Commodity Prices On A Tear

“…Here are nickel futures. Russia supplies 12% of the world’s supply. Gee, I wonder why it has a spikey thing on the end?

The main market for Nickel futures trades at the London Metal Exchange. Don’t try to trade them, because they suspended trading. A Chinese company had a huge short and had to get out. That added a lot of pressure to a market that was already on its way to the moon. They are still sorting things out as I write this.

For what it is worth, nickel is an essential element in the battery of an electronic vehicle. The other is lithium. Most of that is mined in China although they found a huge deposit in Nevada. Of course, the Green movement wants the lithium in Nevada to stay in the ground yet they agree with Buttigieg that we all should be buying electric cars. Green people are out of touch with reality. When the wheel was invented in the Stone Age, they’d have kept dragging things around.

Nickel’s rally, and the reliance on Russia for supply is going to make electronic cars a lot more expensive. Stainless steel just got a lot more expensive too. How many things does stainless steel go into?

As an old dinosaur commodity trader, I checked out some of the hard-core ag markets to see what they have been doing. It will be no surprise to astute readers of this blog that the prices across the board are higher than they used to be. Principally, you can blame the level of government spending for that increase. Inflation happens when there are too many dollars chasing too few goods. The Fed printed dollars, and the Federal government helicoptered them into the pockets of Americans. That guaranteed inflation. Biden’s Build Back Better would increase the rate of inflation, not decrease it.

Two quick ways to decrease inflation are to increase interest rates and really drop the level of government spending. The second will work better than the first.

When you see moves like this in one market, you start to think about margin calls. Since futures are traded on margin, big moves force exchanges to increase the amount of money they want from traders to hold positions. That happens in rallies as well as breaks. I can recall being short hogs and watching the stock market meltdown in 2008. Because of the margin calls in stock futures, it carried over to agriculture futures. It didn’t matter what the underlying supply/demand fundamentals were, every market was going south because people were selling to raise cash for margin.

Here is wheat. Wheat is the main product of Ukraine. I know that Cargill, ADM, and the other big grain companies have huge operations there but I haven’t heard a peep from them. Being typically corporate, even after their ship got hit with a Russian missile, Cargill didn’t rock the boat (pun intended). Easier to close a McDonald’s than it is a farm operation…

…One problem for producers is that often there are government regulations that get in the way. President Biden is full of shit when he says he is producing more oil. His first actions in the oval office cut off oil exploration. If he’s serious about bringing the pain to Russia and not American citizens, he’d lift that series of Executive orders immediately. We’d be drilling in Alaska. For your information, Alaskan oil production is at its lowest level in years even though prices have been rising. Gee, I wonder why?

Biden is a chicken and won’t take on the radical left-wing of his party. He’s killing the country by not doing it. What’s morbidly funny to me is Biden’s son Hunter was on the board of directors of a Ukrainian oil company. Ignore whether he was qualified or not. It’s clear he wasn’t. Why is a former Vice President who is supposed to be so “green” allowing his son to be on the board of directors of an oil company?

Maybe the Presidential limo should be electric.

I hear people say “markets are broken” or words to that effect when strange stuff happens. It’s just that they don’t understand it, can’t figure it out, or had things go against them when prior to the move all their internal logic told them something different.

Markets work. There are markets in everything. There are always costs and opportunity costs. People’s preferences create supply and demand curves. Markets are beautiful things. Even when huge price swings happen, that just creates opportunity. If Biden reversed his pedantic Executive orders for the American energy industry tomorrow and go back to the Trump policy, the price of crude would drop in response. That’s because expectations would radically change.

Markets are why the famous bet Julian Simon made worked out for him. Conveniently, the person he bet, Paul Erlich, with was a welcher and didn’t pay. Leftists are like that. They have an excuse for everything and blame someone else for their mistakes…”