• Recently Written

  • BP 2008 review
  • Silver Cot Report (click on image)
  • US Mint rations Silver Eagles
  • Possible Russian Oil Play
  • Brazilian stock investing heating up
  • Industrial production Falls mainly from auto industry
  • Consumer credit continues to grow despite failing retail
  • Potential Soybean Trades
  • Corn may Extend Rally:
  • Soybeans set to gain on speculation as a farm strike in Argentina heats up:

• Categories

  • commodity news
  • commodity tools
  • Uncategorized

• Archives

  • June 2008
  • May 2008
  • April 2008

• Blogroll

  • Commodity Investing Basics - Learn the basics of investing in Commodities
  • Commodity Wealth - Your home for all news, analysis, and charts for the commodity markets
  • Free Commodity Newsletter - Free Newsletter about commodity investing

• Admin

  • Register
  • Log in
  • Wordpress
  • XHTML

• Search

U.S. Begins Rationing
Popular ‘Silver Eagles’;
How $1 Fetches $19

By Ianthe Jeanne Dugan
The Wall Street Journal
Friday, May 23, 2008

The government rationed food during World War II and gasoline in the 1970s. Now it’s imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.

The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can’t make them fast enough. In March the mint stopped taking orders for the bullion coins. Late last month it began limiting how many coins its 13 authorized buyers worldwide are allowed to purchase.

“This came out of nowhere,” says Mark Oliari, owner of Coins ‘N Things Inc. in Bridgewater, Mass., one of the biggest buyers of silver eagles. With customers demanding twice as many as they did last year, Mr. Oliari would like to buy 500,000 a week. But the mint will sell him only around 100,000.

The coins have a face value of $1. But the mint sells them for the going price of silver, plus a small premium, to a handful of wholesalers, brokerage companies, precious-metals firms, coin dealers, and banks. The dealers mark the coins up a bit more and sell them to the public. Currently, the coins are fetching about $19 apiece, with some sellers seeking more than $20.

For Coins ‘N Things alone, the shortage is costing hundreds of thousands of dollars in lost sales of silver eagles. The firm sells about $1 billion worth of precious metal every year, including silver, gold, and platinum coins. Mr. Oliari, a 50-year-old numismatist who has been in the business since 1973, sniffs: “You can’t print what I want to say about the mint.”

The mint, a bureau of the U.S. Treasury, has offered little explanation beyond a memo last month to its dealers. “The unprecedented demand for American Eagle Silver Bullion Coins necessitates our allocating these coins on a weekly basis until we are able to meet demand,” the mint wrote. A spokesman declined to elaborate.

… ‘Poor Man’s Gold’

The rare shortage offers a glimpse into the growing love of a commodity known as “poor man’s gold.” With more silver mined than gold traditionally, silver has always been far cheaper than gold and today has less than 2% of gold’s value.

But silver is growing in popularity, and some investors are betting that its value will surge as inventory shrinks. Big investors are loading up on silver eagles, which are the only American silver coins allowed in individual retirement plans. For small investors, they are an accessible way to get into the metal boom.

“Unlike gold, these coins can be bought by regular citizens,” says J.R. Roland, a Brownsville, Tenn., judge who recently began buying the coins — and trading them on eBay. “In these economic hard times, silver coins are a great way to invest.”

In March, sales of silver eagles surged more than ninefold from the previous month, to 1.85 million. This year, the mint has sold 6.8 million, representing more than twice last year’s pace. Still, numismatists are clamoring for millions more as the price of silver soars. It has more than doubled in the past three years and now trades at around $17 a troy ounce, which is slightly heavier than a traditional ounce.

Linda Wood, a 57-year-old Pittsburgh accountant, scours eBay, coin shops, and flea markets in search of silver eagles. One by one, she has accumulated about 300 in the past few months and stores them in a bank safe-deposit box.

Traditional coin collectors may be impressed with the government’s written description of silver eagles as “one of the most beautiful coins ever minted.” But Ms. Wood isn’t in it for aesthetics. She became a silver bug after she and her husband saw the value of their individual retirement accounts decline by $2,500 — a “significant” chunk. “I just need bullion,” she says. “I wouldn’t care if the coins were ugly.”

Amid the mint caps, shady silver-eagle hawkers are thriving. Some coins are priced at $25 and higher. Mr. Roland says that he had to wait a month after ordering some on eBay recently, because the sellers didn’t even have the goods. “I can’t wait long, because you never know what’s going to happen with the price,” he says.

