Coal prices on Wednesday plunged in Europe and the United States. European benchmark coal dipped by as much as $25 a tonne, to below $200, which sent U.S. benchmark coal falling by $20 a tonne.

Australian markets also got affected according to Dow Jones Newswires. The Newcastle spot coal price, where the world’s biggest thermal coal shipping port is located - fell sharply, following on from a 20% drop in spot thermal coal prices in Europe overnight. However, despite this latest pullback in coal prices, analysts say - that a sharp pullback in benchmark Australian thermal coal prices is only natural correction after a recent surge.

The effect of high oil prices is working its way through to chemicals companies, resulting in a negative outlook for most parts of the industry, according to Moody’s. “Due to the rising cost of oil and energy and flagging consumer demand, the credit outlook is negative overall for chemicals manufacturers in the U.S. and Canada.”

In an exception to the general negative trend, chemicals companies in some segments, such as agriculture and industrial gases, will continue to exhibit stronger profitability despite feedstock cost increases and weaker US growth, Moody’s says.

Carlisle Companies Incorporated (CSL) engages in the manufacture and sale of construction materials in the United States and internationally. It operates in five segments: Construction Materials, Industrial Components, Transportation Products, Specialty Products, and General Industry.

The company is not a dividend aristocrat but a dividend champion. In fact, this stock never crossed my radar until I found out about the dividend champions list. It has been increasing its dividends for the past 31 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 7.70 % to its shareholders.

JP Morgan notes that the extreme sell-off in steel stocks Wednesday can be largely attributed to a Bloomberg story Tuesday – “ArcelorMittal (MT) Says Half of Customers Rejected $250 Surcharge” - quoting Lou Schorsch, head of MT’s Flat Carbon Americas. The market interpreted this information as the steel producers are unable to pass through higher raw material prices with higher steel prices.

It should also be noted that the $250/t raw material surcharge, or as MT likes to call it “cost recovery program,” was implemented for their fixed price contracts which represent less than 50% of shipments and not for MT’s spot market shipments. The firm views the program as a success by achieving a 50% success rate given this unprecedented move in altering fixed price contracts.

The day started out like pretty much every day in the past few weeks. The broader market acts weak, oil remains at its high, and commodities (especially coal and natural gas stocks) make new highs almost daily.

But then we come across the woodshed.

A Bearish Dollar Can Be Captured With ETFs

Bucyrus International, Inc. (BUCY), incorporated in 1927, designs and manufactures mining equipment for the extraction of coal, copper, oil sands, iron ore and other minerals in mining centers throughout the world

BUCY is a mixed sector company with presence in coal, copper, oil. It’s not a company directly engaged in any production, but provides equipment instead. Therefore, it’s not a simple analysis.

The hottest segments of the market over the last quarter have been commodity related names, specially coal stocks, steel stocks and agricultural names. Stocks like US Steel (X) had gone from under $100 just earlier this year to over $190 - until this week when all these hot stocks have turned over. Potash (POT), Mosaic (MOS), Walter Industries (WLT), Alpha Natural Resources (ANR), Cleveland Cliffs (CLF), CVRD (RIO) were all down 5%-15% just yesterday, and as much as 25% over the last week.

There are two main things happening - one is sector rotation, but then where are people putting their money? It's a good question, and I believe the answer is cash. There was no sector that was up yesterday. The other thing is redemptions - funds that have owned these stocks above sold them heavily to take profits.

A. Schulman (SHLM) reported earnings yesterday (Wednesday, July 2 - see conference call transcript). The company managed to squeak by the consensus EPS estimate of $0.41 by reporting pro-forma EPS of $0.42. This adjusted EPS excluded restructuring costs and asset impairments, but not the full tax impact of these items. If it had, adjusted EPS would have been lower by a few cents.

However, I was surprised to find that the company’s cash flow was healthy due to good working capital management. As the historically poor cash generation was a core part of my negative thesis (see "A. Schulman: Cashless Profits"), I can no longer recommend the stock as a short.

Farmers in Iowa and other regions across the U.S. are deciding if they plan to replant after recent flooding wiped-out entire crops. Not unexpected, prices for the soft agricultural commodities reacted to the news of the flooding with higher prices as traders began worrying about whether supply would be anywhere close to current demand levels.

Fortunately, many farmers now take out crop insurance, allowing them to recover at least some of their initial investment (covering up to around 85% of average recent production). Since the floods of 1993, the number of acres of USDA-insured land has more than doubled. This leaves many farmers with a dilemma - take the insurance, or replant? If farmers take the insurance, supply will be down and prices are sure to stay high into the fall, and could potentially go higher. If farmers decide to replant, the potential exists for getting closer to a normal supply-demand balance, and preventing further prices increases.

