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Are Commodity Prices Facing a Food Price Cliff?
The current wave of fear of runaway food prices has a familiar ring to it.

By Nico Isaac
Mon, 07 Jan 2013 17:45:00 ET
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Before you could even say Hallelujah about the US government meeting its Jan. 1 fiscal cliff deadline, the mainstream financial media put us on the edge again, this time, with the food price cliff.

Here's how the usual experts explain this next looming economic escarpment: Increasing inflation has combined with rising global demand, emerging market growth, and supply shortages to create a perfect storm for runaway prices of natural resources and commodities.
 
Leading the charge so far:
 
·         Peak oil: The last drop of crude being drilled will cause an oil price super-spike.
·         A milk cliff: The suspension of a farm bill will bring on $7-a-gallon milk.
·         Corn price cliff: More expensive milk will raise the cost of feeding cows.
 
"It's going to be a good year for commodities," according to an article in the Jan. 7, 2013, Bloomberg.
 
Across the pond, a same-day news report adds: "Food prices to rise sharply -- this is just the tip of the iceberg of food price inflation." (The Telegraph)
 
When I stop and consider the news stories above, I get a sense not so much of dread but of déjà vu. This isn't the first time the runaway-food-price narrative has dominated Wall Street. One year ago, these news stories popped up in early 2011:  
 
·         "I'm a big believer that the commodity bull market is here to stay. The world has changed and if you don't acknowledge that you've been asleep." (Financial Post)
 
·         "We now have the prospect of a full-fledged energy and commodity price shock." (Associated Press)
 
·         "Unexpected oil price spikes could exacerbate an already precarious situation in commodity markets. Over the next few months certainly -- even up to a year -- it's hard to see how prices will come down meaningfully." (CNN Money)
 
YET -- a meaningful, across-the-board decline in commodity prices is exactly what transpired over the next year. From its April 2011 peak, the bellwether Continuous Commodity Index (CCI) plunged 20%-plus to a two-year low before rebounding in June 2012.
 
And in May 2012, the Reuters-Jefferies CRB index of 19 commodities suffered its worst monthly loss since 2008.
 
While the reversal in commodity prices caught the price-shock-expecting majority by surprise, the downtrend fit its Elliott wave script to a T. First, in the March 2011 Monthly Futures Junctures, Jeffrey Kennedy presented the following chart of the CCI that showed an unfinished rising Elliott wave pattern. Our chief commodity analyst and Futures Junctures Service Editor wrote: "The CCI shows the need for additional advance for the pattern to complete itself."
 
 
 
Then, once price action confirmed Jeffrey's bearish wave count, he revisited the CCI in the September 2011 Monthly Futures Junctures. There, he presented a special, expanded "Featured Market" segment on the Continuous Commodity Index that argued in favor of a major turn down that included these timely insights:
 
  • "The Continuous Commodity Index tells a bearish story when we apply the most basic Elliott wave analysis. This month, we will review the CCI's price charts to see why..." 
  • And: "The advance in the CCI from the 2008 low to the high this year is in five waves, meaning that it is an impulse wave. So, with a completed five-wave advance, what can we look for next? ... We can make a high probability forecast that in the months ahead, the CCI will fall..." 
In the end, no matter which way commodity prices go from here, the market's trend will NOT be the result of fundamentals; it will be the result of the Elliott wave pattern under way in the CCI and companion commodity indexes.
 

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