This could go down as one of those posts that mark the exact top in the markets, at least for awhile. But there is something that’s been gnawing at me and no one seems to be talking about it: INPUT COSTS!
The above table is my raw commodity index inside of The PPT. As you can see, over the past two years most commodities have collapsed. No wonder SBUX, SJM, DNKN and GMCR are doing so well. Coffee is down 60%!
Curious as to how HSY got to $90 p/s? Look no further than the price of cocoa and sugar down 30%.
My guess, companies had some hedges against the rise in commodity prices. But they’re probably going to lighten up on them now, since there isn’t any pressure on raw materials. If this trend continues, miners and farmers enter the fag box and never leave. Manufacturers will see their margins explode, even grocery stores stand to benefit. Look at NGVC as of late.
If timber comes in, residential construction will benefit, as well as makers of furniture. The fact that cotton is down 25% helps retailers and clothing manufacturers, just like a lower price of oil and distillates helps truckers and shippers.
Make no mistake, lower natty and coal is by design, a great tax cut for the unwashed American pleb shopping for broccoli at Walmart.
Wheat and corn have been weak, helping chicken companies like PPC and SAFM. There are so many benefits to lower input prices it’s hard to isolate a single idea. I think it’s fair to say it’s a gigantic boon for the entire country. We’ve been blessed with cheap coal and natural gas, now everything else is getting cheap.
Thoughts?
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Give us the ultimate China shorts. It is related!
LFC
i agree
america can fight with energy cost because china cant. china might have cheap labor. but how much is fuel and electricity there? that’s just one aspect.
either way. its still bernanke’s game. make it rain ben…
RIO has started being a regular feature on my degenerate momentum screens. It seems out of place so I put it on my radar last week.
hate it
This virtuous cycle has not deflated the price of Oil. One of the reasons this recovery has been so anemic is that prices still hover around $100. What happens when Oil breaks to the upside as this “recovery” gains traction?
I’m surprised the blight affecting coffee from Central American growers hasn’t put upward pressure on the price,yet. Related article:
http://au.finance.yahoo.com/news/blight-sweeping-central-american-coffee-230105561.html
it’s the dam, chem trails /geo -enginnering my friend ! wake up america !! ..happeing here in CA also..rust, powder mildew been a big problem ! google most important topic of our times !
Shut up
About time you’ve written this explicitly. You’ve mentioned this many times and IMO are spot on.
I only notice that it has recently gotten substantially more expensive to fill up my tank. I am extremely price insensitive but it has risen from the high $40’s to right about $60 per tank now.
And thats all i have to add for the moment.
What sort of bizarro land do you live in?
Oil is UNCH for the year.
you must live in the land of egregious price gougers
Raw material prices are down because demand is down. Econ 101, right?
But if demand is down how can the economy, that depends on raw materials, be rising sharply?
It’s all ass backwards…
My theory is if the Fed can jack stock prices up, why can’t they suppress commodity prices too?
My theory is less conspiratorial. China is down. At least, the big state owned enterprises are down. China eats commodities like Cookie Monster (not very efficiently). No one needs tons and tons of crappy Chinese steel. Rather, we need the advanced steel alloys for our motorcars that only the U.S. produces (at the best rates because of low energy costs). As for other commodities like coffee and the like, other places are not doing so well. Ask an unemployed Greek dude to pay $5 for coffee… not going to happen. We’re doing relatively well, have a largely service/sales/technology economy that uses resources efficiently. And, since 2008/9 all business effort has been directed at hiring fewer people i.e. using materials and technology more efficiently. You can have an upwardly trending U.S. economy and low commodity prices because we don’t need so many commodities, and no one else can afford them. If you get rid of the massive commodity monster that is China, well, all the better!
I’d also like to add that there is a lot of talk about China’s new leadership being more thoughtful about how public money is spent: No more giant projects for the hell of it. But, if China announces some big new multi jillion dollar stimulus that includes massive building projects – obviously, that won’t be good for U.S. companies’ input costs on the commodities of relevance. I keep waiting/watching for something like that to jolt the AUD, etc.
I’ve got an alternative answer for you: all of the major producers hedged all the way to top. That supply may hit in the future, but it effects the futures market now. That and I imagine pension funds are bailing on their commod index positions; when the ETF’s rolling supports half of a given market, their absence eats into demand just as viciously as did their presence. Oil’s levitation act, however, is going to provide a floor for most of the sector, as it’s still a (if not the) primary production input.
prices are down because our friends in the goberment will it to be that way. Fixed game.
