COMMODITY INSIGHT -- NEWS & VIEWS
by: Jerry Welch
"Goldman Sachs, one of the worlds most influential investment banks, hiked its oil price forecast for the second half of the year to $141 a barrel, up from $107 previously. Analysts at the bank argue that the oil market is undergoing a "structural reprising" that will continue to play out for some time." "We would view any pullback in oil, regardless of the size or duration---although a correction could be as large as 15 percent----as an opportunity to re-establish long positions in oil before the summer." Goldman Sachs advised traders.'' Associated Press, 5/17/08. **"US consumer confidence sank to its lowest level in 28 years this month as anxious shoppers grappled with surging food and fuel costs, according to a survey published Friday. The Reuters/University of Michigan consumer confidence index plunged from 62.6 to 59.5 in May, the lowest reading since June 1980. Meanwhile, one year inflation expectations rose to 5.2 per cent, the most since February 1982, and up from 4.8 per cent in April." FT.com. 5/16/08 **"Feeder cattle also look bullish. I think there is a great changed that we test the all time highs again regardless of what the corn does. The rising live cattle futures will keep feeders moving higher. The cattle on feed report was friendly as well. On feed at 99% was expected, the placements at 98% was higher than the average guess, the placements at 98% was higher than the average guess but the lowest placements for April in six years. The marketing figure was 111%, which was the highest for April since this data set began in 1992. All in all it is very supportive. " CattleNetwork, 5/16/08 **"The futures markets were never intended to be used the way they are now being used. Futures markets were intended to be price discovery instruments for the hedging of products for legitimate buyers and sellers. Farmers needing to know what their income would be for crop not yet harvested could hedge in the futures market and know precisely what they would be paid. But now, everything has changed. All manner of investors are flocking to the commodity markets to get exposure to the hottest market out there. Speculation is driving price to a degree where it swamps the "correct" price discovery of legitimate buyers and sellers." TheStreet.com. Dicker; Don't Treat Commodities Like Stocks. 5/17/08 **"Alarming is the days supply of US corn is extremely thin at only 22. Dating back to 1999/2000, US corn supplies have never been less than a month. 2003/04 recorded 34 days and was the tightest before Fridays(05-09-08)USDA projections were unveiled. 2007/08 days supply of corn is 39 suggesting the number of days of supply may experience a reduction of 17 which is slightly less than the 18 day drop from 2001/02 to 2002/02. With regards to the number of days supply of US rice, 2008/09 is estimated at 28 days, the lowest on record dating back to 1999/2000, with its peak of 67 days in 2005/06." Allendale 5/18/08 **" Stocks will attempt to continue the market's two month advance next week, with rising investor optimism about the US economy helping overcome concerns over surging crude and other commodities. "'The crude oil rebound is creating some headwinds for this market'" said chief strategist at Windham Financial Services. "'But the market is increasingly under the belief that this widely anticipated recession may have fizzled, or we are into one, that's going to be mild.'" MarketWatch 5/17-08 **"The CRB index traded within the prior week's range and closed slightly lower. Soaring energy and metal prices could not counter the weakness in corn, wheat, hogs, cattle and the tropical markets. This left the commodity valuations somewhat flat - within a rather narrow range. As the graphic below reflects, the next few weeks will be critical from a technical basis in determining longer term price direction of raw material markets. Our view is that the quake in China and ongoing rise in world ocean freight rates to record highs indicates continued robust world commodity demand. We look to be buyers of corn and livestock on any weakness in the weeks just ahead. There is no statistical evidence that world commodity demand is being harmed by record high prices. A bullish stance is advised into mid 2008 with energy prices being the upside leader. The wheat market should bottom in the next 30-45 days."