Sunday, December 16, 2007

Sayonara

It's a sad day for Navy football. As predicted here, Coach Paul Johnson was too great of a coach for us to be able to keep him. He will now be moving on to be the head coach at Georgia Tech. Unlike Roger Clemens, he's moving to a team we don't hate, so we wish him well and thank him for all those victories over Air Force and Army. Fair Winds and Following Seas, Coach Johnson!

And as for Roger, as a good friend once told me, "The Wheel of Karma always turns." Couldn't happen to a nicer guy!

We've talked a lot about financial commodities such as the yuan, the yen, and precious metals over the last few months, and those are all still looking like great places to be invested over the next few years, but today, I'd like to discuss a different group of commodities - the grains, the most liquid and widely traded of which are wheat, corn, and soybeans.

For a wide variety of reasons detailed here, agricultural commodities in general, and the grains in particular, are in the middle of what should be long-running bull markets. And the current rate cutting moves by the Fed are making the picture even rosier for grain bulls. The reason I draw your attention to this sector today is that agricultural commodities in most years have very pronounced seasonal patterns that can give a speculator an edge. For example, here are the average seasonal charts for wheat over the last 15 and 30 year periods.

You can see on these charts of the various different monthly contracts that wheat has a strong tendency to rise from early-December through mid-February, following which it suffers what commodity traders refer to as the "February Break." So far so good this year, as corn, wheat, and soybeans are all in uptrends right now as we head into mid-December. There are a number of different ways to play this trend, although as you can probably guess by now, my favorite is options on futures contracts! We will discuss some of the other ways in future posts.