Commodity Resource Alert: Weekly Market Briefing
This complimentary article from Options Profits was originally published on May 8. Options, Futures, Commodities...Check out OP free for 14 days
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Welcome to the weekly resource brief where we break down opportunities in the dynamic commodities markets. The mandatory use of options allows us to control risk and take advantage of longer-term trends in the true Supply and Demand markets.
These futures options have many advantages and offer a more pure play with leverage on leverage benefits not available with typical equity options plays.
In addition to identifying profitable option plays, the intention is to educate, inform and even entertain with our discussion about the vital economic building blocks, Commodities, which are the underlying basis for all investments.
Briefing for May 8, 2012 - Participation Driving Em Crazy and Lean On Me CRB
Expectations are the scorecard not the actual economic data for sales, revenues or unemployment figures. Disappoint, and the harsh reality is met with unwinding selling sales.
The initial negative reaction to the April non-farm payrolls has roiled the markets once again even though 115,000 new jobs were created. A higher bar had been set for the last two reports as recovery forecasts pushed equities into bullish mode for 2012.
One major takeaway for skeptics of the rate decline to 8.1% was the numbers on labor participation. A 350,000 drop off in the number looking for jobs was attributed to frustration. Not so fast my economic friends, a major demographic change is that you may have heard of, baby boom retirement, is having an impact on labor market.
Every single day 10,000 people reach retirement age and drop off the eligible rolls of potential employees. This occurs for the nineteen years of the march to the golden age for this population bubble.
Actually the net impact of the report Friday was positive for jobs with 45,000 less than expected but 53,000 added in the prior two months revisions. Basic math puts that at a Plus 8000 job net increase.
A further look into the data had 500,000 previous employable people fall off over the past two months though 60+ retirement day parties over that time period adds up to more than that. Nefarious government plot, I think not...
Climbing the Protein Ladder
Continuous diet evolution around the world should help propel the need for feed as livestock consumption is on the rise. Protein demand changes are the result of emerging market economics. The chicken sandwich is a tangible edible reward for the move from the countryside to the factories in much of Asia.
Chicago Tribune May 1 - "U.S. barnyards help China supersize food output Record exports worldwide of breeding stock, genetic material in 2011"
While Americans cut meat consumption to the lowest levels in two decades, the Chinese eat nearly 10 percent more meat than they did five years ago. China's solution: to supersize its supply by snapping up millions of live animals raised by U.S. farmers as breeding stock, capitalizing on decades of cutting-edge agricultural research in America.
By taking this step, say breeders and exporters, China will move from small-scale backyard farms to the Westernized tradition of large consolidated operations to keep up with demand.
A taste for chicken
In a country wrestling with food inflation, China's population spent 25 percent of its annual income on food in 2010, compared with Americans spending about 10 percent. One solution to rising food prices: chicken.
A chicken drumstick costs half or less the price of a pork loin, said Wang Xiaoyue, a senior analyst with Beijing Orient Agribusiness Consultant Ltd. It also takes about half as much grain to produce a pound of chicken meat, compared with a pound of pork, Wang said. That has helped fuel more imports of broiler breeder chicks from U.S. farmers.
So has expansion by fast-food chains, including McDonald's.
McDonald's, which ranks China as its third-biggest market worldwide, opened a record 200 new stores in China last year and has unveiled plans for more. China, the world's most populous nation, isn't the only country doing this. Sales to Russia and Turkey, the biggest markets for U.S. livestock-breeding exports last year, have risen even faster.
But the impact of a vastly larger, more efficient livestock sector in China would cause a major shift in the global market, particularly for grain demand. China could need an incremental 22 million to 28 million tons of corn in the next few years just to keep up with the growth of the swine industry, according to a recent research report by Rabobank.
The United States exported a record of $664 million worth of live breeding animals, semen and livestock embryos worldwide last year, an 82 percent jump in two years, according to the Department of Agriculture's Foreign Agricultural Service. While countries like Russia and Turkey spent more last year, China was a big buyer on volume: About 14 percent of U.S. live animal exports, largely breeder chicks, were sent to China in 2011."
Sunday Fun Day
After a weekend to digest the job data the futures markets reopened Sunday night with new concerns about the Eurozone humpty dumpty plan to put all of the pieces back together again. Elections in France and Greece have torn off the band-aid to expose the unhealed financial wound.
The evening gap lower pushed equities below the 1350 support boundary in the S&P for the first time since February. The lows marked 1342.50 before a recovery rush back to 1370 during Monday's session. The reaction action to another attempt on that extreme will be a good market measure.
A weekly close below 1350 puts trade back inside the 2011 January to August 100 point trading channel. The 1250-1350 action projected a run to 1450 that was seems distant though only 7.5% above current levels.
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