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Big Clues from a Smaller Farm

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Materials sector remains one to watch.

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I got a cool birthday present last week. It was a rusty old cotton seed planter from my late grandpa's farm. The reason I am so bullish on certain commodities perhaps is best summed up with this old cotton picking fact – the business got so bad for so long for that after enough family farms like his closed you finally had something fall faster than prices – supply. There are now fewer acres of cotton in the US planted than when this 60-year old planter was used.

I wanted to answer a couple of Mailbags at once. I have been asked a few times about the "Ag ETF," and once about whether my tiny backyard farm my little girl and I just built had yielded anything.

The symbol for the DJ-AIG Ag ETN is (JJA). It's made up of, in order of weighting:

Soybeans, Corn, Chicago Wheat, Sugar, Coffee, Cotton, and Soybean Oil.

China has been buying a lot of our soybeans and it's worth an update and some astonishing context. The number-2 customer is the EU but they buy little more than 10% of what China is buying. If you add the EU along with next top 14 customers for US Soybeans -- combined -- you do not even add up to three-quarters of what China is buying alone.

And as for the 2009 version of the Krueger 12-foot farm, yes, after a bumper crop of poison ivy in building the darn thing…err…blessed garden with my little angel, our first harvest was jalapenos. Stuffing them into quail grilled near a cerveza is my kind of farming. I believe I'm responsible for several of the bounces in the chart below of Scotts Miracle-Gro (SMG) - not too shabby, considering this is actually a stock that grew in the market over the past year.

Real support will be tested when neighbors are handed a $70 invoice for each pepper I give them, just to get me to break even?


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As for tracking the real farmers, I would note that the raise and re-raise my firm outlined and shared in MV that was likely when the bidding began for fertilizers, has continued. Agrium (AGU) again upped the ante for CF Industries (CF) which now stands at one share of AGU (around $50 at the moment) and $40 cash.

Don't forget yet another tailwind for fertilizers and many materials stocks that I noted here on May 20 – the drop in natural gas. I believed the chart also illustrated clear global appetites trumping domestic weakness, and the very next day $4 June Natural Gas plunged $0.40 lower still.



I flagged the XLB here, and today it offers a compelling clue to its underlying strength. On a day when Monsanto (MON) catches an analyst downgrade and moves sharply lower. The Materials Sector as tracked by the XLB, and shown below, is still in the green despite the fact that MON makes up almost 19% of the basket. The sector remains my favorite for many reasons, not the least of which is a delicious combination of outperforming every other sector year-to-date, and even more significant to us is just how un-crowded the move has been - it's the smallest weighting of any major S&P Sector.




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I hope everybody has a terrific weekend. I will be raising the brick wall around that garden because we have adopted a security guard for this sprawling estate. And if this doesn't remind you there are silver linings in every recession I don't know what will. Thanks to the closing of a Sharper Image, an animal rescue unit was able to borrow the vacant store.

So while satellite-guided toothbrush sales may be down my 3 kids got to find a puppy this week as a result. No Longhorn fan will need an explanation of the name of our ferocious new middle-linebacker of our backyard: Nobis. And he has already added more to the economy from my wallet than Sharper Image ever did, along with many more smiles.

Are things good or bad? My answer is always the same - depends on where you are looking. And when things slow down are we so sure that's such a bad thing?

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No positions in stocks mentioned.
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