Tuesday, May 27, 2008

Cuts in Agriculture Research Budgets Underscore Limitation of Government

It's hilarious to see one special interest group whine about the cut in budget because another special interest group is getting the money. What it does is show the vast limitation that government really has, and the consequences in counting on taxpayer money to fund your pet projects.

One person griping about cutbacks is Dr. Yue Jin, who is marketed as the only federal scientist whose main purpose is to ensure the protection of the $17 billion U.S wheat crop. What a crock.

This is so pathetic and disingenuous, that it stinks.

In an attempt to siphon funds from other special interests, it is made to look like the wheat across the world is in danger of extinction, as a new strain of fungus has emerged.

What's even more disingenuous is the blaming of floods, drought and high fuel prices as other elements in driving up fuel prices, without another government mandated program: subsidies for the disaster of ethanol, being named as the major culprit.

All of this shows that government isn't meant to be the end-all answer to problems, and those that rely on it as if it's God, are in for serious disappointments, as not taking into consideration its limitations is a huge mistake.

The wheat crop isn't going to succeed or fail because a government research program on wheat is cut back. It'll fail more for the interference of government in creating an artificial market for corn-based ethanol than anything else.

The best thing to do is for government to stay out of these situations, and let the market decide what it is they want. We continue to bear the brunt of government limitation and interference, as the usual unintended consequences continue to rear their ugly head.

Friday, May 2, 2008

Commodities Mixed as U.S. Dollar Strengthens: Is Party Over?

Even though commodities increased some on Friday, the overall drop in prices during the week, especially with gold, silver, rice and wheat, has some investors starting to wonder if the party is over.

The U.S. dollar had a decent week, and that always takes its toll on commodities; especially from institutional investors.

Another factor influencing the downturn in some commodities has been the credit market may be showing some signs of regaining some of its health, and that has investors starting to be willing to assume more risk.

One sign institutional investors are leaving commodities is the pullback from gold ETFs.

"That's an indication that the credit market tightness is being alleviated," said Tom Pawlicki, commodities analyst with MF Global Research in Chicago. "At this point I think we're probably in the early stages of a weakening commodities market, a strengthening dollar and more risk appetite."

Gold is down from its all-time high of $1,038.60 an ounce it achieved on March 17 by 20 percent.

The drop in price of grain futures this week also seems to point to investors looking elsewhere, as wheat, rice and soybeans dropped in price. That's even with gains on Friday. Corn did lose 3.75 cents for July on Friday, dropping to $6.135 a bushel.

On the CBOT, rice futures increased by 31 cents to finish at $20.945 a hundred pounds.

Other precious metals making some gains were silver and copper, with copper rising by 12.60 cents to finish at $3.8205 a pound, while silver grew by 26 cents to end at $16.465 an ounce on the Nymex.

Is the commodities party over?

I don't think so. Demand for food will continue from China and India, problems in Chile with copper will probably continue, and investors are always one weakening of the U.S. dollar away from plowing their money back into the commodity market.

Concerning the end of the commodity bubble, Elaine Kub, a grain analyst in Omaha said, "I wouldn't say it's the end of the bubble. We're talking about widespread global demand (for food). Just because the dollar is higher doesn't necessarily stop that growth."

My thought is it won't be as predictable as it has been, and it'll take a little more work to separate the chaff from the wheat. We'll probably see less institutional money in the market, but those that follow and understand commodities should have some good opportunities to make money for some time ahead.