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It’s fairly common in the commodity trading world to initially only think in terms of technical things like moving averages, bollinger bands and all sorts of exotic combinations of these in the quest to generate trading signals. So much so that it’s possible to not even consider the many uses of the market, of which speculators only form a part.

Michael wrote a piece of Barron’s back in June 2011 on the huge demand China has for pigs and how this affects in turn corn prices. Hungry Hogs Lift Wheat Prices.

Smithfield Foods, Inc. produces and markets a variety of fresh meat and packaged meats products both domestically and internationally. They pretty much know everything pork and hog related. In the USA you may have heard of their pork business Smithfield Packing Company, Inc. (Smithfield Packing), Farmland Foods, Inc. (Farmland Foods) and John Morrell Food Group (John Morrell). They also have hog production operations in the USA as well as food processing, distribution and meat processing operations throughout Europe and Mexico.

Clearly they know their pigs, but did you know, that hog feed is an 80/20 blend of corn and soybean meal, and it takes four pounds of the stuff to produce a pound of pork?

As you can perhaps gather from this; a company so heavily focused on the hogs has to be focused on the grain markets as well. Looking at both corn and soybeans at all time highs and the current drought in the US negatively affecting the supply of these grains their costs of doing business are clearly rising.

This is where Smithfield Foods Inc. provide an example of where hedging fits in commodity market, as well as company strategy.

You see, Smithfield missed their forecasts with their quarterly earnings and have reported that their domestic hog production will be “negatively impacted” by the jump in feed prices. But they have been employing a hedging strategy and they believe their “favourable grain hedges” will limit the damage of the high grain prices the market is experiencing.

Larry Pope the Chief Executive said “our successful risk management strategy should meaningfully protect margins and produce results that are significantly better than the industry as a whole”.

With such serious increases in the feed costs that their business is so dependent on it would not be unforeseeable for them to have had some crushing losses. However, as a result of intelligent hedging in the commodity futures markets over the whole year, at worst they expect a “marginal” loss and even perhaps a small profit.

Commodity speculators who all too often get a bad rap are often on the other side of these trades allowing the transference of risk for such companies as Smithfield Foods Inc. Smithfield look to transfer the price risk that high grain prices will have on the business by locking in prices in the futures market at a level acceptable to their business and the speculator looks to make a profit for accepting that risk.

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There is a telling move in cocoa and there are some strong suggestions as to why when looking at the fundamentals.

In the world of cocoa the worlds foremost producers are the Ivory Coast and Ghana, with the former taking the first place and Ghana second. Politically this is not a region without troubles and the usual take has been that Ghana is the more stable of the two.

In 2011 troubled elections in the Ivory Coast sent bean prices rising in a not unusual market reaction.

This year in Ghana, the traditionally more stable one of the two, we saw the death of the president John Atta Mills who went by the name Asomdwehene or ‘King of Peace’. This increases uncertainty in the region over stability. Ghana were quick to put the Vice President in a care taking role which seemed to keep a lid on a potentially volatile reaction. However, the real test comes in December this year where elections will take place.

Recent actions by the Ivory Coast could well see prices spiraling out of control.

They have set up the Cocoa and Coffee Council in order to try and protect farmers from price volatility. To do this they sell most of the national crop well in advance of harvest and they are guaranteeing to pay farmers 60% of the advance prices.

This all could go very wrong if futures prices continue to rise. This will mean that farmers will get considerably less from the government than they would get in the spot market. If the payout price falls too short of the futures price farmers could chose to default on pre-agreed sales, sell at market prices or even resort to smuggling in order to sell in next door in Ghana. This mess would see those cocoa dependent businesses racing to gather supplies and an obvious spiral upwards of the price.

In addition to these issues Macquarie estimates suggest production is set to be down for a second season in 2012 – 2013 with a shortfall of more than 100,000 tonnes as a result of drier than usual weather.

These factors add support from the fundamental side to the move that looks to be underway in cocoa.

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wheat chart

Wheat the worlds most popular grain has recently had a strong run up since the end of June 2012 and is currently trading in a range between yearly highs of 947’2 and 852’6.

This is great news for traders who got in at the start of June and for farmers who have been able to lock in high prices for their crops. On ‘CBS This Morning’ (03/09/12) Dr William Davis a cardiologist calls wheat a “perfect chronic poison”. He is the author of the new book Wheat Belly.

Listen to the Wheat Belly audiobook for free by signing up for Audible’s free 30-day trial membership

According to Dr. Davis this is not the wheat of your Grandmother’s but a quite literally deadly version. The vast majority of wheat grown in the USA is genetically modified which most of us are aware of. Many have heard that wheat is not a great choice for many people causing gluten sensitivities and celiac disease amongst other things.

What you may not be aware of is that according to Dr. Davis the current genetically modified wheat has many things that you may not have heard of and indeed may be shocked to hear about:

“There’s a new protein in this thing called gliadin,” Davis said. “Everybody is susceptible to the gliadin protein that is an opiate. This thing binds into the opiate receptors in your brain and in most people stimulates appetite, such that we consume 440 more calories per day, 365 days per year.”

The Doctor goes on to list a long list of problems that occur from having wheat in one’s diet.

Now there is nothing to stop us going back to the wheat that Grandma remembers except for the economics of the business. This genetically modified wheat with its associated health concerns is economically superior due to its far higher yield per acre.

Higher prices, higher yields, higher health costs…… what is the true cost of wheat?

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cocoa chart

Looks like an uptrend in the cocoa has begun on the weekly chart. Weekly data is less random than the daily charts.

