I just want to sing my little song,” plot my stock charts, love my great sailor, play in my greenhouses, buy gold no matter what the economy is doing, and be the happiest sweet little old lady in the whole USA.

Unfortunately, (1) in order to stay as wealthy as I want to be (a leisurely, joyous life seeking knowledge is true wealth, not the Sultan of Bahrain’s vault) by reading runes, I have to live in a free country with a free market that is able to function without hindrance from the government, a reasonable desire Mr. Obama is frustrating, and (2) Executive Order 10-998, dating back to JFK, concerns all of us.

The exact language is of EO 10-998, which allows federal control of “all food resources” is:

“‘Food resources’ means all commodities and products, simple, mixed or compound, or complements to such commodities or products, that are capable of being eaten or drunk, by either human beings or animals’ (sic) irrespective of other uses to which such commodities or products may be put, at all stages of processing from the raw commodity to the products thereof in vendible form for human or animal consumption. For the purposes of this order the term ‘food resources’ shall also include all starches, sugars, vegetable and animal fats and oils, cotton, tobacco, wool, mohair, hemp, flax fiber, and naval stores, but shall not include any such material after it loses its identity as an agricultural commodity or agricultural product.” (Naval stores traditionally include lumber, timber, tar, turpentine, paint, and rope.  In modern naval provisions that could cover almost anything.)

10-998 authorizes the confiscation of everything edible and much that is not, including our stores of flour and un-ground wheat, the beef in your freezer and that I have on the hoof…what is in your pantry and your garden…my chickens and Mr. Sanderson’s, and perhaps our little dogs to feed visiting Chinese.  That EO lays claim to a friend’s vast wheat and corn harvests, cattle feed, and your small daughter’s night-night snack.  Alcohol is a form of grain, so you can’t even count on having a little tot of whiskey if locusts in full battle gear clean you out.

In a world of rising demand and costs Liberals are doing everything possible to lower food production.  Very severe restrictions on small farms are popping up; 100 pages strangling small milk producers is in the Texas legislature and a similar measure is going before Congress.  It will be practically impossible for anyone without megabucks to stay in business, because without a Grade A Diary license the proposed regulations expressly forbid even giving milk away, as well as transporting it privately, on pain of fines and even jail time!  Milk:  the new contraband.

Farmers’ markets are under attack, and if they deny us those there are no markets left.  Small farms cannot begin to meet the needs of large grocery stores, certainly not year around.

Produce can only be labeled “home grown,” not “organic,” a term that has been redefined from what most of us think it means to restrictions that only agribusiness can meet.  Add that to the whack the big boys are getting from losing subsidies they have long regarded as “income,” and a flier in commodities could be a pretty good bet for those who can’t stand being out of the market, and emulating the Mormons in accumulating a year’s supply of food seems like an excellent idea.  If you can hide it.

We have to survive in the world that is and the one we can forecast, and then we can concentrate again on excelling at picking stocks and buy and sell points.  Survival first is why we keep talking about a very deep depression and “peak food.”

It wouldn’t matter how much your portfolio were worth if the grocer’s shelves were bare and armed men had taken your last cans of asparagus and foie gras.  Maybe the colonists didn’t know when they were well off; troops quartered in my house would have a vested interest in preserving the larder.

Sincerely,
Linda Brady Traynham

March 20, 2009

Executive Order 10-988 was originally featured on Whiskey and Gunpowder

In fact, now you have all of these dollar bulls coming out and saying that inflation and the commodities markets are simply speculator driven and the worst for the dollar is over. I disagree. Do you remember as a child wishing for something, wishing so hard, yet it didn’t come true? Wishing for something to happen does not mean it will be so. (I never did get that red bike.)

As I shared with my Outstanding Investments readers, and as my Resource Trader Alert readers know, I sold our silver positions for some solid profits a few months ago, and then sold half of our gold, too. And just the day before the gold sold off, it looked brilliant. But I have to claim a little luck on that one. Any good trader knows to give credit to Lady Luck once in a while. Anyway, it was the right thing to do, and now that gold is correcting, my new target is around $850. And here we are: I think now it’s more like $820, but I am seriously looking at adding more longer-term options down here in both gold and silver.

I believe this move in the dollar will continue a bit, although short-lived, and the same problems that drove the dollar into the basement will persist, and even worsen. The Fed can’t just snap its fingers and wipe away twin deficits with some stimulus checks. Too many folks are subscribing to the idea that the consumer will somehow come to the rescue and spend our way out of recession. It’s pure fantasy.