regards
Chuck Bennett
Dearest Fly,
Does this not speak well for your old fave the Man of East aka the EMN chemical company for wayward boys? It would seem to this avatar that the contingent of EMN, DOW and WLK would be a nice start. CEO of the OMG amazing company EOG notes a 6 year cap on natty. This young CEO has been on the dot repeatedly. The chemical companies would eat lower natty like a vegan to some vegetable sheesh-ka-bob roll. May one also look to small cap fave POL, althought that has run extensively, for their OMG amazing medical gloves. This avatar champions a barbarella approach of collecting the DOW divy and waiting for it to become the CAT of the decade. Remember when CAT was just a kitten and perennial price of $18. Now the DOW chemical will have it’s toxic day with a plethora of vibrant markets: chlorine, carbon fiber, 3d printing, oil and gas chemicals. Maybe DOW will do more for the children than even the HAL. THis avatar also likes the EMN to go to 100 and beyond. WHy? because stocks that close at 72.26 always go over 100. Everyone knows that even the not so nice person at the spamtwits who followed this avatar on the twitter and we were forced to block to avoid their serpentine ways.
Kindly regarding,
Scotch the Tape
Yes Chems benefit
Lumber prices are higher however thusly. In talking with large suppliers of lumbers on a somewhat frequently infrequent basis exotic woods have risen, and many lumber companies have been liquidated. PLease note that sentence is exclusive of the company known as LL, and in no way, spherical shape or form related. This avatar has seen the rise of furniture companies in the game of stocks, but being close to top shop on eastern seaboard coast can attest to a less than brisk pace of furniture sales. To be described as oatmeal lumpy at best.
There is too much capacity in natural resources, but its going away. Maybe this is a short term catalyst for margins, but imho it speaks more about how screwed up this cycle is – a huge chunk of these companies would have fallen by the wayside years ago were it not for the great yield-hunt, which allows them to effectively operate as zombie companies. But thats the whole economy now – where was the ‘creative destruction’ in financials?
Mal investment nightmare of the evil generation. Hide the kids of every fucking living thing on earth. Humans animals plants etc. The boomers need NOW.
The days of old were the price to sales price to earnings price to whatever gets one 2% of the investment on top of commish. Stocks now move based on the twenty players left standing and they all need to sell to bank the coin in the new normal. Fundamentals are beyond fucking dead. Catch the move then get out. It is what it is until it is not.
The great EBT america makes input cost commodities for 90% of goods companies irrelevant. It is the foodstamp that matters not the price of corn.
Comment-
As pointed out by others here, good times are here for the very wealthy, corporations and upper income people.
For middle and lower income people, prices at the grocery store are about the same. The great portion size/quality degradation game is in full effect at the middle income consumer level.
Isopropyl alcohol at the grocery store is up about 200 percent in one year. It is 70 percent water. This must be raising prices just for the hell of it, what else could it be?
I was in Starbucks yesterday, they have been pitching food items that are off the chart in expense, for the portion size.
Chipotle is an exception, they are packed, line to the door. I think this is not so much the food quality, but the larger quantity of food they serve for the money. Chipotle is booming because people are hurting, and lower income people consider it higher end food.
I’m not crusading for change here, just describing what I see.
Since when is IPA only 60 proof? Where I grew up it was 100 proof minimum.
was in the supermarket last night buying coffee .. with coffee at freshly-perked & brewed new lows, coffee prices were at freshly-brewed new highs! .. un-fucking-real !
americas corporations are raping the consumer
which leaves the door open for some coffee-entrepreneur middleman who is willing to sell coffee, over the internet, for a nice discount to the corporate al-queda types sticking it to the american consumer
that will be the next great stock theme to emerge .. because if u can do it for coffee, u can do it for many other commodities
This is the buying opportunity of a generation, I am converting my kuggerands into coffee as we speak
I think this is half the battle Lower input costs obviously make for higher profit margins, but one needs demand for the product to make the sale for which there is greater profit margin. If we now look for stocks that have strong sales growth that use raw materials ti build their widgets we got us a party.
P.S. If this article was the cover of Barrons I would be putting shorts on
People who buy broccoli at WMT are disgusting. Top pick: NGVC
Wal Mart sells broccoli? No way anyone I’ve ever seen in WMT would eat veggies. Where I live they have a MCD inside and that’s what and where all the WalMartians eat.
US citizens just dont get it. In the states, we pay oil companies 4 $/mcf for natural gas – China and Japan buy the same amount via LNG at 18 $/mcf. Plus Canada is overwhelmed with more natural gas willing to sell for bottom dollar. Input costs for energy will be low for a generation.
And yet my kids are taught that oil companies are evil. China, Korea, Japan and Europe would kill to have our energy input costs.
It all gets back to what Ben yold the Devil at the airport. There is no inflation and will not be any inflation goimg forward
“…shopping for broccoli at Walmart.”
Don’t you mean potato chips?
Also, I would take a more global view than does your headline.
We aren’t the driving force behind most commodities. (coffee maybe, yes)
And, I am not sure full blown deflation is what we’re actually after anyway.