Commodity ETF Alert May 2009 Portfolio Update

| May 26, 2009 | 0 Comments

May 26, 2009

A few years back, my friend Eli bought a boat.  It was actually more of a collection of rotting wood and rusting metal… but it was his.  On more than one occasion, Eli received a call from the harbor master.  His boat was taking on water.

He’d rush down and save his boat, patching whatever new leak had sprung.

He spent all of his free time fixing up his boat… weekends, holidays.  It was his passion.  That’s how it is with men who love to sail.

Lucky for us these men exist because boating and commodities are linked.

Let me give you an example.  Miners in Brazil are digging up iron ore.  China needs the ore to produce steel.  The only way to deliver it half a world away is by ship.

As mining increases, so does shipping activity.

There’s a number of shipping companies who specialize in large scale shipping.  Their activity is a good indicator for global economic health and activity.  It’s such a good indicator because the supply of ships is fairly constant.  Making demand for these vessels the main reason for any changes.

Prices for shipping varies greatly depending on demand, speed, cargo, and availability.

The Baltic Dry Index was created to give a good overview of shipping activity and pricing.  Interestingly, this index is focused on shipping costs for commodities like iron ore, coal, grain, and fertilizer.

As you can imagine, the recession decimated shipping prices.  They hit a 22 year low in December 2008.  I guess nobody had a reason to ship anything.

Now prices are finally rebounding.

We’re nowhere near the record levels of 2007 and 2008, but at least it’s not getting worse.

We’re seeing shipping prices rise.  Indicating demand for commodities is increasing as well.

And that’s good news for us!

Let’s take a look at our open positions…

Position Updates

. . . .iPath Dow Jones–AIG Livestock ETN (COW) – Buy up to $32.00
The new trade for May has been moving sideways.  I take this as a good sign.  The commodity is putting in a base.  I’m expecting Lean Hog prices to rebound here shortly, driving this commodity ETF higher.

. . . .iPath Dow Jones–AIG Copper ETN (JJC) – Buy up to $35.00
After a nice jump in prices, Copper prices are right back to where we started.  If you don’t have a position yet, use pullback as an opportunity to establish one.  As economic activity picks up – especial in China – we’ll see this industrial metal jump in value.

. . . .iPath Dow Jones–AIG Grains ETF (JJG) – HOLD
This month has been great for the Grains.  Concerns over drought in Argentina helped drive soybeans to new highs.  US corn, beans, and wheat prices are moving higher on fears that tight credit is limiting how much product farmers can plant this season. Simply, supplies are down and prices are moving higher.  Watch this closely as we’re near our profit target of $46.

. . . .iPath S&P GSCI Crude Oil Total Return ETN (OIL) – HOLD
Our OIL ETF moved steadily higher, breaking above our buy-up to price.  We’re moving this to a HOLD.  I’m still watching crude prices as I’m expecting $70 a barrel for oil in very short order.

Action To Take

 •  Move OIL to a Hold.

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.