Do I think commodities are in a bubble? No. Do I think that there is a lot of froth in the market? Absolutely. The fact of the matter is that we are in a new paradigm for commodities and the old-school thinking about how commodities used to be traded has to be changed. And this is true of most commodities — none more so than the agricultural ones.

Peak Food: You Heard It Here First

As I sit here in the transit lounge for business class, I am watching CNN out of the corner of my eye, and on the air is Jonathan Stevens, a baker from a Massachusetts company called Hungry Ghost Bread. He is starting to grow his own wheat and encouraging his customers to do the same. Not a bad idea. For a 50-pound bag of organic flour, he used to pay $25, but now pays around $60. So in back of the store, the bakers are now growing their own wheat. Funny, but they may have the last laugh.

Now, while farming in your backyard may not seem very practical, it’s great marketing, and also a new reality. Costco limiting the number of bags of rice — and now other things — that you can buy is clearly physical demand. I am a speculator and a Costco member, but have not been there to buy rice lately, especially 20-pound bags.

Sure, speculation is a part of this puzzle, but to lay the blame on the farmer’s doorstep or to say it’s all speculators and hedge funds causing the run-up is a sad mistake. Real physical demand and a weak dollar are two of the biggest reasons. I don’t see demand going anywhere but higher, and this year is getting off to a bad start for agriculture in the U.S., as the weather has been awful. This year’s corn crop could be extremely disappointing. We are betting on much higher prices in soybeans and corn over in Resource Trader Alert and are using option spreads to take advantage of this. I just got back from meeting with farmers in Minnesota and learned some very interesting things and ways to invest for the next big move.

You can also follow along with my latest TV appearances and my travels to Abu Dhabi and Dubai this week. I will be meeting up with “Aussie Joel” Bowman from The Rude Awakening, who now lives in Dubai, so we are sure to see many interesting things and, hopefully, learn more about some outstanding investment opportunities.

I have to say it is very satisfying to have been one of the only people at last year’s Agora Financial Investment Symposium to speak on the topic of Peak Food. Some of my colleagues snickered (“There goes Kevin again”) and some audience members looked puzzled. After all, nobody in the mainstream press talked about higher food prices or the coming rally for agriculture, and now we seem to hear about them every day.

Times are certainly getting tough out there. Hey, I’m just the messenger.

Yours for resource profits,
Kevin Kerr
May 8, 2008

Coming Peak Food was originally featured on Whiskey and Gunpowder

Taxes are a big problem here, but the bigger one is heating fuels. With winter right around the corner and crude oil hitting record highs of almost $83, prices here are surging. Our natural gas and heating oil bills here are going to be three times as much this year and basically that will break the bank for many in this tiny country. The problem is just getting worse as Russia tightens the screws on its natural resources in the region.

Now, Peak Oil may be very familiar to you as a Whiskey reader, but another peak phenomenon may not — Peak Food. Russia recently announced it may curtail wheat exports due to low global stockpiles and that has sent wheat to above $9, driving everything from bread to pasta exponentially higher. The worst could be yet to come.

I have to go chop some more wood for our stoves now. Really, I’m serious. Peak Oil is here. Peak Food will be here soon, too.

What is Peak Food?

There have been few markets in my almost 20 years of trading that have been as exciting as the grain markets have been over the past two years. In my opinion, the best is yet to come.

In the commodities world, energy, metals, and stock indexes have been the most active futures contracts — and the most talked about — for years. But like so many things in the commodities industry, that’s changing too.

Sure, oil and gold commentary still rolls off the lips of the various business news channel anchors. But nowadays, in the same breath, you may hear them talking about corn, wheat, or even soybeans. Why the sudden change?

The big push by individual speculators, hedge funds, and others into the agriculture sector in such a short time has been unprecedented. A great deal of this move is a direct result of the ethanol boom and the record corn prices it has helped to generate.

It’s pretty ironic that the modern commodities markets owe their success to the original grain markets that started it all. Back only a couple of decades ago, there was no such thing as an energy futures market or a stock market index. In fact, the grain markets were the first organized futures contracts when many of the exchanges started trading. As the markets developed, grains took a bit of a backseat and the financial and energy commodities seemed to take the lead.

Now with the emergence of the electronic trading market and the ethanol boom, grain futures are soaring. The global demand for agricultural and soft commodities is so significant that these markets are not only important, they are vital for price discovery once again.

The simple facts of the matter are that the global population is exploding and exponential increases in demand from countries like China and India are straining a system that is already overloaded by demand and has been taxed by weather problems globally.

The wheat crop has been hit especially hard this year as droughts, floods, disease, and even frost have taken their toll. Wheat has risen to $9 a bushel, and $10 is entirely possible later this year. Meanwhile, the soybean complex is also soaring, as pent-up demand, especially from China, is keeping this market very well supported.

