Active "Commodities-Based" Investing
ditomassogroup.com
There have been recent advances in weather forecasting as well as technological changes which impact hog production and transportation? How do these changes affect your trading strategies?
Due to advanced technology and improved efficiencies the real cost of producing hogs, that is, adjusted for inflation, has been declining since the second world war at a compound rate of about 2% per annum, on average. As one might expect, a trend of lower real costs of production is apparent in most other commodities as well, particularly the grains. We take this factor into account when determining the current "intrinsic value" of each commodity. Our strategy remains: (1) to establish a position when a commodity's market price deviates significantly from this intrinsic price and (2) to liquidate the position when the two prices are in synch once again.
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What happens to commodity prices if the U.S. economy slips into recession?
The truth of the matter is that, with few exceptions, real commodity prices are already at depression lows. Today's price situation is similar to the early 1930s. At that time, despite a weak economy and a deflationary environment, the general level of commodity prices rose significantly during the next 20 years. If commodity prices were to revert to historically normal levels today, the CRB Index would be in the 400 range, almost double its current level. Realistically, uneconomic commodity prices must rise. I believe the recent surge in energy prices is a harbinger of things to come. There is a growing belief in the marketplace that commodity prices will rise, and possibly for an extended period. I agree. |
