A Bull Market with Some Real Meat — And Taking Some Quick 77.40% and 62.50% Profits

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

As your trips to your local supermarket confirm, the price of agricultural commodities is exploding. Most recently, corn is hitting record highs — having more than doubled in the past two years. This is a result of exploding demand from the world’s consumers, combined with U.S. government mandates and subsidies promoting the use of grain-based ethanol.

Even as corn has soared to levels not seen since the Civil War, the futures price of the cattle it feeds has risen only a more modest 31% during the same period. In relative terms, this has actually made cattle cheap. Today, a 1,250-pound steer in the United States is worth about 4.2 times the cost of the corn he consumes over five months to reach slaughter weight, down from almost 12 times in December 2005. Not since 1996, when corn reached what was then a record $5 a bushel, have cattle been this cheap relative to their primary source of feed.

This relative imbalance means that today U.S. feedlots are losing money on every animal they sell. Not surprisingly, hog farmers in South Dakota are already starting to liquidate their herds and get out of the business. As of May 1, feedlots in the United States held 11.1 million head, down 1.4% from a year earlier. Ranchers last year cut the number of young females they held by 3.5% to 5.67 million on Jan. 1, the second straight annual decline.

Meanwhile, even as soaring corn prices mean that fewer cattle are coming to market, demand for beef across the globe is exploding. U.S. beef exports in the first quarter soared 29%, thanks to a declining dollar and as rising global incomes increase meat consumption. Remember, the first thing global consumers buy as their incomes rise is not a flat-screen television or a computer but more and better food. And global demand for beef, pork and chicken may grow as much as 50% by 2020 as the population increases and incomes improve.

Exclusive  Global Stock Investor Hotline 51

Stagnating production in the United States and exploding demand across the globe can lead to only one thing: soaring prices. Wholesale choice-grade beef in the United States, the world’s biggest producer and consumer, are already expected to rise by 16% next year. That’s the biggest gain since 2003 and the second-largest since 1979. There already have been big increases in beef prices in China, Russia, India and throughout Southeast Asia this year.

So buy the iPath Dow Jones AIG Livestock TR Sub-Index ETN (COW) at market today and place your stop at $41.50.

PORFOLIO UPDATE

Fertilizer giant Potash (POT) continued its relentless trajectory upward, closing at a new record high of $239.50 on Tuesday, before correcting slightly. With the December $210 calls up 77.40% during just the past three weeks, sell half of your options to take some quick profits. Tighten your stop to $205.00.

But in terms of price performance, Sociedad Quimica y Minera de Chile S.A. (SQM) has outdone even Potash, hitting almost $60 last week. Even after correcting, it ended the week 9.65% higher, and now is up an option-like 46.39% in the last three weeks. Tighten your stop to $45, but expect to be stopped out in the next couple of days if this stock continues to correct.

The Market Vectors Coal ETF (KOL) also had a solid week as it resumed its solid uptrend. With the options up 62.50% since May 19, sell half of your options to lock in your profits here. Hold on to the ETF and the rest of your options. Move your stop to $49.25.

Exclusive  Playing the Bounce



P.S.
I invite you to join me at the 30th anniversary celebration at The Money Show San Francisco, August 7-10, 2008. Hear from 50+ world-class experts in more than 150 FREE workshops at the San Francisco Marriott, where you will be given every opportunity to refresh your perspective and prepare yourself for the uncertainty that may lie ahead. Meet face-to-face with 150+ investment companies and evaluate the products and software designed to help you improve your market performance. Call 800/970-4355 and mention priority code #009613 or visit The Money Show San Francisco’s Web site to register FREE today!

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE


img
previous article

Overall, your Global Stock Investor recovered in line with the broader markets this week. Potash (POT) continued to soar to record highs, even as the Elements Rogers International Commodity ETN (RJI) hit never-before-seen levels. Potash now is up more than 118% since you first added it to your portfolio in October.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE