As Jim has observed, a major point in the multi-hundred year weather hot/dry, cold/wet cycle hits in 2011.
Headline: Poor Crops, Soaring Demand, Currency Wars: A Recipe for Food Shortages
Reports about how much slack the U.S. economy still needs to work through -- like unemployment -- understandably get the spotlight. But investors may be overlooking an even bigger story as the developing world stages a sharp rebound: Shortages of items like food and commodities are once again becoming a major concern.
Prices for agricultural commodities spiked so much on Oct. 8 that they triggered daily movement limits on the Chicago exchange. Options markets saw prices for commodities like corn soar more than 13% during the day following reports of supply shortages around the world.
Headline: Coldest winter in 1,000 years on its way
The change is reportedly connected with the speed of the Gulf Stream, which has shrunk in half in just the last couple of years. Polish scientists say that it means the stream will not be able to compensate for the cold from the Arctic winds. According to them, when the stream is completely stopped, a new Ice Age will begin in Europe.
The gulf current is extremely important to the dissipation of heat on Earth.
The commodity spot index, shown below, highlights the impact of weather on commodity prices. Drought, high winds, and poor farming techniques created the infamous American dust bowl from 1930 to 1940. This disruption in supply, coupled with massive currency devaluation of the Great Depression, resulted in several commodity spikes by 1940.
The 2008 commodity surge caught investor’s attention, but the endless deflation spin has convinced many that it was random spike. Not so. The spot commodity index, marked by the green circle, has made fresh all-time highs in 2010. Unlike 2008, the new highs have come without much media attention. The deflation spin, which supports a second official quantiative easing (or let’s call it what it is – devaluation), allows many to believe that their eyes are deceiving them. The media blackout also suggests the move is young.
The potential another commodity spike, similar to those of the Great Depression, exist today. Rising demand from a soaring global population, leverage of paper markets, massive currency devaluation across the globe, and the speed of the electronic world ensure that any supply disruption caused by weather related effects (cycles) are certain to create additional spikes with “historical amplitude.”
Spot Commodity Prices: CRB Spot Index (1947 - Present);
16-Raw Industrial Spot Price (1935-1947);
Great Britain Wholesale Price of All Commodities (1885-1935):
The commodity foodstuff index, a subgroup of the spot index, has been surging lately. The commodity foodstuffs to spot index ratio suggests that foodstuffs have plenty of room to catch up with the other commodities.
Gold and CRBFood to CRBSpot Ratio:
While the next surge in commodities will be hyped to the moon, don't let it cloud your judgment as to the secular trends in place. The spot commodity index to gold ratio reveals that the 1980 low was breached in 2008. Previous support has now become resistance that sits over price like anvil. The secular trend is down. Down favors gold and reflects the true nature of the economic backdrop.
Spot Commodity Price Index (CRBSPOT) to Gold Ratio:
Source: jsmineset.com
Source: dailyfinance.com
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