Tuesday, October 15, 2013

Agricultural Prices Still Moving Lower

From Bloomberg:

Rice stockpiles in Thailand, once the world’s biggest exporter, are expanding to a record as a government program to buy production spurs farmers to plant the most crops ever and add to a global glut. 

Reserves in Thailand will increase 24 percent to 15.5 million metric tons in 2013-2014 as global output rises 1.7 percent to an all-time high of 476.8 million tons, the U.S. Department of Agriculture estimates. The price of 5-percent broken Thai white rice, an Asian benchmark, will drop 12 percent to $390 a ton by April, a five-year low, according to the median of eight trader and analyst estimates compiled by Bloomberg. 

We've seen this type of action in the agricultural sector for the last few years.  Prices spiked in 2011 but have since been declining as the private sector has responded with increased production and governments have instituted programs like those in Thailand.  We see the overall trend best in this chart of the agricultural ETF:

The weekly chart shows that prices are clearly in a downtrend.  Momentum is weak and volume flow is weak as well.  However, notice the buy signal given by the MACD.  My guess is we'll see a slight uptrend take over, moving towards the 200 week EMA.  But it won't be much of a rally and until we start to get a tightening of supply there won't be much bullish sentiment in the Ag markets.