Last week, I warned of a short squeeze in corn due to worsening conditions across the entire agricultural front. Since then, the ETF (CORN) has risen ten out of 12 days. That leaves corn severely overbought, and the hot money looking for a new temporary home.
Adding fuel to the flames was the Environmental Protection Agency's announcement today that they would go ahead with an E15 program, gasoline that has a 15% ethanol content, more than the 13% many were expecting. Ethanol itself is up 35% in recent months. I also have to wonder if the fears of quantitative easing sparked by Japan's massive intervention in the foreign exchange market last week was driving some money into the foodstuff sector.
So bring on wheat! Russia has reiterated its export ban until the end of 2011. It is only a question of how much of this year's damage will spill over into next year's crop. Could Russia be forced to import wheat to feed its hungry masses? If you wait long enough, even the unthinkable happens.
It's looking like we are getting an early freeze, and possible snow in Canada, which will decimate crops there. Take a look at the chart below for Hard Red Wheat, which after a doubling in the early summer has been consolidating in a tight range, refusing to sell off. Technical analysts tell me this is a chart that is begging to go up, and could do so at the drop of a hat.
I think you may get a rotation out of corn and into wheat that could trigger another melt up in this essential foodstuff. This is already happening in the other bull markets I have guided you into. Look at how the buying in gold (GLD) and silver (SLV) has spilled over into platinum (PPLT) and palladium (PALL), and even the rare earths. Ditto with the agriculture area, with Potash (POT) providing a jolt to Mosaic (MOS) and Agrium (AGU).
What is the big picture here? Buy hard stuff and avoid paper. The government can create all of the Treasury bonds and dollars it wants. Calories of sugar, bushels of corn, barrels of oil, and ounces of precious metals are another story.
Regrettably, the Teucrium people have not been able to get their wheat ETF off the ground yet, so you may have to open a futures account to capture this one. The symbol is MWH1. The usual caveats apply here. Wheat is not the screaming buy that it was when I first recommended the ags in June, so keep the appropriate risk control measures and stops in place.
By. Mad Hedge Fund Trader