Commodities Watch: Silver Goes Lower, Copper Higher; Wheat Continues Losses; Canada Sees Growth in Lumber Prices, Exports (SLV, GLD, JJC, MOO, DBA, WY, PCL, LPX)

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Today’s commodities news is not quite a repeat of yesterday’s because oil is staying essentially flat and yesterday’s commodities sell-off is not being repeated. Wheat prices, however are continuing to fall, as are lumber prices, which Canada thinks are due for a turnaround.

Shortly after noon today, WTI crude prices were flat with yesterday’s close at around $98.21/barrel. Crude prices fell early, to $95.25/barrel, but pushed near $100/barrel before falling back again. Silver prices are down about -4%, to $34.10, after plunging to $32.30 early. Gold prices are also recovering from a dip to $1,477.60, and are now down less than -0.5% at $1,498.10.

Today’s wobbly prices are likely due to a wobbly greenback. The dollar gained strength against the euro early this morning, but has given it all back since. The dollar has gained about 3% on the euro since the beginning of the month which helps keep the prices of dollar-priced commodities in check and cools demand for safe haven investments like gold and, to some extent, silver. When there are a lot of uncertainties in the currency markets, that translates into uncertainty about commodity futures. And that’s where we are today.

The iShares Silver Trust (NYSE: SLV) is down about -3%, at $33.36, within a 52-week range of $16.73-$48.35. The SPDR Gold Trust (NYSE: GLD) is off less than -0.5%, at $145.89, within a 52-week range of $113.08-$153.61.

Copper prices are up again today, at nearly $3.97/pound after falling to around $3.85/pound. Copper fell yesterday on fears that Chinese growth was slowing and that the country’s rising inflation would cause the government to put more capital controls in place. The government did increase the reserve ratio requirement for banks by 50 basis points today, but copper’s expected fundamental supply deficit this year still helps keep the price from collapsing. The iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSE: JJC) is up more than 1.5%, to $52.24, within a 52-week range of $36.60-$61.69.

Wheat prices have continued their slide today as the market continues to adjust to the projected rise in imports from Russia and other former Soviet Union countries. Wheat is down about -3%, to $7.36/bushel after coming back from a intra-day low of about $7.28. The Market Vectors Agribusiness ETF (NYSE: MOO) is down more than -1%, to $52.87, within a 52-week range of $35.62-$57.93. The PowerShares DB Agriculture Fund (NYSE: DBA) is also down, but by less than -0.5%, at $32.28, within a 52-week range of $22.85-$35.58.

Lumber prices, like wheat, are down today by about -1.5%, at $230.70/thousand board feet, its lowest point in about seven months. Weakness in lumber is directly related to weakness in new home construction, and with US housing starts in April forecast at a seasonally adjusted annual rate of 549,000, the outlook for much higher lumber prices is not terribly strong.

Except in Canada, where the country’s export development commission expects Canadian export growth of 12% in 2011 and another 7% in 2012. Oil accounts for 20% of the total thru 2012, but the country is also expecting good things from its forestry industry. Canada expects forestry exports to grow by 9% in 2011 and another 13% in 2012.

The Canadians are looking south for a big part of that growth, to the US housing market, which they predict will see 700,000 new housing starts in 2011, and 1 million housing starts in 2012. That’s nearly double the April 2010 rate.

A look at the forward P/E ratios for three US lumber companies seems to back up the Canadian view. Weyerhaeuser Co. (NYSE: WY) posts a trailing P/E of 5.53, but a forward P/E of 24.23. Plum Creek Timber Co. Inc. (NYSE: PCL) has a trailing P/E of a whopping 41.46 and a forward P/E of 25.41. Even Louisiana-Pacific Corp. (NYSE: LPX), which is expected to post a full-year loss in 2011, has a forward P/E of 26.52. Maybe all that timber is going to build homes in China and rebuild homes in Japan.

It would take some sort of economic miracle for the US to support that kind of earnings growth. A forestry consultancy in Vancouver thinks it will be 2013 before US housing starts hit 1 million. Even that could be a stretch, though, given the nearly 3.5 million houses currently for sale in the US. Until that number comes down significantly, demand for new housing in the US simply won’t grow at the rates that the Canadians are expecting.

Paul Ausick

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