RF Posson & Company, CTA

Also presented by Ag Financial Strategies  ag-financial.com  1-877-580-AGFS

Market Commentary 6/6/08

• Weather-  RFP Chicago Precip index reflects wet conditions so far 2008 but not as wet as the corn belt. The forecast calls for less wet if not outright dry condition Jul into yearend. Chicago Temp index decadal trend is still up and reflects warmer than normal temps and in line with global warming. However, a decadal turn to cool is due any time now into end of decade and current intermediate trend has been cool for 2 months. The cool trend should end in Jun which suggests warmer temps Jul into Sep and perhaps later. Other studies still point to high risk of a cool/wet spring followed by hot and dry summer and higher risk for the US corn crop.
• Trade-Less bearish concern over the US economy. Global demand for commodities remains strong.  Corn and soybean crops are not off to a good start. Balance sheets offer more for the bulls than the bears and for now into Jul or later. Less concern over anti commodity talk.
• Model summary- Bullish commodities 2008. Opportunity for a crop problem for 2008. 

Dow stock index models seek an intermediate trend bottom this month. The BC1 intermediate trend algorithm program will turn bullish in the 12,800s. Currently short the market or bearish. The BC3 long term program will buy the Dow cash index on a stop at 12,800. This is due to the research suggesting the forecast calling for the Dow to bearish as late as early 2009 but to be bullish for 2009 should now be the secondary forecast and the primary forecast should be that the Dow bottomed for a 3yr business cycle at low of this year. The trend is up into 2009 until said low is violated. Since the models still suggest the high of the decadal in cyclical terms is not yet in place the ideal is for a new record high. Some studies offer as high as 15,300 but there are studies suggesting a failed or secondary top for the decadal top and perhaps no higher than 13,800. So the Dow could range trade into 2009 if economic conditions do not continue to improve.  Due to fundamental and technical factors we would rather error on the side of an early call for a long term bottom. Indicators suggest the Dow is under valued.

Late last year we forecast the ISM manufacture index (economic indicator) to bottom by first half of 2008 and for the US economy to improve 2008 into 2009. We feel the index bottomed in Dec 2007 or Feb 2008. The trend is up. We feel this offers support for continuation of the strong commodity demand trend.

We feel the 3yr business cycle for interest rates in terms of the 30yr Tbond bottomed this year and is now up into 2009. We do not expect a major increase in interest rates but we do expect higher rates.

The Posson Grain index was due for a bottom late last month or early this month. We believe the bottom has occurred and the trend is up into next month. Studies suggest potential for as much as 20% price increase.

Crude oil forecast suggests until the May high is violated a long term 3yr business cycle top was placed. And this should mean the high is in for the year. This is not the case for natural gas. The models do allow for the long term crude oil top as late as this Sep. The decadal and multi decadal business cycle trends should remain up into 2010. So we assume the consumer to get a break late 2008 and perhaps into early 2009. And we assume oil will some day trade over 150.

Unprecedented?

There has been much talk that the recent 2 year bull market for crude oil, corn and other commodities is unprecedented. And therefore the free market system is broke.  Our research of 2 year bull markets for a few commodities and for past 500 years suggests bull markets have occurred 58% of the time. And that bull markets with over 60% price increase have occurred 25% of the time. Half of the bull markets have been with over 60% price increase. In addition some bull markets achieved a 400% price increase in 2 years. The underlying fundamentals or overlying news articles may offer an unprecedented "reason" for the bull markets but in terms of price this decade's bull markets are not unusual! In fact with or without commodity index funds the performance is normal.

Agriculture Energy Markets-

Corn- Models are bullish the intermediate and long term trend into Jul. The long term trend may extend into yearend. For months now we have stated there is long term potential for 680 to 1100 corn. Yesterday we learned of point and figure chart potential which was created from recent range trade that offers 730 to 970 DEC. Earlier this week we made a forecast for 147 yield and this from current crop data. Later in the week we heard that a well known crop analyst offered 149 and another offered 148.  Our annual report made a correct acreage forecast (at least so far) and offered a yield of 143. Looking at crop condition trend and the possible weather trend through the growing season we will remain with this forecast.

Wheat- The models suggest the long term trend is down into 2009 but allow for large post harvest demand trend. Long term research is beginning to suggest chance for long term support in the low 700s to 680 spot Chicago wheat.  The intermediate models call for a rally into Jul. Will the rally be weak and when finished price will decline into harvest low. Or will the market place an early harvest low. Intermediate trend research suggests market is under valued but demand is poor due to buyer holding (or trying to hold out?) for new crop supply. Over all global demand is still strong.

Agriculture Protein Markets-

Soybeans- The models are bullish the long term trend into July or later and allow for extension into 2009. There is still potential for 1800 but 1600 is now a major hurdle.  Models suggest the intermediate trend is up into Jul. A triangle formation from Apr low was violated to the up side and as of this week. The coiling characteristic has been completed and a new up trend launched. Point and figure chart potential from latter half of May allows for 1488 NOV to 1583. A pull back to break out point of 1400 should not be ruled out and if traded correctly such action could build potential for 1700.

Soymeal- The intermediate trend models revised just in time to call an intermediate bottom last week and along side soybeans. The trend is up into Jul. 400+ objective. The new high in OCT compared to last month's is a sign of unfinished business and new highs should occur into Jul. The trend of highs is up. And market is still fair valued.

Dairy

Milk- Models are bullish milk into late 2008 and allow for extension into 2009. There is potential for 25 to 30 dollar C3.  Milk has trended lower relative new money as crude oil and old money as gold.  This market has been under valued in its own right and in comparison to commodities in general. The intermediate models turned bullish this week. Current trend should be up into Jul.

Hogs- Models turned long term bullish shortly after the current low of this year. The trend is to be up into late 2008 and may extend into 2009. 85+ objective. Supply has been large but producer was put into financial trouble with the occurrence of the low of this year.

Cattle- Tight supply and good demand. Indirect weather risk. Higher cost of production. Models turned long term bullish with the low of this year. Trend should be up into late 2008 and may extend into 2009. 110 objective.

Past results are not necessarily indicative of future results. This document is for informational purposes only.

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