In Manitowoc, Wis., Dan Zirk, owner of Manitowoc Card & Coin, has sold twice as many silver eagles as he did last year. So he has stashed away his remaining handful of 2008 coins, betting the price will rise. “I want $22 apiece,” says Mr. Zirk. He says customers, meanwhile, are asking for earlier years and other forms of silver.

… Lady Liberty

The government began producing silver eagles in 1986, basing its design on Adolph Weinman’s 1916 “Walking Liberty” half dollar. The front features a flag-draped Lady Liberty striding toward the sunrise, carrying branches of laurel and oak symbolizing civil and military glory. On the reverse, a design by John Mercanti features an eagle with a shield, olive branch, and talon and arrows.

The coins are made at an armored facility in West Point, N.Y., alongside the military academy. Dealers say they heard the mint had run out of planchets — round metal disks ready to be struck into coins. The disks are used for various coins, and the companies producing the blanks also are busy, limiting the mint’s ability to increase production. The mint won’t comment on the planchets.

… Coins Divvied Up

Each Monday morning now, the mint divides its silver coins into two pools. It divvies up the first equally among authorized purchasers. The second is allocated proportionately, based on the buyer’s past purchases. The mint limited purchases once before — in the late 1990s, when investors loaded up on silver, wrongly anticipating that a failure by the world’s computers to adjust to the new millennium would cripple the economy.

Jim Hausman, head of the Gold Center in Springfield, Ill., one of eight companies in the U.S. authorized to buy silver eagles, estimates that the rationing will cut his expected annual sales of four million silver eagles in half.

And the result, he says, is almost un-American.

Increasingly, investors are taking a shine to alternatives. The Royal Canadian Mint saw its sales of silver Canadian maple-leaf bullion coins rise 40% last year, to 3.5 million, according to a spokesman.

Some investors expect the craze to end badly. They draw comparisons to what happened to silver in the 1970s. A rich Texas family poured billions of dollars into silver, and prices surged above $50 an ounce in 1980, only to plunge again after government intervention.

“It’s akin to what happened when the Hunt brothers tried to corner the silver market,” says Wendell Curry, who owns McAllen Gold & Silver Exchange in McAllen, Texas. “The silver hawks are now trying to corner silver American eagles. And it’s making it harder for mom and pop to buy these for their grandchildren.”

Many investors are becoming frustrated with Moscow’s interference with oil companies.  The Russian government had previously nationalized rosneft adn yukos about one year ago, understandably investors are suspicious of any Russian oil and gas company.
However, there is one bright star among Russia’s oil companies his company has an annual oil production is almost the same as Exxon Mobil’s.  However its market capitalization is roughly 85% less.  As of today this company has a cumulative 35% gain with most of that gain over the last 30 days.  A closer examination of Russia’s oil economy just a Russian oil and gas stocks ranked as the top performing energy companies in 2000 and following roughly 2 years of relatively poor performance.

The company is LUKOIL is the first company of any Russian oil and gas companies to be listed on the London Stock exchange.  This company is truly an international firm which projects throughout Russia and Asia and Europe.  Most recently, the company proved reserves of 20.4 billion barrels of oil.  The company is also expanded into operating power generation assets acquiring two retail networks and building an aircraft fueling network of multiple airports throughout Russia.  The stock also has a dividend yield of 1.81% earnings per share have increased by 14.7% in the last year.

Back in the 1980s Brazil was defaulting on its debt and the Brazilian currency the real was worth almost nothing.  Now 30 years later worn buffet is holding large amounts of Brazilian real.  Brazil is enjoying this boost to their economy thanks to having a country so full of natural resources.  Brazil is one of the richest nations in terms of commodities and natural resources.  Brazil is the largest South American country and is also the world’s largest producer of iron ore coffee and sugar.  Brazil produces so much sugar in fact a while we pay $127 per barrel of oil in the United States result produces sugar-based ethanol to decrease its usage of oil.  Brazil is also a major exporter of soybeans pork and beef.  So as commodity prices continue to rise throughout the world’s Brazil continues to profit heavily.
To further add to the picture, Brazil just discovered the largest oilfield in the Western Hemisphere since the 1970s.  Petrobras, the state owned oil company of Brazil will profit heavily from this discovery in the future.  Money is flowing into Brazil from literally all over the world.  China Asia and Europe are huge customers of Brazil in fact despite an ailing US economy Brazil’s economy expanded 6.6% at the end of last year.