Each tick is $10 and there are no daily limit moves in cocoa, so make sure you know what you can handle volatility-wise.

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You should understand that everything you read from this point forward is to manipulate you. Everything from the headline, to the first paragraph, as well as the links and all the photos are deliberately placed to compel you to click you mouse. Everything else is irrelevant and your belief system and ideology hardly matter. When you click you’re mouse, someone is getting paid. That’s the theory that Ryan Holiday subscribes to in his new book Trust me, I’m Lying.

Download this book for Free at!

Depending on how you look at it though, Holiday is either a genius or untrustworthy. After all, this is from a guy who manipulated the media and got Nobel Prize in Literature contender Tucker Max and his 2 epic thrillers soon to be movies starring Kristen Stewart I Hope They Serve Beer In Hell and Tucker Max Is An A**hole to the NYT Best Seller list. Until recently, Holiday thought you were the ignorant a-hole, but comes clean and effectively asks for forgiveness with in his new book by confessing his sins. I’m not so sure I buy it.

It’s true the Huffington Post knows what gets to you and they give it to you exactly the way you want it. They know with a great deal of predictability that you will feel good with pro-President Obama articles and derogatory Republican ones. That’s easy, but it’s not journalism. It’s called Pageview blogging.

You might not know though that you are more likely to share articles that make you angry more than the ones that make you happy. Those are the articles about the tax-efficacy of Romney’s investments or anything solidly Republican or how President Obama has not gotten anything done in 3.5 years since taking office, or that he’s painfully behind in campaign fundraising — a key metric in winning elections – and will most likely lose because Romney is so rich, he is his own Super Pac.

They won’t necessarily shy away from showing President Obama with ought-to-be in jail Jon Corzine, although it’s common knowledge that Corzine left Goldman Sachs with a greater net worth than Mitt Romney and that $1.2 billion of customer funds are still missing. The major blogs know that with a picture like that, readers can always attack the author of the article, as long as it gets you angry.


Does this picture make you angry at me, President Obama, Jon Corzine, or at Wall St. in general? Either way, as long as you get angry, the blogs win.

According to Holiday, you don’t read the major blog to learn, but to be tracked and studied like lab rats whose data is mined like blood diamonds and is for sale to the highest bidding advertisers. They push your buttons, you click theirs. That’s the business model. And although most pageview-based blogs disclose what they do with your data, the rules are written as if it were a Prospectus for an IPO. Moreover, you most likely don’t know the processes in which your data is being used. Time to make the sausages — want to watch?

This tactic is not just relegated to Huffington Post, but to most of the major blogs such as Business Insider, Politico, and Gawker. “Blogs are there to manipulate you,” said Holiday. “In many ways, the truth, the facts, the research, and the attribution of quotes are irrelevant because of how bloggers are paid.”

Holiday contends that you don’t really care what is fact or fiction because of how your emotions are poked and prodded: readers are like a cattle that never quite get slaughtered, but are moved through a deliberate cattle-herding process of ongoing double-clicking. In the process, you the reader get to feel understood by sharing your anger or dissension with other like-minded individuals and that makes you feel good. People want to be understood. Good feeling gone? And where is the Corrections and Amplifications page on these blogs…?

Holiday further contends that the issues are secondary to them to the extent that they can get you to a) click on the articles and read them; b) rate the article from 1 to 10; c) stay on the site and read related articles; and d) share the article on Twitter or Facebook. Why else do they give you the ability to login with your Twitter or Facebook credentials?

By making it easier for you to share, you will do it. Also, you are bombed with advertisements during the process, and as you probably figured out by now, all your Twitter and Facebook data are accumulated for someone else’s benefit. Then again, you get badges and recognition for your Huffington Post dashboard and Facebook as a “Super User.”

Holiday thinks you should understand that to mean “Super Used” because to him you are no more than a tool – a collection of people to be agitated enough to create a wave of free publicity for the benefit of his clients and the benefit of the blog. Still clicking?

Despite absolute disdain for the Huffington Post, Holiday reserves his strongest language for Business Insider honcho and founder Henry Blodget who he refers to as a male body part. He thinks Henry is a phony and that his minions such as the ubiquitous Joe Weisenthal must generate 3x their salary in pageviews and that with that business model, most of what Weisenthal must share on Twitter is blathering garbage because he starts each month so far in the hole.

(Disclosure: I’ve written for both Henry and Arianna and neither are evil or bad people, never mind “a d*ckhead.” I like them both very much. As a commodity trader, you might think I am evil or bad. How much are you paying for gas ☺. I also follow Arianna, Henry, and Joe on Twitter.)

Is it ok that you get manipulated as long as you’re aware of it? What do you think of the new fad of anal tattooing that Huffington Post had on the front page?

It says MOM. Guess where the O is?

That isn’t front page material, but it is when you think if it in terms of what is clicked and shared it absolutely is front page material. Holiday’s theory is terribly true in this regard.

Even the left-of-center Huffington Post readership is willing to put a video of a troubled 22-year old woman getting her anus tattooed while doing shots of alcohol as long as it’s shared. Even the left-of-center Huffington Post readership will not see this as degrading to women because the sharability of this video overcomes the reader’s otherwise liberal sensibilities b/c “hey, it’s her choice to do this to her body.”

Here you have to choose between the varying strata of being liberal. The Huffington Post and other large blogs know how you’ll vote so to speak before you click your mouse. As long as it’s something worth sharing, you’re less likely to see a pure form of journalism for the highly shareable pageview journalism that is so much more profitable.

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