Back to the Future in Commodities?

Back to the Future in Commodities?

Wow – what a crappy week in the commodity markets. The biggest one-week drop in commodities in the last 50 years took place this week – and it wasn’t even a full trading week!

I hope everyone is still relatively intact. I am taking some hits myself, but still standing and fortunately still profitable on the year. Thankfully my stops took me out of most markets earlier in the downturn, though, like a drug addict of sorts, I’ve tried sneaking back in early and have gotten burned accordingly. Stops are something I recently introduced to my strategy – I used to be more of a “buy and hold” guy. I’m really grateful for that, as using my previous strategy, I would have been completely wiped out during this downturn.

Rather than describing the selloff myself, I’ll defer to Agora’s Dan Denning, who summarized better than I could have in a Rude Awakening article entitled Cold Commodities.

Just for kicks, let’s take a look at some of these prices – it almost feels like Back to the Future:

(Please scroll down – not for dramatic effect, but because I couldn’t figure out my HTML :))

Commodity Price
Coffee 130.90
Sugar 11.89
Cocoa 2299
Cotton 71.02
OJ 113.05
Corn 507
Soybeans 1207

Two words come to mind – holy crap! These prices – especially the softs – are flat out cheap!

When sugar was cranking up a few months ago, no way did I think we’d ever see it below 12 cents again. And if you were just kicking yourself earlier this year that you had “missed” the big bull run – well you’re in luck, opportunity is knocking once again.

I think the question for us now is not if we buy, but when do we buy. I don’t have a crystal ball, but pull up one of these charts and take a look – it’s not pretty over the past three weeks. I would love to see this selloff continue, proceeded by a nice long bottom, and a slow but steady rise back up. Of course, markets rarely cooperate with what we want 🙂

Just remember that billions of dollars have been lost trying to catch the exact bottom or exact top. I would be surprised if these prices are not significantly higher in the next 2-5 years (due to fundamental supply/demand issues that I outlined here).

We’ve got a lot of upside to catch here – so let’s dust ourselves off, be grateful for what we have left in our portfolios, and grab the horns for this bull’s next leg up.