End Of Commidities Bull? BDI and Bear.

Blogged last Thursday: Buying Opportunity for Planters?

What was asked is this correction in the commodities market a healthy correction or is this the the end of this massive bull run.

Today, CNBC delivered more clues and it published the following, Commodities Bubble Burst? Big Clue Comes Next Week

• Investors wondering whether the agricultural commodities bubble has burst will get some important clues in next week's annual crop plantings report, considered a bellwether for the direction of farming activity for the year.
  
  Analysts are looking for the Department of Agriculture's March 31 survey to show a decrease in corn acreage over last year's record planting, as well as a pronounced increase in soybeans and more wheat in the ground.
  
  But what those projections will mean for investors remains to be seen. Commodity analysts are expecting volatile planting numbers this year, with the weather and direction from traders to play a major role.
  
  Wet conditions in the heartland, for instance, could depress the amount of corn acreage, raising its price in turn. Soybeans, meanwhile, likely will get more attention this year after losing acreage to corn in 2007 due to a sharp increase in demand for ethanol. Wheat also will be in flux, its price subject to possibly lower demand due to resumption of planting worldwide after a year of a supply-constricting global drought.
  
  How the three major agricultural products fare is of major concern as investors wonder whether the commodity's bullish run of record-setting prices will continue or has run its course.

The article continues by saying.

• "Planting intentions are very important to how our supply and demand balances will look this coming year," said Melvin Brees, an agricultural economist at the University of Missouri's Food and Agricultural Policy Research Institute. "One of a number of factors is the unpredictability of the weather."
  
  Corn takes the biggest hit from bad weather, as it needs to be planted the earliest of the other major crops. It also does not plant well in saturated soil and requires the most fertilizer, which has become more expensive as the United States has lost its place as the world's primary manufacturer.
  
  Continued rainy conditions, or an excessively wet spring, could alter the agricultural commodities market dramatically, sending corn prices well higher on less supply.
  
  "That would create a huge amount of volatility in the markets," Brees said. "With supplies as they are, you would probably see a sharp market reaction."
  
  
  Despite a record corn planting last year, there was only a slight increase in carryover — the amount that's left over from the previous harvest — to the spring. Should corn production drop this year, that could make supplies very tight and become a bullish indicator for prices. The same thing goes for wheat and soybeans, both of which also saw low carryover rates, attributable to surging demand from emerging markets across the world.

But what was most worth noting was the following two statements..

• Other commodities, such as gold, platinum and oil also have seen record runs, but there is sentiment that the end may be near. The commodities run has been fueled by speculators and those cashing in on the weak dollar, the currency in which most commodities are traded.
• "I would not call the long-term trend over by any means. This very recent weakness that we've seen was more a function of speculators getting washed out," Kub said. "The entire market is not a bubble. There was just a part of it that needed to get washed out. The fundamental trends ... they're still in place."

Fundamental trends still intact?

Fundamentals are part of everything but surely what we have seen are bubbles of epic proportions. Or am I delusional?

In another article from CNBC. Oil Extends Slide on Dollar, Demand Worries

• Oil prices fell more than a dollar Monday, extending a slide from last week's record to nearly 10 percent amid a recovery in the U.S. dollar and lingering worries over slowing energy demand.
• "We suspect that the correction in commodities still has some ways to go, and we could push somewhat lower from here," Edward Meir with MF Global said in a research note

Gold last traded at 918.00. On March 17th it traded for 1,032.70 an ounce!

The BDI is now at 7684. Down another 117 points. Down 8 days in a row! Which would means that the BDI has retraced swiftly a massive 1000 pts since it recovered back to a high of 8600 almost 2 weeks ago.

What gives?

In an intersting editorial Pressure on Baltic Dry Index by Manas Chakravarty and Mobis Philipose.

• Strange things have been happening to the Baltic Dry Index, the index covering dry bulk shipping rates and widely seen as a leading indicator of global economic growth. After rising to an all-time high of 11,039 last November, the index nearly halved to 5,615 in January, but has since recovered some lost ground, moving up to more than 8,600 last week. But it has started falling again since then and on 19 March, it was at 7,801

I hold my reservations against the BDI being used as a leading indicator of global economic growth. Yes, there are justifications for it but there are other variables that can have a massive impact this index. Shipping rates depends on the availability of ships. And sometimes ships might not be available or shipping could be halted by severe weather. As seen last month, severe snowstorms caused havoc on this index (see Baltic Dry Index And China Snowstorms? ). And last but not least, epic bubble prices on commodities had a massive impact on the rise of the impact.

Anyway the above editorial made several strong points.

• The answer lies in commodity prices. Industrial commodity prices, too, have started moving up after falling for much of last year. And as commodity prices have risen, so have the freight rates for carrying those commodities.
  
  The demand for commodities depends a lot on Chinese demand and that has so far held up pretty well. For instance, China’s imports of iron ore were up 33% year-on-year in February. But growth may cool off if the Chinese government tries to curb inflation.
  
  More significant is the fact that bulk shipping rates are falling. That, says a Citigroup research report, is “a red flag for the Baltic Dry Index rally and raise questions about the industry’s confidence in its sustainability”. Citi analysts point out that the supply of ships is going to rise substantially in 2009 and 2010. Demand growth, on the other hand, is not likely to keep pace with the supply of ships, although the supply-demand balance this year is, according to the analysts, “debatable, but precarious”.
  
  The upshot: “The bullish argument for bulk shipping is that we’ll see massive ship delays out of China, while the bear arguments are that ship supply growth will still be at all-time highs in 2009–11 and/or commodities will lose their steam as we learn not to underestimate the impact of a slowing US on emerging markets and their seemingly decoupled commodity demand trends.”
  
  The sudden fall in commodity prices over the last couple of days will add to the pressure on the index.

Bear Stearns and JP Morgan?

OMIGOD!

Totally ludicrous!

Do read Rob Kirby's piece on it, Dubious Deliberations

• Do these grotesque proceedings, from start to finish, not reek of a snake-oil-swindling carnie act?

Last but not least, posted on CNN: Don't trust the Wall Street rally

How now Brown Cow?