take to the grill shortly.

The ag-boom is alive and kicking. I suspect a huge buying window will present itself over the next few weeks or months as markets find a firmer footing.

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