Thursday, December 2, 2010

Separating the Wheat from the Chaff

I have been watching the grain markets with great interest since 2008 when we entered into this cyclical cooling period.  As the earth cools it has a great impact on three major grain markets.  Canada, Russia, and Australia.  Russia has suffered a devastating collapse in their wheat harvests due to drought, Australia has gone from extreme drought to excessive rains and disease, and Canada's growing season has compressed due to early winter onset.

Two other macro issues are also in play, grains like all other hard assets are being bought to preserve wealth in the fiat folly policy underway around the world, and increasing middle class members around the world is raising consumption of said grains.  As a result, grain inventory around the world has slipped to 90 days, a 11% decrease over the past year.

So in my view a perfect storm is coming for the grains.

Looking at the chart of JJG, it is ready to reengage its upward channel.  When it broke below the channel the 20 never broke below the 50.  I am a buyer (scale in) as it slips back into that channel.

Personally, we have been stockpiling flour and sugar to give us a cushion, if need be (remember the rice shortage).

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