Friday, March 28, 2008

Bookkeeping: Cutting Back on Powershares DB Agriculture (DBA) - Focus on Fertilizer for Now

Despite no change to my long term view on the crops I am cutting back on my Powershares DB Agriculture Fund (DBA) position to a 0.5% fund holding as the chart appears to be going sour (breaking down below the 50 day moving average). I am cutting back here in the mid $37s. I am still concerned about more deleveraging by hedge funds, especially if the credit market continues to struggle and banks want to repatriate their money - and the hedgies seem to have really had an even larger effect than I assumed on these commodities. [Feb 28: The Hedge Funds are Coming! The Hedge Funds are Coming!] So at this moment the hedge funds overpower the underlying fundamental crop supply/demand situation - this will reverse in time I am very confidant but I don't want to stand in front of a herd of panicked hedge funds if this scenario plays out. As with everything of late - better safe than sorry; cash is not trash. There is a reason I call these hedgies locusts - they come into an area en masse, feed, ruin it, and then move on... so we'll let this ETF settle and then revisit at either a lower price or on a breakout. I'll be focusing instead on the fertilizers for the near term as Mosaic (MOS) reports next week.

With that said, no change to my long term view and I look forward to next week's crop report - my expectation is the exact reverse of what happened last year when farmers piled into corn due to the ethanol boondoggle. With the ridiculous rise in wheat, I expect a huge upswing in wheat plantings and ... *drumroll* a shortage in corn. Which will drive it up next fall/winter ;) And so the World of Shortages continues - until farmland devoted to growing crops (along with large yield increases) starts happening, it is simply robbing Peter to pay Paul. Take from 1 crop, another will derive a shortage next year. And so we'll continue... as too many humans want to eat like a Westerner, and we keep putting food into our cars (not just here in the US, but worldwide).

Still very wary of this market as a whole...

Long Mosaic, Powershares DB Agriculture Fund in fund; long Mosaic in personal account

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