- 1998: Volume 7, No. 3 What's Hot and What's Not

It's been slim pickings of late when it comes to hot markets. The usually "trendy" currencies have gone dormant with the bellwether D-mark pretty much locked into a range ahead of European Monetary Union on January 1, 1999. Even the yen has leveled off somewhat, supported by intervention fears in spite of the overwhelming bearish story of a recessionary Japanese economy and disappointing Japanese stimulus efforts. The bond market has been choppy due to numerous flip-flops on expectations for a change in Fed monetary policy. Of the financials, only the stock market (old reliable) continued to trend, regularly scoring new all-time highs. The petroleum markets stayed in ranges, supported by the recently agreed to OPEC/non-OPEC production cuts, but restrained by current ample supplies and skepticism that the new reduced quotas will be adhered to. The only bona fide hot market was pork bellies which registered a sharp rally, however, not many traders are willing to wade into that notoriously volatile and thinly traded commodity.

What's Hot

Pork bellies exploded to the upside in early April, partly due to the oversold technical condition and fund short covering, but also in reaction to a pick-up in demand and rumors that South Korea would make major purchases. Prices have since leveled off and upside potential is probably limited by the outlook for pork supplies to stay ample through year end, at least according to the most recent pig crop report which showed hog numbers 8 percent above last year's high level.

What Might Get Hot

Into this category fall corn, wheat, soybeans and cotton. Planting has begun across the northern hemisphere (except in the case of winter wheat) and attention is fully focused on weather which, of course, is probably tougher to predict than price direction. Planting delays have been a concern in the U.S. due to a wetter than normal spring, but it's best to assume that the crops will get in on time-they almost always do. Beyond that the main concern is that El Niño will be followed by La Nina, the opposite weather phenomenon of cold surface water temperatures in the equatorial Pacific. While there's not much correlation between El Niño and summer weather in the central U.S. (according to the National Weather Service), La Nina is another matter; it appears associated with drought and higher than normal temperatures in the Great Plains and Midwest. Should El Niño rapidly break down (which, however, isn't expected by a majority of weather forecasters) it would no doubt heighten La Nina concerns and probably trigger up moves in grain, soy and cotton markets.