Blimling and Associates Blog

Block cheese closed at $1.5825/lb, unchanged with no trades.

Barrel cheese closed at $1.4425/lb, unchanged with no trades.

Butter closed at $1.5250/lb, unchanged with 4 trades.

Grade A NDM closed at $1.4000/lb, up $0.0200/lb with no trades.

Extra Grade NDM closed at $1.4000/lb, unchanged with no trades.

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From Screams to Screens

Dairy Industry Tipped to Still Feel ETS Impact 

Federal Reserve Chairman Ben Bernanke delivered a speech this morning at the Economic Club of New York. His remarks included some commentary on the value of the US Dollar. He said that, "we are attentive to the implications of changes in the value of the Dollar...[we will continue] to monitor those developments closely."

An Associated Press dispatch noted that:

Bernanke engaged in a delicate dance. He made clear that Fed policymakers will keep rates at super-low levels. Yet through his words, Mr. Bernanke is also trying to bolster confidence in the dollar without actually raising rates, a move that could short-circuit the fragile recovery. Economists say a free-fall in the value of the dollar is remote but cannot be entirely dismissed. Although low interest rates can put additional downward pressure on the dollar, they are needed to encourage American consumers and businesses to spend more and fuel the economic turnaround.

"Delicate dance" seems to accurately capture the Fed's dilemma, which we have noted is a battle between deflationary forces in the real economy and inflationary forces. Bernanke and other central bankers globally have taken the age-old tack to flight deflation -- pumping massive amounts of liquidity into the financial system. That liquidity, however, can create asset inflation -- dangerous levels. 

Bernanke said today that he expects inflation to be "subdued for some time..." But is that a comment about the real economy (such as capacity utilization) or about commodities (such as the price of oil)?

The Dollar today? It's down some.

Widely followed market commentator Dennis Gartman appeared on CNBC's Squawk Box this morning. He had an interesting take on the gold market (according to cnbc.com):

While not being comfortable with the current gold trade, Dennis Gartman, founder of The Gartman Letter, told CNBC Monday that the price of the precious metal will "continue to go up until it stops."

"It is a gold bubble," Gartman told CNBC. He called the trade on gold "mind boggling," but also said he is currently long — or betting gold will go higher.

Gold hit a fresh record high above $1,130 an ounce early Monday as the dollar fell against other Western currencies. Gold's Friday low of $1,102 an ounce is the floor, according to Gartman. If it falls below that mark, he suggests investors should "head to the sidelines."

Though "gold is in a bubble...but by it..." seems contradictory, the fact that the gold market might be in a bubble (and other commodities, too) does not mean it has to pop anytime soon. Indeed, the bubble could continue to inflate for months. Gartman identifies his stop and is content to trade with the momentum until the trade no longer works. 

Block cheese closed at $1.5825/lb, up $0.0075/lb with no trades

Barrel cheese closed at $1.4425/lb, unchanged with no trades

Butter closed at $1.5250/lb, unchanged with 3 trades

Grade A NDM closed at $1.3800/lb, unchanged with no trades

Extra Grade NDM closed at $1.4000/lb, unchanged with no trades 

October retail sales data published this morning by the US Department of Commerce via the Census Bureau was stronger than expected, pushed by automobiles. According to The Wall Street Journal:

U.S. retail sales jumped higher than expected in October on rebounding demand for cars, a sign the economy kept recovering despite climbing unemployment.Retail sales increased 1.4%, the Commerce Department said Monday, much better than the 0.9% increase projected by Wall Street for the first month of the fourth quarter. September sales, however, were revised down, to a 2.3% decrease from a previously estimated 1.5% tumble. And aside from automobiles in October, other sales rose just 0.2%. It was the third increase in a row, yet smaller than the 0.4% climb predicted by economists.

Looking at "Food and Drinking Place" sales -- a good proxy for the restaurant industry -- dollar sales were up 1.2% from September and 1.5% from October 2008. The month-to-month increase was the biggest since January while the year-over-year increase was the largest since April. But here too the comparisons are a bit compromised because September data was revised quite a bit lower. Still, a gain is a gain.

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New Zealand Dairy Farmers Going to the Wall

Block cheese closed at $1.5750/lb, up $0.0050/lb with no trades.

Barrel cheese closed at $1.4425/lb, up $0.0075/lb with 2 trades.

Butter closed at $1.5250/lb, unchanged wth 10 trades.

Grade A NDM closed at $1.3800/lb, up $0.0100/lb with no trades.

Extra Grade NDM closed at $1.4000/lb, unchanged with no trades.

EU Cuts to Raise Milk Price

The Secrets of Anderson Erickson Dairy

Burger Wars 

With commodity prices perking up anew, speculators are once again finding themselves near the spotlight. The lights are not as bright as they were last year, but that could change if prices move higher -- particularly crude oil prices. Today, the Seeking Alpha website features a lengthy article by analyst Philip Davis asserting that the energy markets are, well, a scam. A scam, he claims, that is 50 times greater than Madoff. The commentary strikes us as being a bit over-the-top, with a "Goldman Sachs rules the world" type paranoia undercutting what is actually a data-rich argument.. It is thought provoking, however, particularly concerning the role allegedly played by the emergence of the off-shore, essentially unregulated Intercontinental Exchange (ICE). There are also interesting tidbits about index funds:

Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years. Today, in many commodities futures markets, they are the single largest force. The huge growth in their demand has gone virtually undetected by classically trained economists who almost never analyze demand in futures markets. As money pours into the markets, two things happen concurrently: The markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing.

It's not a bad read. And, if nothing else, it serves as a reminder that the role of commodity markets in day-to-day life is likely to come under more rather than less scrutiny going forward.

The Global Oil Scam: 50 Times Bigger than Madoff