Originally published in the June 20th 2009 edition of the Financial Post section of the National Post.

Today’s Financial Post includes a special Lifetime Achievement Award to a person or institution that has done much to undermine confidence and to instill fear in the population. The award is given annually to scientists, NGOs, activists, politicians, journalists, media outlets, cranks and quacks who each year advance the principles of junk science. Author of this column did not take long to select a candidate. His name is former U.S. Vice President Al Gore. Al’s theory is that greenhouse gases are causing global warming. Unfortunately, Al forgot to mention that factors other than greenhouse gases also influence climate change.

A well known influence on climate change is sun spot activity. History shows that a lack of sunspot activity over an extended period of time corresponds with global cooling. For example, the earth experienced a little ice age between 1645 and 1715 when sun spot activity dropped to unusually low levels. Snow fell in the United Kingdom in June. This year, Edmonton experienced a snow fall in June. Sun spot activity currently is tracing the bottom of an 11 year cycle. Scientists suggest that the bottom was reached in March 2008, but signs of a recovery have yet to surface. Since March 2008, temperatures around the world have been below average. Cool weather conditions are starting to impact grain crops, particularly in North America. Seeding was delayed this spring due to cooler and wetter than average weather. Planted acreage has declined and yields are expected to fall. Crops planted on time are growing slower than average and are in danger of frost damage before their harvest. Adding to strains on grain crops this year was a tendency by farmers to use less fertilizer than usual due to a spike in fertilizer costs last year.

Slow progress with the current grain crop comes at a difficult time. The possibility of a world grain shortage exists. The U.S. Department of Agriculture (USDA) monthly World Agriculture Supply and Demand Estimate report revealed last week that corn reserves at the end of August 2010 are expected to fall 9.4% to the lowest level in five years. In addition, analysts are forecasting soybean supplies on August 2009 at 113 million bushels, down from 130 million bushels estimated by the USDA in May and down from 205 million bushels a year earlier. Reserves will be the lowest since 2004. Wheat production for the crop year ending August is forecast by the USDA to remain stable near 2.02 billion bushels.

If sun spot activity remains low and weather conditions continue to be cooler than average into harvest time, current USDA estimates are high, world grain inventories will fall and grain prices will soar. Farmers with successful crops will have additional funds to purchase agriculture products such as fertilizer, tractors, etc. Purchases will climax before the end of the year when farmers traditionally buy supplies for the next planting season. Purchases prior to year end are eligible for tax deductions.

Seasonal influences

According to Thackray’s 2009 Investor’s Guide, the agriculture sector has a period of seasonal strength from August 1^st to December 31^st. The trade has been profitable in 11 of the past 14 periods for an average gain per period of 17.4%.

Technical influences

The Dow Jones Agriculture Grains Index has an improving technical profile. The Index is based on corn, wheat and soybean prices. It recently developed an intermediate uptrend after breaking above an eight month trading range and currently is trading just above its break out point. The Index is tracked by an iPath Exchange Traded Note (Symbol:JJG). Moving Average Convergence Divergence, Relative Strength Index and Stochastics recently have rolled over from short term overbought levels. Preferred strategy is to defer purchases until technical parameters show signs of bottoming. Likely timing is near the end of July.

What to do?

Investment possibilities include agriculture related stocks and Exchange Traded Funds when seasonal and technical influences turn positive. Canadian listed stocks participating in the sector include Potash Corp (Symbol: POT), Agrium (Symbol:AGU) and Viterra (Symbol: VT). Exchange Traded Funds include the Claymore Global Agriculture ETF (Symbol: COW) and the Horizon Beta Pro Agriculture Bull ETF (Symbol: HAU). The latter selection tracks the Dow Jones Agriculture Grain Index, but is double leveraged and needs to be rebalanced on a regular basis.

Don Vialoux, Chartered Market Technician is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange Traded Funds. Reports are available at www.timingthemarket.ca . Mr. Vialoux does not own agriculture Exchange Traded Funds or stocks mentioned in this report.

Sponsored By...

More from the network: Next Report on Monday, February 6th Stock Market Outlook for February 2, 2012 Stock Market Outlook for February 1, 2012 Stock Market Outlook for January 31, 2012 (Lite) Stock Market Outlook for January 30, 2012 (Lite)

Discussions from the Tech Talk Forum: An error has occurred, which probably means the feed is down. Try again later.