World Grain Production Expected to Recover

by University of Illinois

The USDA's report of World Agricultural Supply and Demand Estimates (WASDE) released on May 11 refocused the market's attention on world crop production and the implications for rebuilding U.S. and world stocks, says Darrel Good, a University of Illinois economist.

"The report reflects prospects for some modest increase in world feed grain stocks and prospects for maintaining world wheat and soybean stocks. However, substantial uncertainty remains," says Good.

World and U.S. feed grain production is expected to be record large in 2011-2012, nearly 6% more than was produced in 2010-2011. Substantial year-over-year increases in production are expected in the U.S., Argentina, Europe, Russia, Ukraine, Mexico and China. Much of the increase (84%) is expected to be in corn production, he notes.

Although world coarse grain consumption is expected to increase by nearly 2% during the year ahead, world stocks at the end of the 2011-2012 marketing year are expected to be modestly larger than stocks at the beginning of the year. Those stocks, however, are expected to be substantially smaller than at the end of the 2008-2009 and 2009-2010 marketing years, he says.

For the U.S., the USDA projects a record-large corn crop of 13.505 billion bushels in 2011. That projection reflects March corn planting intentions and a trend yield adjusted for planting progress, he adds.

"There is considerable uncertainty about corn acreage and yield due to late planting in many areas and extensive flooding along the southern Mississippi River and its tributaries. Some reshuffling of acreage from March intentions is expected based on rapid planting in some western areas, substantial delays in other areas, and the loss of some acreage," Good says.

Domestic consumption of corn is expected to stagnate in the year ahead as livestock numbers stabilize and ethanol consumption begins to plateau. Exports are expected to decline to a nine-year low of 1.8 billion bushels as a result of larger feed grain crops in the rest of the world, he says.

Year-ending stocks of corn are projected at 900 million bushels, or 6.7% of projected consumption, he says.

"The 2011-2012 average farm price of corn is projected in a range of $5.50-6.50 compared to the projection of $5.10-5.40 for the current year. The average farm price for the current year reflects very aggressive contracting of corn sales at relatively low prices. The USDA's estimates of average monthly prices received from September 2010 through March 2011 were well below the average spot cash prices in those months," Good says.

For wheat, the USDA projects a 3% increase in world production, well below the record levels of 2008-2009 and 2009-2010. Year-over-year increases are expected in India, Russia, Ukraine, Kazakhstan, Europe and Canada, he adds.

Good says that the largest decline is expected in the U.S. The National Agricultural Statistics Service (NASSA) forecasts the U.S. winter wheat crop at 1.424 billion bushels, 61 million bushels smaller than the 2010 crop.

Based on planting intentions and trend yield, the spring wheat crop is expected to total 619 million bushels, 104 million smaller than the 2010 crop. "Production is still very uncertain due to drought conditions in some hard red winter wheat areas and delayed planting in some spring wheat areas," he says.

The USDA projects a 50-million-bushel increase in wheat feeding this summer and a 225-million-bushel reduction in wheat exports during the year ahead. Year-ending stocks are expected to decline from 839 million bushels on June 1, 2011, to 702 million bushels on June 1, 2012, Good says.

The 2011-2012 marketing year average price is projected in a range of $6.80-8.20, compared to an average of $5.65 for the year just ending. Much of the 2010 crop was sold before prices moved sharply higher, he notes.

"World soybean production is expected to be record large in 2011-12 (0.5% larger than the 2010-2011 crop), although the U.S. crop is just being planted and the South American crop will not be planted for several months. Soybean consumption in China is expected to increase by 8%, and world stocks are expected to decline modestly by the end of the 2011-2012 marketing year," he says.

Based on March planting intentions and a trend yield, the 2011 U.S. soybean crop is projected at 3.285 billion bushels, 44 million bushels smaller than the 2010 crop. Consumption is expected to be 15 million bushels less than during the current year, resulting in a 10-million-bushel year-over-year decline in year-ending stocks, Good says.

"The 2011-2012 marketing year average price is projected in a range of $12-14, compared to an average of $11.40 for the current year," he adds.

Early projections of adequate U.S. and world supplies at current price levels resulted in price weakness following the release of the USDA report. "Now the market will monitor crop development to see if the projections materialize," he says.

See the original article >>

US Internet Stocks Getting Crushed

by Bespoke Investment Group

While the Dow and S&P 500 aren't down that much today (as of 3:30 PM ET), Technology stocks are getting hit hard. And it's the Internet stocks that are getting hit hardest. Below is a six-month chart of the Internet HOLDRs ETF (HHH). As shown, the ETF has now given up all of its gains from the breakout to new highs it made a few weeks ago, and it is now back below its highs from February as well.

Below are the top 10 holdings that make up the HHH ETF in order from largest to smallest. As shown, the biggest names (AMZN, EBAY, YHOO, PCLN) are the ones that are down the most today.

See the original article >>

Global Stock Market Performance MTD and YTD

by Bespoke Investment Group

Below is a table highlighting the MTD and YTD performance numbers (in local currencies) for the major equity market indices of 78 countries. The majority of countries have seen their equity markets decline so far in May. The average month-to-date performance of the 78 countries shown currently stands at -1.58%. Russia has seen the biggest drop in May at a whopping -9.00%. The Ukraine (-8.86%) and Greece (-7.27%) aren't far behind. Along with Russia, two other BRIC countries -- Brazil and India -- are down more than 4% in May. China has been the best performing BRIC this month with a decline of -2.13%. 

