Holiday demand to support dairy prices
Milk: Various technical indicators using weekly price as input achieved oversold condition. And oversold technical condition is similar to valuation concept that the market is under valued. Last week some of these indicators turned long the market meaning odds increased for a bottom.
My models called for an intermediate bottom late last month into last week with last week as the latest for a bottom. My definition of an intermediate trend is a trend that is one of the more important trends per year and unlikely to be a complete trend within month. I find the technical perspective is supportive of the model forecast. This model forecast was generated from the Cycle Series Analysis model (CSA) that incorporates Cycle Series Analysis, quantitative time series, spatial and technical techniques.
A Fusion model combines the CSA price model with CSA fundamental models, additional technical indicators and a fundamental assessment which can include economic indictors. This model is more complex and with higher level of discretion. This model also is of the opinion that is time for a rally for price of milk. And the primary driver is seasonal demand. My research suggests that seasonally milk can rally November and even into December.
In addition, a recent scan of news articles offered opinion from some analysts of holiday shoppers. That opinion was a positive one with one analyst quoted with opinion for a 17% in dollars spent for the holidays.
I am of the opinion that food is an important factor of holiday entertaining and dairy is an important of not large portion of the menu.
The model forecast is for higher price into November with the three-month modified strip set for a dollar rally minimum from close of last week.
Grains: The models are bullish grains for 2008. I prefer flexible hedge for both consumer and producer. For late 2008 soymeal could be $400 or $200. Corn could be $6.00 or $3.00. It is the times we live in and it is cyclical.
A note about cyclical analysis: I find no evidence man has learned how to control prices from exhibiting cyclical behavior. Man may distort or even manipulate but in the end the cyclical trend remains. Former Fed chief Alan Greenspan was quoted in a Financial Times article "I am coming to the conclusion that bubbles are inevitable. Human beings cannot avoid them...They can not learn." And in my view this supports the cyclical concept of not just price behavior but human behavior as humans make the price not the number of supply.
Increasingly, I find supply numbers as mere curiosity than valuation input. For dairy supply is useless number.
Metals: Bullish for 2008.
Energy: Bullish for 2008 but price has been high for this time of year and may distort seasonal and cyclical trends that would normally be expected for 2008. Be flexible.
Hogs: With the five-week triangle for the DEC hogs as of week of September 14, I was of the opinion that the market was at an extreme point of trend insight. I assumed a break out in either direction should be followed but with the increasing bearish attitude of the pork analysts it seemed to me that a up side break out would be a fake out swing. And that left a down side break out with the higher of probability to be the true trend with potential of high volatility. Trading the week of September 21 offered a mini crash for hogs. The long term bull trend has been delayed and up side potential has been reduced but still on the analytical table. Too much supply at this time.