Highly regarded economist and commodity trader Dennis Gartman stunned a large crowd of farmers at the recent North Carolina All Commodity Conference by saying he is bullish on cotton and bearish on corn — a sharp divergence from most agricultural economists.
“What I tell you this morning is what I’m doing with my money and right now I’m buying cotton and selling corn,” Gartman says.
The Suffolk, Va.,-based economist, who publishes the highly valued Gartman Report, says he is also strong on wheat and his position on soybeans changes from day to day.
“One of the basic things I’ve learned in more than 35 years of trading commodities is you always buy things other people don’t want and right now nobody seems to want cotton.
“The other thing is to sell what people want and right now everyone seems to want to buy corn,” he says.
He contends corn is heading for a bear market because acreage will increase this year, some of it at the expense of cotton. At the current price of corn, even bad farmers can make money growing corn, and more corn will be planted, Gartman says.
“The U.S. ethanol industry, a big user of corn in recent years is going broke. The dumbest piece of legislation we have ever passed in the U.S. is the ethanol program. If it weren’t for the fact that U.S. presidential campaigns start in Iowa there would not be an ethanol program in the U.S.,” he adds.
“In the U.S. we are finding oil and natural gas at such a rapid pace that in a very few years the U.S. will become a net exporter of energy.
“If ethanol has to compete with an ever-increasing supply of crude oil and natural gas and ever-increasing efficiency of automobiles and other gas-using vehicles, the industry will fail. If that happens the price of corn will fall,” he adds.
Cotton acreage down
By comparison, cotton acreage will be down across the Cotton Belt for a second consecutive year. In North Carolina, for example, cotton acreage will be down by 50 percent from 2011 to 2013.
China has the world’s largest supply of cotton, estimated at 46 million bales, to supply the country’s booming textile industry.
“When the Chinese released some of these reserve bales, the price of cotton should have gone down — it didn’t. Subsequent releases of Chinese cotton likewise failed to impact cotton prices — good or bad, that’s important,” Gartman says.
“When bearish news hits a bearish market and nothing happens, think bullish thoughts. That’s where I am with cotton right now,” he explains.
China is the dominant influencing factor in world cotton production, but they cannot afford to stifle growth in cotton production because that stifles growth in their own textile industry and they have an emerging economic giant in India that would like nothing better than to knock the Chinese textile industry out of its current leadership role.
Gartman says his other bullish crop is wheat.
Recent wheat crops in the U.S. and worldwide have been sub-par because of weather related issues.
Less than expected production in the U.S. and other major wheat producing countries the past two seasons, and continued demand have kept wheat supplies at or near record levels.
The impact of the ongoing drought in the Midwest will have a big influence on wheat prices, he says.
“The major wheat producing states in the U.S. are still suffering from the lingering effects of the record 2012 drought. The wheat crop needs rain, and it’s not getting it. This year’s crop needs a snow cover, and it’s not getting it. All these factors are lining up for a short supply and a big demand,” Gartman says.
“Soybeans are tough for me to get a handle on,” Gartman adds. My position on beans changes daily, sometimes hourly, because the cards keep changing and it’s tough to keep up on a global basis with what’s going on with the crop.
“Brazil is such a big player in soybeans and Argentina is fast approaching that level. The financial and political happenings in Brazil in particular are difficult to read. They are rapidly boosting production and productivity, making supply and demand issues hard to figure.
“The recently ousted leader in Brazil (Luiz Inacio Lula) was often hard to understand and hard to deal with on agricultural issues, but at least you knew where you stood with him.
Leans to the left
“The new leader, President Dilma Rouseff, is far to the left of President Lula. She is an economist, but also a socialist and a former Marxist urban guerilla.
“I don’t really know what’s going on in Brazil and how these changes will impact soybean production.
“What I do know is that banker friends in Sao Paulo (Brazil’s financial center) are taking money out of Brazil at a rapid pace,” he says.
Gartman says he is more bullish than bearish on soybeans, but that was on Jan.17 (the day he spoke to the North Carolina All Commodities meeting), “but tomorrow I might be more on the bearish side,” he adds.
Compared to other major agriculture producing countries, the Virginia economist says the U.S. economy is in great shape. And, the agriculture component of our economy is particularly well situated to remain strong for the next few years.
“I am totally bullish on America at a time when most are so pessimistic,” Gartman says.
“The U.S. is still by far the most dominant economic country in the world.”
Though most economists condemn the U.S. for the high debt load, Gartman says other major economic powers in the world, particularly Japan, Germany and France, all have more debt than the U.S.
“Our currency is the predominant currency in the world and will continue to be so for many generations, he says. “Perhaps my fellow economist Brian Wesbury says it best, ‘Nobody ever risked their life to cross an ocean on a raft to get to France, yet people do it all the time to get to the U.S.’”
Gartman says his biggest fear is that the U.S. will continue to raise taxes to try and balance the budget. “We have a spending problem, not a tax problem,” he says And, at no time history and in no country in history has an economy ever increased revenue by raising taxes, he says.
“For example, in New Zealand in the 1970s and 1980s, their economy was a basket case. They raised taxes and devalued their currency and things got worse. Then Roger Douglas was elected as treasurer, similar to Secretary of the Treasury in the U.S. He cut taxes from 80 percent to 50 percent and on down over the years to 20 percent.
“New Zealand went from a model of financial disaster to a model of financial success. When Douglas retired from office, one of the first questions asked of his successor was, “will you cut taxes?” The new treasurer replied, “We have so much tax money now I don’t know where to spend it, so I don’t think that would be a good idea.”
“Unfortunately, the U.S. doesn’t have that kind of problem right now, but our problems are not nearly as bad as we are being led to believe,” Gartman says.
For the agricultural sector, Garman says 2013 and beyond are bright and he urges growers to plant wisely and grow aggressively.