Leading Mexican engineering and construction company, Empresas ICA, S.A.B. de C.V. (ICA), is well-positioned to benefit from large, multi-year infrastructure program. We are initiating coverage with a BUY rating.

INVESTMENT THESIS

F3Q08 Earnings Call

Coal and mining companies have been some of the top performing stocks this year, but since the start of July (1 and a half trading days), many of these names have gotten hit with declines of 10% or more.  As shown below, Massey Energy (MEE), which was the top performing S&P 500 stock at the end of the second quarter, is down 14.05% in July.  James River Coal (JRCC), which was the top performing Russell 3,000 stock at the end of June, is down 13.43% in the last two days. 

This big selloff in the top performing names indicates that money managers and other institutional investors were most likely holding onto these names for window dressing purposes through the end of the quarter, only to take profits in them at the first chance they had.  Investors that have been waiting to get into these names on a pullback might want to take a look at them now.

A few weeks back in our weekly grains report, we estimated corn yields to be 6-11% below trend (7-year) and soybean yields to be 5-9% below trend, and in addition, highlighted the significant reduced potential for the corn crop.

The weather over the last three weeks has done nothing to help, and the estimates now for corn are 11-13% below trend, and for beans to be 7-10% below trend. This is in line with what was originally discussed in our reports from early June.

Tractor Supply (TSCO) July 1, 2008 : $28.50 (9:45 AM price)
52-week range: $28.01 [Jan. 22, 2008] – $53.55 [Aug. 8, 2007]

Recreational farming and ranching has been booming in suburban and rural areas of America. Tractor supply serves this market with livestock and pet products, hardware, tools, snow blowers, mowers and other products. Following the acquisition of a competitor in 2002, sales and earning grew dramatically. 2007 saw all-time records in every category yet today's poor economy has caused TSCO shares to plummet by 58% from an March 2006 high of $67.60 to just $28.50 currently.

Brazil is hot right now. Aside from having the most beautiful beaches/women in the world, selling tons of natural resources, getting an upgrade form the S&P to investment grade and boasting an emerging middle class, the country also had the foresight to make a very insightful move in way back in the 70s.

In 1973, when OPEC decided it wanted to use oil as a weapon in the Yom Kippur War, Brazil decided it no longer wanted to be at the mercy of the fundamentalist oil kingdoms of the Middle East. Instead, the Brazilian government decided to take action to wean itself off foreign oil. The project was called “Proalcool” (pro-alcohol), and made use of Brazil’s ability to produce tons of sugar cane.

Not a nice thought for most, I'd venture. The reason is that due to the political process in Peru it's likely that the political debate needed on the main point of protest amongst the miners isn't debated until the 26th. At the moment, congress is in recess, and only the permanent parliamentary commission is sitting. And according to this report, the 'Union Por el Peru' [UPP] political party is against this law being debated by the permanent committee and insists it is debated by the full congress. As UPP holds a chunky 20 seats in a Congress of 120 (the biggest block is only 36 seats big... it's a pretty fractured congress), this opinion may well be enough to halt all progress.

In the words of UPP spokesperson Oswaldo Luizar:

By Brad Zigler

The classic good news/bad news story played itself out Monday in the CBOT corn pit. Digesting the Agriculture Department's latest quarterly acreage report, corn futures gapped lower into limit-down territory, below $7.25 a bushel.

I do not remember who told me that commodities that begin with the letter “S” trade together. I am not even sure if I buy into this, but I do expect higher prices in these three commodities and maybe it’s just a fluke they all begin with the letter “S”. As a trader, I am always looking for an edge so if it works maybe it’s true. It could be that silver, sugar, and soybeans are moving higher on their own accompanying bullish fundamentals; whatever the reason, we are expecting higher prices and have clients positioned long in various strategies depending on their account size, investment goals, and risk tolerances.

Silver

The historic price ratio of silver to gold shows that about 15 ounces of silver would buy one ounce of gold, a 15:1 ratio. Recently, the ratio is about a 50:1 ratio with silver at $17.75/oz., and gold at $925/oz. If the silver to gold ratio returns to historic values, from over 50:1 to 15:1, you can see why investing in silver with a longer viewpoint may make sense. We expect silver prices to move higher for the following reasons: More than all of the silver produced by the mines each year is consumed by industry, which leaves little to no room for substantial investment demand.