arbitrage
Arbitrage opportunity in agriculture
When we look at the potash price we see the following trend downwards. Ever since the break-up of the potash cartel between Uralkali and Belarusian Potash Company in July 2013, we have seen a drop in potash price from 400 USD/t to 300 USD/t (see chart below from InfoMine.com).
Normally, the potash price follows the food price, because the food price is a leading indicator for the potash price. I have noted this correlation here. So you would expect that the potash price would get some momentum upwards since food prices have soared almost 20% since the start of 2014 (see chart of RJA below from Google Finance, which represents agricultural prices).
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The Declining Trade Deficit: Not As Rosy As You Would Think
As you can see on Chart 1, the decrease in deficit was due to an increase in exports (red chart) and a decrease in imports (blue chart). This looks very promising, but I want to show that not all is well if you look into the details.
Chart 1: Import Vs. Export |
Let’s look deeper into these import and export numbers. Chart 2 gives the breakdown of the export numbers. The largest segments are “machinery and transport equipment”, “chemicals and related products” “mineral fuels and lubricants” and “re-exports”.
Chart 2: Exports January 2013 |
Chart 3 gives the breakdown of the import numbers. The largest segments are ‘machinery and transport equipment”, “mineral fuels and lubricants”, “miscellaneous manufactured articles”.
Chart 3: Imports January 2013 |
From these numbers we can deduct that the oil industry is indeed a very important segment that will influence the import and export numbers.
If we then further look at how these numbers evolve in time from January 2013 till June 2013 we have charts 4 and 5.
Chart 4: Exports (billion USD) |
Chart 5: Imports (billion USD) |
When analyzing the trends on charts 4 and 5, there is one segment that is worth noting. We see that exports of petroleum products (which are incorporated in the segment “mineral fuels and lubricants”) have been going up, while imports of the same have been going down. The reason for this can be found in the divergence of West Texas Intermediate (WTI) crude oil and Brent crude oil.
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Follow Up on Eric Sprott’s Bullish Call on Gold
As a follow up on Eric Sprott’s bullish call on gold here, let’s see what has happened ever since.
His premise was that hedge funds take possession of their physical gold of the GLD trust, because there isn’t any other gold available. As they take possession of this physical gold, they are going to sell it to China who give huge premiums on this physical gold (around 3%).
Following chart indeed says to us that hedge funds are still taking possession of their GLD trust units. The GLD now only has 969 tonnes of physical gold left. The question is now, how much physical gold does GLD really have? If someone knows, please tell me. But we have another way we can look at it, by just looking at how much registered gold there is on the COMEX.
Chart 1: GLD |
If we look at the COMEX warehouses, registered gold (which represents 40 tonnes physical gold) is declining (blue chart on Chart 2). Total stock is declining too (around 200 tonnes). When these charts hit zero, there is no gold anymore at the COMEX and we will see defaults. The gold exchange will become a cash exchange.
Once the blue line intersects with zero, bad things will happen because no physical gold is available at the COMEX. I guess that when the blue line intersects, there is a chance GLD could blow up as people scramble to get physical gold at the GLD trust.
Chart 2: COMEX |
Jim Sinclair confirms:
Chart 3: Shanghai Gold Premium |
Chart 4: First Majestic Silver premium |