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Ray Grabanski: Bull markets continue

Bull markets continue for now in grains, with wheat leading the way. Recent global weather concerns impacting wheat supplies registered to the market, with Australian news of a sale of feed wheat to China.  China seems to have an unconstrained appetite for grains, gobbling up just about any source for their huge demand for feed (they current import about 60% of US exports of soybeans).  It's the Chinese wild card on demand that seems to have the world scrambling to find available supplies to tie us over until next year. 

It makes sense that with China being the fastest growing economy the past 2 decades in world history, that they would start to 'bid up' the price of resources to the rest of the world.  China's new found purchasing power is starting to influence the rest of the world in profound ways, and now with new highs in the CRB index again this week (all time highs for world history, we might add), it is plain that the commodities are starting to respond to this new found purchasing power of the Chinese nation.  China has overtaken Japan as the world's #2 economy (behind only the US now) in the past year, and it continues to grow at near a 10% annual level (which is has AVERAGED for the past 2 decades).  This is the fastest growing economy the world has ever known, and you have to credit China for adopting capitalistic reforms 20 years ago for this great success.

Adopting capitalist reforms in a communist country seems almost like an oxymoron, but China was in desperate straits as their economy was failing and their country was faltering at the time.  Leaders were desperate for anything that would work, and they found that capitalism indeed is a force that unleashed, can cause great gains in the productivity of a people.  

The huge success story in China while Russian reforms were floundering was a quagmire indeed, and was hard to figure out unless one was more familiar with the circumstances.  While China unleashed economic reforms, Russia unleashed both political and economic reforms at the same time, and it was too much of a change for the country to handle.  It took a decade or more for Russia to regain its footing, and has served as a lesson to countries trying to break out of the former communist setting (Cuba may want to take notice).  

This great unleashing of a sleeping giant economically has caused an 

upheaval that has not yet been fully realized.  It is finally coming to 

roost in commodities since 2006, with prices of all commodities basically doubling or more since those years, and it likely will influence the world economies for the near future.  

One positive is that the cost of building housing is inching higher, which should be positive for housing prices.  The world and especially the US has just undergone a great housing crises where homes were depreciating in value at alarming rates.  With housing construction costs rising from raw material costs, that should help to stem losses in housing values.  The excess housing that was constructed in past years wills slowly subside, and housing prices should stabilize at or near current values.

But commodity prices continue to soar, with the new highs in the CRB 

index indicating more upside potential is possible.  How high is anyone's guess for now.  But for the time being, commodity prices are showing no sign of abating in their quest to push ever higher in the near term.  

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The information contained, while not guaranteed as to accuracy or  

Completeness, has been obtained from sources we believe to be reliable. 

The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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