Worldwide wheat inventories are expected to rise 19% this year, which is the largest annual increase since 2002 according to the USDA. This will put pressure on a variety of soft commodities this year. Which warrant a reminder:
Never forget that in the long-term, soft commodities should become cheaper and cheaper. That's because human technology advances mean that farms will become more efficient. This has obviously already been the case, humans can now produce far more wheat, corn, etc. with far less effort than in the past. While we may all feel we know this, sometimes we may forget what this implies for soft commodities' prices.
Fundamentally and logically soft commodities are in a permanent long-term downtrend since technology is in a permanent long-term uptrend. But then traders would have to keep an eye on their cycles too. Last time crude oil hits 140 definitely did not come with any support from the fundamental sides.
Friday, March 12, 2010
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