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Thursday, January 18, 2007
There's an incredible story from the Great Soybean Bull market. It involves a young trader named Michael Marcus.
During the 1970s, soybean prices rose from $3.25 and eventually hit $12. Marcus was long, and making money. But at one point during the run, Marcus impulsively took profits and sold everything. "I was trying to be fancy instead of staying with the trend," he says.
As soon as he'd taken his position off, soybean prices jumped sharply, hit their daily limit for price movements, and shut the market down for 12 days in a row!
The experience was so agonizing for Marcus – trapped on the sidelines while all his buddies made millions – he resorted to tranquilizers and eventually quit his job. "That was the low point in my trading career," he says.
Marcus eventually become one of the most successful traders on Wall Street... but back then he was victimized by an unheard-of run in soybean prices.
You see, sometimes action in the futures pits gets so wild, the exchanges shut down the markets to give traders a chance to take stock of their emotions and re-liquidate their accounts.
It's very rare for this to happen... you'll see it maybe a dozen times a decade. Twelve days in a rowis unprecedented.
Well, corn just went "locked limit up" for two days last week... and was up big again on Tuesday... and yesterday, too. Here's what's going on...
Two reports came out last week, one day apart. On Wednesday, a government economist said the ethanol industry was going to use much more corn than everyone expected next year. On Thursday, the USDA's crop report came out showing next year's grain crops would be much smaller than expected.
The result was dynamite. Corn is up 15% from last week and is selling for more than $4 a bushel for the first time since 1996. Wheat and beans went limit up on the news, too. Oats have jumped 9%.
"No one's interested in agriculture," I wrote seven months ago. "Prices are low, farmers are leaving the business, and supplies will decline. These conditions are a recipe for a bull market in agriculture..."
For months, we bombarded you with messages just like that one... warning you that a big up move in U.S. agriculture was imminent. Problem was, we couldn't find a good way for you to play it...
Sure, there are a few ancillary stock plays... but there were no pure agriculture ETFs. The closest was the PowerShares DB Commodity Index (DBC) with a 22.5% grain composition. That left us with futures. But, as Marcus would tell you, futures are way too leveraged for most stock market investors.
It was very frustrating... until last Friday.
That's when, for the first time in history, investors could buy American agriculture products through the stock market... PowerShares launched an agricultural ETF (DBA).
There hasn't been any publicity, and I haven't read about it online anywhere. Perform a web search on 'DBA,' and you get the website of a trendy New York bar... but this new ETF is big news.
The new PowerShares fund tracks an agriculture index. The index is divided equally among wheat, corn, sugar, and soybeans. Deustche Bank runs it, and the official web page is linked below.
DBA rose 8.7% in its first six trading days... and then fell 4% yesterday. I think this agriculture bull market is just getting started. Now, we have a way to play it... there's no reason not to be invested.
Just ask Michael Marcus.
The Deutsche Bank web page for DBA can be reached here:
A PICTURE OF THE RISING TIDE IN AGRICULTURE
The latest in agriculture: The market still loves genetically modified (GM) foods.
Global agriculture giant Monsanto reported a 53% increase in first-quarter profit. U.S. seed corn sales (almost all GM) rose 35%, it said. Most other food companies are reporting similar increases in business.
The tide of ag-related stocks is much like the tide of resource-equipment stocks of the past several years. As the price of commodities like oil, silver, lead, and gold rise in value, so do the stocks that help dig them out of the ground. Kennametal (drill bits, cutting teeth), Transocean (deepwater drilling ships), and Terex (excavators, dump trucks) come to mind.In agriculture's case, rising crop prices mean richer farmers... which means more money gets spent on fertilizer and new seed. Monsanto is happy to supply it all.