Grain Index Approaching 2008 Peak

I have mentioned that one sector of the commodity complex that has been able to defy the general selling trend that strikes the overall sector during RISK AVERSION or SLOWING GROWTH trades, has been the grain sector.

The reason? Simple - the fundamentals on the SUPPLY side are so strong due to the horrendous drought impact that any setback in price related to algorithm selling has been met with very strong buying from fundamental based buyers.

As the drought continues to ravage the crops here in the US, wheat has been pulled higher due to inclement growing weather in the Black Sea region. The end of all this has been to take my personal GRain Index to levels nearly equal to the peak prior to the onset of the 2008 credit crisis here in the US.

Unlike that time period however, when the entire commodity sector was running wildly higher and crude oil was making a go at the $150/bbl level, the commodity sector is being GENERALLY sold as an asset class due to fears of a  slowdown on the DEMAND side of the equation.

It is going to be interesting to watch to see if demand for the grains can be sustained at these lofty levels.

Regardless, with this all important ESSENTIAL sector moving to these near record levels, suffice it to say that consumers and end users are going to feel the impact in the months ahead, if not already. The last thing that cash strapped consumers wanted or needed was further stick shock at the grocery counter.

My guess is that this huge move in the grain sector is going to put a serious dent in the disposable income of the average consumer and that this is going to be witnessed in another hit to the retail sales moving forward. Simply put - more and more of the shrinking pie of consumer income is going to end up going to food costs in the coming months. That is not exactly bullish for the US economy nor the global economy for that matter.

With one sector of the commodity complex moving sharply higher and other sectors languishing, we are once again being treated to yet another set of conflicting crosswinds that will muddy the prognosis between fears of inflation and fears of deflation.