Over the last year, prices for many of the world's leading agricultural commodities have soared to multi-year, even multi-decade highs. And, as the steady uptrend has been going on, fears of runaway food costs have gone from private, inner farm circles TO the very public mainstream financial circus.
On this, the following slew of recent news items sets a very alarmist tone:
- "United Nation Food Agency warns the world is nearing a food crisis." (January 25, 2011 NPR)
AND --
- "The world is very clearly and scarily entering a food crisis that originates... as the petridish model or the glass of sugar water. The organisms multiply and notice no shortage of sugar (food) until the end and start tot run out. Do you know what happens? They cannibalize each other." (January 26, 2011 International Business Times)
Add the September 2010 eruption of deadly food riots in Mozambique, and now the suggestion that a famine-stressed civilization could regress into a Lord-of-the-Flies-like primitive state -- AND it's deja food crisis all over again.
But do you remember when first go-around occurred? In 2008.
At that time, the whole commodity kit and caboodle was soaring to new all-time highs. Wheat and corn had rocketed over 140%, crude oil rose within spitting distance of $150 per barrel, and food/energy-related protests broke out across the world from Africa to Asia to North America. The mid 2008 financial webosphere teemed with time-to-panic news items, such as:
"World Food Crisis Is Silent Tsunami" (New York Times, 2008) -- AND -- "Commodities Bull Run Has A Long Way More To Run... There is evidence that the resources markets have decoupled from the US" (Associated Press, 2008)
YET, come July 2008, both crude oil and the Reuters/Jeffries CRB Commodity Index (CRB, for short) turned down from their record peaks and rejoined the entire financial sector in a sustained, synchronized free fall.
In the five months that followed, the CRB Index fell nearly 60% to nearly erase all of its seven year bull market. Oil plunged 78% over the same period in the fastest-ever commodity decline of its size.
The 2008 drop caught the "food shortage" alarmists like a deer in headlights. Their forecasts were based simply on extrapolating current trends forward, with no basis for knowing when the said trends might reverse. And that's exactly the advantage Elliott wave analysis offers you -- being able to estimate when the market may top (or bottom).
While the world was berserk over 2008 commodity prices, Elliott Wave International's analysts were issuing warnings to subscribers that the run-up was ending:
- May 2008 Elliott Wave Financial Forecast saw the "spasm of semi-organized opposition to price rises in commodities common to" both then and the flour riots of 1837. We warned: "If the parallel holds, relief will come in the form of a market-induced reversal in commodity prices."
- June 2008 EWFF: "The oil chart offers something more substantive: a complete or nearly complete bull market pattern. The fifth wave has carried to the upper line, which signals that the rally is nearing an end. Be ready for a reversal."
- August 2008 EWFF: "In July, oil as well as the larger commodity markets touched a high that should stand for a long time. The stage is set for a long-term reversal that permeates the commodity markets."
Flash ahead to today: Bullish sentiment for commodities, masked in food/energy crisis fears, is at the level it was in 2008 -- even though prices are 30%-40% below their 2008 apex. Here, EWI president Bob Prechter captures this startling divergence in his October 2010 Elliott Wave Theorist via these two charts below:
.GIF)
.GIF)
In Bob's own words: "Do commodity traders feel the way these charts look? No, their optimism is way outpacing prices."
Friends don't let friends drive with the mainstream herd. Join Elliott Wave International's 2011 Campaign for Independent Thinking and get back-door access to the most groundbreaking reports, newly launched resources, special offers, and more. Click here to begin.