Brazil just received the coveted investment grade rating from S. and P. last month.  This rating, has allowed at large amounts of investment institutional cash to flow into the Brazilian markets.  Also, it is rumored that Brazil may receive yet another investment grade rating coming from either Moody’s or Fitch in the coming months.  When that happens you can expect another tidal wave of money to flow into the Brazilian stocks, real estate, bonds and other investment vehicles.

The Brazilian real has climbed 22% over the last 12 months more than any of the other top 16 currencies of the globe.  The Brazilian government is doing everything it can to ensure the country will continue in its prosperity.  On May 12 at the Brazilian president Lula announced tax cuts for 25 industries to further stimulate growth.  The government also plans to give billions of dollars in loans to help ensure exports continue despite the rise of the real.
The country continues to invest heavily into research and development.  Many believe this will allow Brazil to be prosperous even after the commodity boom years.  For example, over 40 billion reals (US 24.3 million) will be spent on technology by 2010.  The majority of this will be technology developments into core sectors of the Brazilian economy: biotechnology, buy a diesel, agribusiness, oil, gas.

Industrial production fell 0.7 percent and manufacturing output fell by 0.8 percent in the month of April.  Factory output in April was held down by a large drop in the index for motor vehicles and parts; strikes and strike-related parts shortages resulted in suspended production at many facilities.  The rate of capacity utilization for total industry declined 0.7 percentage point, to 79.7 percent, a level 1.3 percentage points below its average for 1972-2007. 

Full data set: Industrial Capacity Utilization Data

The majority of retail companies have continued to have difficulty keeping sales from declining let alone growing.  This however has not affected the amount of consumer credit usage as it continues to increase.  The consumer credit usage increased 5% when comparing the first quarter of 2007 to the first quater of 2008.  The majority of the increase is from comerical banks with revolving credit.  However, Sally Mae and Freddy Mack have added 8% when comparing 2007 Q1 to 2008 Q1.

See the Latest Report here Consumer Credit Data

p>China is the largest importer of soybeans in the world. The United states, China, Argentina and Brazil are the largest producers of soybeans globally. Thanks the the increase in population in China its demand for soybean imports is rising. The last few years China has been buying the majority of the soybeans made in south america and a large amount of the soybeans made from the US. The estimated imports of soybeans are 9% larger than than the 2003/2004 record year. Due to weather issues as well as a decrease in soybean production as many farmers are instead planting corn for ethanol, global supplies of soybeans are very tight. As you can see in the chart below china has had to take steps to secure basic bean supplies for industrial and domestic use with the resulting increase in price

Recently reports from many soybean buyers have begun surfacing that they are unable to secure sizable amounts of soybeans from US farmers.As a result of this shortage, we fully expect the cash bean market to improve over the next several weeks. Effects of this shortage can be seen in the recent movement of the nearby May/July bean spread, which has appreciated significantly and is slowly taking the carry out of the market. Cash market fundamentals appear to be improving, which should lend a helping hand to soybean bulls.

<

Investments to consider:

1. Buy July Soybean futures with Stop at 12.75 and Limit at 14.50

Capital intensive, higher risk for short term losses.

2.Buy July Soybean 15.00 Call options.

Options cost 20-40 cents, lower overall risk, less capital intensive.

As a new week approaches us corn may rise from last week’s record high as speculation that cold weather will delay planting and reduce the yields of corn crops in the United States. According to Bloomberg’s survey of 40 traders and farm advisors 36 said to buy corn as they expect the price to increase.

Soybeans set to gain on speculation as a farm strike in Argentina heats up:
Farm strikes in Argentina are expected to cause a minor shortfall and soybean output this year. Many traders believe this will boost US sales of soybean products. 33 of the 38th traders surveyed believe that the price of soybeans will rise last Friday’s soybeans rose 41% to $13.58 per bushel breaking a two-week decline.

The weaker US dollar prompted investors to continue to buy commodities increased fighting in Beirut added to concerns of the Middle East. These two forces increased the price of crude oil to near $126 a barrel last Friday. Many investors have started to buy commodities as an inflation hedge.
Previously oil surged to $78.40 per barrel on July 14, 2006 Israel attacked Hezbollah forces in southern Lebanon. Libya’s oil official last week blamed speculation as well as political conflicts for driving oil prices higher. He expects OPEC to have an early review of their output as OPEC pumps about 40% of the world’s oil. Furthermore, decreased business confidence in Germany and France which account for about half of the euro region economy have led to renewed speculation that the European Central Bank will reduce interest rates yet again this year. With lower rates of lending increased inflation will be seen in the euro zone. This could also increase the prices of commodities.