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Market Plus: Apr 08, 2005

posted on April 8, 2005

Market Plus: Apr 08, 2005

Pearson: Welcome to the Market Plus segment on our Market to Market Website. I'm Mark Pearson. With me our senior market analyst John Roach. John, you've been on the show for 30 years. You've seen a lot of ups and downs. We talk about the CRB index, the Commodity Research Bureau's index. That is a basket of commodities that kind of measures what is happening with the commodity markets. It's been at darn near record highs last couple of months as we've seen oil prices jump up, gold, silver, corn, beans in particular. What is going on right now? What is your take on this macroeconomic commodity futures trade right now?

Roach: The investors are afraid of the stocks. I mean, I think that is to put it most bluntly. And China meanwhile is taking all the raw materials in the world whether it be steel or soybeans. And certainly it is energy, as they are growing their economy at a nine percent rate. What that has done is it has occurred at the same time when we've had real strife in the Middle East and that increased demand for oil has been met by some reduction in the ability to supply oil because of some of this Mid East strife and good economy in this country also causing demand. So, you've had a lot of strength in demand and then we've had some problem in production in the case of soybeans, some problem in the case of oil because of the strife in the Middle East. So, we really have all the makings here for markets to put in a euphoric top, if you will, caused by money that has no other place to go.

Roach: You can see money moving into land and other property and you see money moving into raw basic material, raw basic commodities. That is represented in our world in the CRB index and other commodity type indexes. The CRB index recently reached 26 year highs and any of our listeners out there that have as many grey hairs as I do or more know that markets cycle back and forth and back and forth. We're particularly interested in the ten year cycle on the CRB index. And a ten year cycle, of course is a very large, large cycle. It peaks about every ten years. When we were making the peak in the soybean market here just a couple, three weeks ago that CRB index was due to print a peak. The energy markets peaked, the soybean market peaked, we had a lot of markets that all caught the enthusiasm of this new place to invest your money and we had a lot of new money move into our marketplace and cause prices to distort.

Roach: Now, the question is, is the distortion over or is it nearing completion? And a lot of people would suggest there is no way, it's not over at all and I certainly don't know. But I'm very, very cautious. I see a lot of changes occurring in the Middle East. I mean, I see peace breaking out in areas that if somebody would have said six months ago this is going to happen we'd all say you're crazy. I watch some of the coverage of the Pope growing up or of his time span in Poland when prior to Poland becoming more a democratic country. We're seeing similar kinds of things happening in the Middle East, in my opinion, to what happened in the Communist Block. We're starting to see freedom in some areas that we just wouldn't -- I mean, today I'm listening to National Public Radio and the troops, the Syrian troops are moving out of Lebanon. These are things that people would not have thought. We may well see oil supplies be increased as a consequence of this at the same time that the demand is maybe reaching somewhat of a short-term peak here.

Roach: So, I think everybody has to pay attention to the overall market environment we're dealing in and we have to adjust ourselves a little bit to that and my suggestion is that we have peaked in markets and now we're going to start our movement down and that is always going to be an irregular movement. It's always going to be dictated by weather if we're talking about our grain commodities and many other things. But we think it's time for caution as far as markets are concerned and an expectation of some lower prices.

Pearson: John Roach, well put, good capitalization with what has been going on in the overall commodities trade. John, thank you so much. That will wrap up this edition of Market Plus. Be sure to join us again next week and be sure to tell your friends and neighbors to join us right here at our Market to Market Website. From all of us here on Market to Market, have a great week.


Tags: agriculture commodity prices markets news