It’s important to realize that not only do we have exponentially higher demand for soybeans from a growing world population, but we also have the increased feed demands of a growing cattle population in answer to more demand for beef. Soybeans are also a victim/beneficiary of the biofuel boom.

Combine all of these factors and throw in a little disease and bad weather and you have a recipe for a very hungry world, indeed…and much higher prices.

High Food Prices Giving Consumers Indigestion

This has been an incredible year for agricultural commodities, and many “experts” have been telling me for the last year that I was crazy to buy these commodities at such high levels.

Of course, they started telling me that when corn was at $2.20 a bushel and wheat at $5.50. Today, corn is trading solidly over $3.50 and wheat is trading close to $9. The bad news for wheat supplies just keeps rolling in. In the latest round of bad news, Australia slashed its harvest forecast 31 % because of dry weather. Wheat is surging as importers line up to buy whatever wheat they can. Global inventories are heading for a 26-year low.

Soybeans have outperformed expectations, too, as global demand has put a solid floor underneath prices.

Is all the bad news priced into the grain markets at this point, and have we finally seen the top for the grain rally? Think again. The biggest disaster for the grains may just be getting started.

According to my sources at farms in Minnesota and Iowa, diseases may be setting in, and this could be devastating to the wheat, bean, and corn crops.

Corn could be hit hard after a long summer, and hot and dry conditions and hail affected corn yields in Minnesota. The weather conditions favor the development of a disease called ear rot. Reports of ear rot have been coming in from several different areas, and the quality of grain that comes off these affected fields will almost certainly be reduced.

Meanwhile, things over in the bean patch are not faring much better. According to reports, early defoliation and death in patches of soybeans has occurred recently in fields across Minnesota.

According to Agriculture Online, “Although numerous soybean fields have started to mature and have suddenly turned yellow in the past week or so, it is obvious in many areas that the yellowing and plant death have been accelerated well beyond what would be typical.”

Sure, bean and grain prices are very high already — in fact, some of the prices we have been seeing for the agricultural commodities in the last few years are nothing short of astounding. It’s important to recognize, though, that demand has also been astounding. Demand is almost certain to outstrip supply, especially in wheat and soybeans. So even though we are seeing record prices, they may climb further as we head into winter. Therefore, some exposure to the agriculture sector in your portfolio seems like a prudent idea.

Clearly, the agricultural bull market is far from over, but that’s not to say that we won’t see some extreme volatility. Overall, though, the indications are pretty clear that staple commodities like grains are going to be more in demand and less in supply as time goes on.

So my forecast for the grain markets is as follows: Higher, but volatile.

The really nice thing about commodities trading is that it’s just as easy to bet on falling prices as on rising prices. So when the time does come, as it does in every market, we will be just as eager to go short and try to profit on the downside. For now, though, the trend is our friend and the trend is up.

What’s Next for the Grains and Soft Commodities?

As I told my Resource Trader Alert readers in the beginning of the year, the grains started out as a supply-and-demand market, and then a weather market and then go back to supply and demand when we actually get to harvest.

So right now, all those wild swings you’re seeing in soybeans and wheat are based on weather, more or less. We had hot, dry weather, and beans rallied hard. Then some rain came, and the beans fell dramatically, and then recovered a little. This pattern will most likely continue all the way until harvest.

I am glad my Resource readers grabbed half profits on their soybean options pretty much at the high of the move. Nice! We still have plenty of time on these, and as I said, it’s a weather market. And even though it’s autumn now, the heat hasn’t gone away from many parts of the country. I continue to look for any value play in the grains that may be another good addition to the Resource portfolio, but there are few bargains out there anymore.

The soft commodities, specifically sugar, are showing some good support here at these levels. Funds have come back in, and as oil prices were trading close to $76, it helped sugar, too. If you would like to see how my readers have benefited from the sugar trade, then please click here to subscribe to Resource Trader Alert.

Keep a close eye on oil. It could be a major mover for all the commodities, as we are getting back up to the record high, and that could have a ripple effect. What that will do, I’m not sure. I guess we will find out together. I will be monitoring the situation closely.

I will tell you, too, that I liquidated half of my crude 2009 recently for my infant daughter and, by my estimation, the profits would pay for her first year at USC or NYU. The good news for me is she will likely study at the University of Tartu, near our home in Estonia, and that (at least for now) is my favorite price: FREE.

Yours for resource profits,
Kevin Kerr

September 24, 2007

The Edible Portfolio was originally featured on Whiskey and Gunpowder