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Gains in Grains Again


Monsanto, AGM make huge moves upward; sector remains one to watch.

Once again, I'll share a chart of what I call "food for food," not because anybody reading this trades soybean meal, but perhaps that fact, in and of itself, offers evidence as to why I believe this data matters so much.

Click to enlarge

There are no ETFs for soybean meal, and I don't know too many hedge-fund managers who even trade it. Therefore, I believe it offers an uncommon scale to measure true supply and demand for the grain that's used in animal feed, and therefore global appetites, and therefore is a measurement for all of you who trade stocks and bonds to help you get a unique window into growing or slowing consumption around the world.

I'm not suggesting it's any key indicator of anything, but I hope it's helped offer (in some small way) a break from the debates on artificially created demand or supply. You don't buy a lot of this stuff unless you plan to use it, and God has the only "printing press" I know of to make more of it.

Notice another potential breakout, and the always-tasty bow-tie cross, where the 50-day moving average has now crossed above both the 100 and 200, circled in green.

More interesting still, this market is in serious backwardation, which means front months trade above back months - which shouldn't happen unless unusual demand exists now. To give you an idea, July soybean meal as pictured in this chart, is trading around 350, while a contract for December delivery is below 290. Strong demand here and now is unquestionable, which contrasts sharply with many investors who think any buying of any commodities is speculative and way too early, considering deflationary forces at play. Depends on where you're looking, I suppose, as it always does.

Another interesting clue emerged yesterday as well. Federal Agricultural Mortgage Corporation (AGM) also known as "Farmer Mac" (although thankfully, not as well known as its larger cousins, Fan and Fred) reported numbers that stunned the Street yesterday and sent shares up over 100% on the day. I don't own the stock, but I'm bullish on their customers. I believe this data offers an objective clue about their health, relative to many other sectors, and in this instance, just how much that may be underestimated.

In related uncrowded news, the Materials sector (XLB) led by Monsanto (MON) -- whose stock is the largest-weighting in this basket -- has surged to now move ahead of the far more popular Technology sector (XLK) on a year-to-date basis. More intriguing still: how few investors noticed or participated, considering it's by far the smallest sector by market cap in the S&P 500.
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Positions in Soybean Meal, Monsanto
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