Given the risks and the volatility we are all facing and the action of the last two days in commodity markets, I suggest we need to look at the big picture of what may be at play.
We all are living the fact that inflation is running away. Yet those with money are looking at artificially low rates. The US 10yr note is only 1.57% this morning with the US 30yr bond at a mere 1.925. Yesterday’s US CPI was a whopping 6.2% year over year compared to the US Fed’s mandate of 2%. Theoretically that is leaving real rates of -4.2%, not very appealing to the wealthy.
Money managers can’t raise interest rates so the only thing they can do is try to hedge against the inflation. They can’t hedge against higher wages (for example) but they can hedge against higher commodity costs.
Following the CPI report Wednesday morning there was a flurry of buying across most commodities. Off the charts, buy signals throughout most commodity markets suggest much more of this type of action could be expected in the months to come.
It may seem too late considering the record highs we are seeing in crops grown in the drought of ’21 land areas - canola and oats in particular – but this is where I think we need an open mind.
Given our costs, is $5.50 corn expensive vs 8.40 nine years ago? Chicago wheat at $7.70 vs 13.30 thirteen years ago? Minneapolis wheat at $10.50 vs 24.20 in ’08? Soybeans at $12 vs 17.80 nine years ago? Crude oil at $80/barrel vs 145 thirteen years ago?
Some may think so but I believe there are many that think not and are willing to take long positions to hedge against runaway inflation.
What does that mean? Breaking up sales targets into small increments and rewarding rallies are my thoughts. But also being aware of the risks when selling in case of a repeat of ’21. Being conservative on DDC’s, maybe buying puts instead of selling futures to lock in profits, if selling futures or signing DDC’s, buying out of the money calls to limit upside risk, those sorts of strategies.
Just some big picture thoughts…
We all are living the fact that inflation is running away. Yet those with money are looking at artificially low rates. The US 10yr note is only 1.57% this morning with the US 30yr bond at a mere 1.925. Yesterday’s US CPI was a whopping 6.2% year over year compared to the US Fed’s mandate of 2%. Theoretically that is leaving real rates of -4.2%, not very appealing to the wealthy.
Money managers can’t raise interest rates so the only thing they can do is try to hedge against the inflation. They can’t hedge against higher wages (for example) but they can hedge against higher commodity costs.
Following the CPI report Wednesday morning there was a flurry of buying across most commodities. Off the charts, buy signals throughout most commodity markets suggest much more of this type of action could be expected in the months to come.
It may seem too late considering the record highs we are seeing in crops grown in the drought of ’21 land areas - canola and oats in particular – but this is where I think we need an open mind.
Given our costs, is $5.50 corn expensive vs 8.40 nine years ago? Chicago wheat at $7.70 vs 13.30 thirteen years ago? Minneapolis wheat at $10.50 vs 24.20 in ’08? Soybeans at $12 vs 17.80 nine years ago? Crude oil at $80/barrel vs 145 thirteen years ago?
Some may think so but I believe there are many that think not and are willing to take long positions to hedge against runaway inflation.
What does that mean? Breaking up sales targets into small increments and rewarding rallies are my thoughts. But also being aware of the risks when selling in case of a repeat of ’21. Being conservative on DDC’s, maybe buying puts instead of selling futures to lock in profits, if selling futures or signing DDC’s, buying out of the money calls to limit upside risk, those sorts of strategies.
Just some big picture thoughts…
Comment