Along with the BRICs, all seven G7 countries are in the bottom half of the 78 countries listed in terms of performance as well. Canada is down the most of the G7 countries this month at -3.63%, followed by Italy (-3.27%), Japan (-2.96%), and France (-2.85%). Germany has been the best performing G7 country in May at -1.69%, while the US has been the second best at -2.07%.

On the positive side in May, Peru and Venezuela rank first and second with gains of 12.47% and 10.04%, respectively.

Looking at year-to-date performance numbers, Bulgaria ranks first with a gain of 21.87%, followed by Venezuela (19.23%), Sri Lanka (10.89%), and Iceland (10.51%). Italy is up the most of the G7 countries with a gain of 7.50%, while Japan is doing the worst with a decline of 6.56%. Russia had been one of the top performers year to date until it fell off a cliff this month, but it is still the best performing BRIC country in 2011 with a gain of 4.18%. India and Brazil have been two of the worst performing countries in 2011 with YTD declines of 10.55% and 9.27%, respectively.

See the original article >>

Relative Strength of Stocks vs Bonds

by Bespoke Investment Group

The chart below shows the relative strength of stocks versus long-term US Treasuries over the last year. When the line is rising, it indicates that stocks are outperfoming Treasuries and vice versa. While equities have outperformed Treasuries over the last year, the peak point of relative strength actually came back in early February. Since then the relative strength chart has been making a series of lower highs and is showing signs of rolling over. It is often said that the equity market tends to discount events six months out into the future, and if that is the case, then the equity market began to start pricing in the end of QE2 (end of June) right on schedule.

See the original article >>

THE RECENT HISTORY OF OIL’S SEASONALITY

by Cullen Roche

US Global Investors recently published a piece on “Why High Oil Prices Are Here To Stay” (certainly worth a read) with a very useful chart on oil’s seasonal tendencies. As regular readers are aware, I’ve been discussing the bullish seasonal trend in oil and gasoline prices for the entirety of the last 50% move in gas prices. The following chart puts that seasonal trend in perspective.

If we stay true to the trend we can expect oil and gas prices to remain buoyant into the July 4th holiday when the driving season officially ends. That is the point when risk in the oil markets becomes elevated – particularly given the recent surge in prices. If the 25 year trends holds true then prices could remain high into the late summer period and the hurricane season when storms can disrupt supplies. Either way, we’re nearing a point where the risk/reward in oil prices is deteriorating.

See the original article >>

Silver’s Bubble And Volatility

by Charles Rotblut

The recent plunge in silver prices provides lessons for all investors, regardless of whether you invest in commodities or not. As I started writing this on Thursday morning, iShares Silver Trust ETF (SLV) was down by 5.7%.

Though significant by itself, the decline was just the latest in what has been a very bad month for SLV shareholders. Since the start of May, the exchange-traded fund has fallen from $46.88 to this morning’s $32.42, a drop of nearly 31%. The drop is even worse when you consider that SLV hit an intraday high of $48.35 on April 28.

(Chart courtesy of FreeStockCharts.com)

Notice the volume bars at the bottom of the chart. Interest in the ETF has surged over the past six weeks. Any time a security jumps in price on high volume without a fundamental basis for doing so, trading becomes nothing more than a game of hot potato. Anyone who is simply trying to get in on the price action is banking on the greater fool theory–the hope that someone will pay an even higher price for the asset. Historical records going back to at least the 17th century Dutch tulip bulb bubble show the fallacy of such a strategy.

To be fair, the rally in silver was started in large part by the combination of the weaker U.S. dollar and fears about future inflation. As these concerns pushed gold prices higher, silver prices rose too. The theory is that a comparable valuation exists between gold and silver. The problem with this line of thinking is that over time the ratio of gold to silver prices has varied. The variance in comparative values between the two metals makes it difficult to pinpoint a magic ratio that suggests one metal is cheap or expensive relative to the other.

Furthermore, when people have economic fears, they reach for gold; when people fear werewolves, they reach for silver. Silver does have more industrial uses than gold, which mostly just sits there and glitters. The rise in silver prices was in no way justified by increased demand, however; a simple look at the economic data shows that. Rather higher gold prices and speculation accounted for the overwhelming majority of the gains in silver. This brings me to an important point: If determining a valuation is difficult and price movement can’t be tied to changes in demand, then figuring out when to buy and sell becomes nothing more than a guess.

The reason I don’t own SLV, or SPDR Gold Shares (GLD), is that I have problems valuing something with no cash flow associated with it. It’s always safer not to invest in something you can’t value, rather than guessing when to get in and out. Precious metals do have a role as a hedge against currency devaluation. They have stored worth and tend to be uncorrelated with stocks over long periods of time. A broad basket of commodities may actually work even better for diversification purposes (I personally hold a small position in a commodity exchange-traded note (ETN)), though I cannot emphasis enough the importance of having a thorough understanding of what you are investing in.

Finally, if you do use price momentum to gauge when to buy into and sell out of a security, consider the fact that many other people are looking at the same charts as you are. So take the extra step and carefully evaluate the fundamentals. A security with a fundamental reason to appreciate (valuation, rising earnings, strong financials, etc.) is less risky than one that lacks a fundamental reason to rise.

See the original article >>