In the wake of the recent collapse of several commodity markets, Dennis Gartman of The Gartman Letter has some surprising things to say about where to look for shortages that could drive prices back up.

In the wake of the recent collapse of several commodity markets, Dennis Gartman of The Gartman Letter has some surprising things to say about where to look for shortages that could drive prices back up.

Nancy Zambell: Thank you for joining me. My guest today is Dennis Gartman, the editor of The Gartman Letter and a frequent Money Show guest. We appreciate, your time this morning, Dennis. We were talking earlier about the agricultural markets, and you're seeing some interesting things happening there with delayed planting. Can you talk a about that?

Dennis Gartman: Sure, it's interesting what's happening in the Ag markets. You've had rather cold weather, and you've had very rainy weather. Here, we are almost the beginning of May and the USDA last night said only 5% of the corn crop has been put into the ground at this point-where we should be getting almost 40% of the corn crop in the ground. Now it's delayed, and it's still early yet. You really have until May 15 to get the corn crop firmly planted, and even in some places, you can plant as late as the last couple of days of May. But, technically, you better get the corn crop in the ground by May 6, 7, 8 or 9.

Nancy Zambell: What happens then; if it's delayed, you don't get as much of a crop?

Dennis Gartman: You don't get as much of a crop in all likelihood, and you put the corn crop at risk at the back end of the growing season of frost, which really can do damage. So you'd like to get that corn crop in the ground late April, the first couple of days of May. Here we are April 30, and we're far, far behind. Also, the winter wheat crop-which is coming out of dormancy and is growing toward maturing and getting ready to be harvested in about another month and a half-has had very cold weather and that's stunted its growth, so the wheat crop is delayed a bit.

Nancy Zambell: Would one conclude then that prices are going to be higher so maybe you should buy some now?

Dennis Gartman: It's a bit early. The amazing thing about American agriculture is the resiliency of the farmer-the better genetically-engineered crops-and perhaps best of all, the incredible equipment that we have. It allows farmers who in the past might have had to come out to the field at dark to plant 24/7 when they really need to. So it's a bit early to get too excited about it-a bit early to say that the crop is in real danger because you can get a lot of crop planted these days that you couldn't a mere 10 years ago.

Nancy Zambell: That's true.

Dennis Gartman: It's worth noting; it's worth seeing; and it's worth paying attention to. And if we don't get good weather in the next five or six days, then you have a problem.

Nancy Zambell: That's interesting. Let's shift to what's going on in the crude oil business.

Dennis Gartman: It's interesting. I pay very close attention to what I call the term structure-where the spot rate of a commodity is and where the first and second and third and fourth and fifth contracts of the futures markets are. When you have the spot price below the first contract, the first contract below the second, the second below the third-we call that contango. And that's a market where supply is large, demand is relatively minimal, and that tends to be a bearishly-inclined market.

When you have the market go the other way-where the spot rate is above the first futures, which is above the second, which is above the third, which is above the fourth-that's a backwardation. That tells you that the market is forcing that commodity to come out of storage.

What we've seen over the course of the last several months is what had once been a very broad contango in West Texas Intermediate that has actually turned into a backwardation. That tells me that demand is strong. Even as new supplies of crude oil are coming on the market here in the United States from fracking, the term structure has turned bullish.

That's interesting. Too, we've had West Texas Intermediate, which had gone to almost a $24 discount to Brent, now trading only at a $9 discount to Brent. And it's probably going to go back to a premium over Brent over the course of the next several months-maybe over the course of the next year or so. The market has responded properly to the extremely high price of Brent relative to West Texas, and has learned how to 1) Reverse pipelines in the United States to move crude out of the Midwest and get it to the gulf and to the refineries on the East Coast; and 2) The railroads have learned how to get their rail cars in position, use better techniques to find where their rail cars are really at, get those rail cars into the oil producing regions, and move crude oil abundantly via rail. We've actually seen trucks begin to move crude oil out of the Midwest to the eastern coast refineries, and now we're learning that barges are being used.

So the market responds to shortages, and it's fascinating. The West Texas Intermediate has gained very firmly relative to Brent. I think you're going to continue to see that, and the change in the term structure tells me that that's likely to continue. Does that mean I buy WTI in and of itself? No, it means I buy WTI and I sell Brent Crude. What's really is interesting is how precipitously gasoline futures have fallen. Gas prices this summer are going to be very cheap.

Nancy Zambell: That'll be a relief for most everybody, won't it?

Dennis Gartman: Oh, absolutely.

Nancy Zambell: Now what about gold? I know that you've been a big follower of gold and when we talked at The World MoneyShow in February, gold was still falling, but doing better. And then it kind of fell off the cliff and went below $1500-actually below $1400.

Dennis Gartman: It actually went below $1400, to $1325 in the spot price, for about two hours. As we talk, it's trading back at $1468. So that's a big rally-$150-but what's interesting is the rally in gold. The easiest place to see where volumes are occurring is to look at the volume in SPDR Gold Shares (GLD), the gold ETF. As gold plunged, volume in the ETF exploded on the upside. Now as gold has rallied as it has corrected, volume has absolutely fallen to nothing. Volume should follow trend. If you're bullish on gold, the fact that the volume is waning as gold rallies is not a sign of further strength; it's a sign of impending weakness.

Nancy Zambell: So you definitely would not be a buyer at this point in time.

Dennis Gartman: I would not be a buyer of gold in dollar terms at this point under any circumstances.

Nancy Zambell: Are you buying any other metals, Dennis? 

Dennis Gartman: No I am not. I'm not interested in owning or being short of copper. I'm not interested in being long or short of the industrial metals. If you force me to take a position in gold, I'd sell it in dollar terms. But you'd have to hold a gun to my head to make me do something. I'd prefer leaving it alone.

Nancy Zambell: When we last talked, you were a little bullish on the steel industry, and that really hasn't gone anywhere. So right now, are you bearish on that too?

Dennis Gartman: I have very little interest in it. I own a little bit of steel, and the operative word is very little. I don't have much. I'm not happy with it, and until that trade either turns profitable or I get truly bored with it, I won't do anything to it. I won't add to a losing trade under any circumstances, ever.

Nancy Zambell: That is a smart investment discipline. Thank you, Dennis, for your time. I appreciate it, and look forward to seeing you soon.

Dennis Gartman: I'm honored to be asked. Thank you, Nancy. Good luck and good trading.

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