___ James Mound Trading Group ___ Toll Free: 1-888-744-8866 http://www.moundreport.com/ info@moundreport.com The Weekend Commodities Review By Head Analyst James Mound For the Week Ending December 14th, 2008 This will be the last Weekend Commodities Review for 2008. Our staff will be hard at work putting together the Mega 2008 Year in Review and 2009 Outlook issue that we are proud to provide free of charge to all registrants - look for this critical report the first week of January. General Comments Week 1 of the last month of perhaps the most volatile year in commodities industry offered what appeared to be extreme fund selling. Week 2 showed that the fund selling might very well be short lived and a commodity rally through year end is likely to occur as the dollar takes a break from its monsterous second half of 2008 price surge. Week 3 should offer much of the same, as follow through from last week's EU stimulus package strengthens foreign currency against the dollar and surges commodity prices higher. Energies OPEC OPEC OPEC. December 17th marks a critical OPEC meeting when the oft referred to oil cartel has the opportunity to shock energy prices higher with a supply cut in excess of 2 million barrels. Show me 3-4 million and watch out! Throw in a shocking Russian interest in coordinating with OPEC, along with other oil producing nations, and we could have a massive supply cut to force prices higher. Now take that all with a grain of salt because what OPEC says and what OPEC does are normally two entirely different things. In the end it will be mid-January before we see what the real deal is, but buy the rumor and worry about the facts later. Supplies last week were ignored as rising inventories were pushed aside due to greater interest in the U.S. dollar trend and upcoming meeting. Financials Stocks surged off of overnight lows following a Senate shutdown of the auto bailout. Leave it to our government to establish the true bottom in the market. When the banks began failing the market panic ensued, showing the fear destruction in the market. If wave two is the auto industry the market has shown it will take a lot more to recreate the panic that we have seen over the past few months. Plus we are shaking off ugly employment data and a continuing credit crunch. If this isn't the end of the collapse then something incredibly horrific lies ahead. Bonds continue to see spiking demand and are reaching epic levels. Option premiums remain sky high and futures are very risky at current volatility levels, but the call skew remains strong so look to sell OTM calls and buy OTM puts for a synthetic short play. The dollar has begun to fall as anticipated, but do not expect too much more downside between now and year's end. Look for 82 or so as a settling point, which still offers more upside in the euro. They say the trend is your friend but the yen is riding a bond surge and both markets are on the cusp of collapsing. The yen option skew is one of the most extreme option price skews I have ever seen. Look at selling a 120 March call against a boatload of OTM puts for an even money ratio leveraged synthetic short. A little too complicated? Take a look at this week's Week Ahead for more details. Grains Last week's ratio call backspreads in corn and soybeans should look impressive after a strong move up to and following the crop report. Bottom line here is just that - we hit bottom. Buy grains across the board. Wheat supplies from Argentina look to be on the decline and plantings for next year should offer a quick cyclical shock for a second wave sector wide rally through March. ---------------------------------------------------------- Sign Up To Receive This Report Every Weekend - CLICK HERE! --------------------------------------------------------- Meats Hog demand from Russia may be minimal as a 200k ton drop in imports is expected on strong internal supplies. This demand drop is not the end of the world but may be just the beginning of declining global pork demand as cattle prices have dropped dramatically and possibly shifted demand to the not-so-white-meat. On the flip side cattle production is dropping and may see a strong price rally as grains are on the move higher. Metals The world gold council is putting out some Q3 numbers that would make physical gold demand appear sky high, but the focus should be on the lack of a flight to quality amid a stock market collapse. It shows that a strong dollar trend ultimately controls gold price movements and the current pullback in the dollar may be just what metals need to make its bull run to finish off 2008 in style. Softs Coffee may have set a long term low with its recent test of support above 102. I expect 98-102 to hold as a support band for a long, long time. The chairman of the Vietnam Coffee and Cocoa Association was talking about lower yields cutting production by about 4%. Throw in a Brazilian Ag Minister forecast of more than a 20% drop in production (year-over-year) from the world's largest producer and you may just have the ingredients for a mega rally in coffee in 2009. Cocoa is rallying on low supplies in Ivory Coast and a beneficial move off a dollar pullback. Buy puts into this move. OJ is out to get a boost from a low yielding reduced acreage crop. Bottom line for OJ is that it is at a level that makes it a value buy with a two season supply exposure (frost and hurricane) and an epic retracement that has caused a more than 60% plunge in under 2 years! 
**Chart courtesy of Gecko Software's TracknTrade Cotton didn't get much help from the most recent crop numbers but the fact still remains that we are significantly under historical acreage and supply numbers and the world is buying the carryover to support prices. Buy the dips. Sugar is getting a big report on Monday and should see strength in coming weeks with a corn rally underway. Lumber remains a value cyclical long term buy at these levels. | 
