Gary Hofer: MARKET BULLETS

Commodities prices as a class have been declining since 2011, according to the CRB Commodities Index.

Created by The Commodities Research Bureau, it is an indicator based on a wide selection of commodity prices; that is, prices for real-world “stuff” from burlap and copper to crude oil, wheat and zinc.

There are 23 different items whose prices go into making the numerical index for the CRB. Watching the chart for this index is to observe what is happening in the real world.

We all know that crude oil has dropped from $107 per barrel 14 months ago to a price below $43 this week. That is the lowest point for oil since the spring of 2009. Copper, silver and gold are all at 6-year lows. Wheat is at the low end of its trading range covering the last 6 years.

Each commodity in its own way contributes to the whole economic system of the world. When China was growing at 7% or more per year, demand for copper and other industrially sensitive materials pushed prices higher, very good for producers of these fundamental things, particularly among less developed countries. Now with China running at lower RPM, exporting less and more critically importing less, prices have softened. We are nearing a turning point.

We are at a very interesting juncture. One of the things that frustrates traders is that just about the time it becomes “obvious” the market is completely negative – when there is no trace of a reason to buy and everyone can see the trend to the downside – the move will end and a rally will begin.

It is foolish to buy based on the rational that “everything is cheap now”, but it is time to be alert to changes in the market weather. We are either about to plunge much lower or snap back upward. The anxiety of commodity producers is increasing.

Wheat prices have been staring down the barrel of a solid if unremarkable crop in the northern hemisphere. There are no serious production problems emerging in the southern side of the globe either. When there is plenty of wheat for sale, prices do not have to move higher to ration supply. Buyers have the capital to go ahead with purchase programs and the selling window is open.

Technically speaking, Chicago wheat futures downside objective measures to about $4.54, but the current trading has been grinding out around the $4.90-$5.00 range, the same intermediate lows we have seen repeatedly since early June. There are also several other price levels where buyers were uncovered in the past, i.e. $4.89, $4.74 and $4.60.

Owning wheat at this price may make you clench up a bit, but for those with a contrarian attitude, the fortitude (and the capital to hold on), there is some hope of a bounce to come. Don’t forget the stops (planned bail-out points). New major uptrend? Not for a while yet.

Item: The International Energy Agency (IEA) said last Wednesday that “Persistent low oil prices and global economic growth gaining momentum will cause crude demand in 2015 to rise by 1.6 million barrels per day.” For perspective, the U.S. is said to consume about 19.5 million barrels per day, according to the U.S. Energy Information Administration (EIA).

Information and opinions contained herein come from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital.