Mike Norman, anchor, HardAssetsInvestor.com (Norman): Welcome back everybody to the second half of my interview with Kevin Kerr, president and founder of kerralert.com and noted commodity expert.

Kevin, last time we spoke, we were talking about different segments of the commodity markets and how the impact of the commodities pullback will be felt differently. Metals, for example, are very economically sensitive, and will be impacted by the global economic slowdown. Oil is perhaps also, to some degree, impacted by the economic slowdown, but because of monopolistic forces - the OPEC cartel, geopolitical developments - there may be some limit to how much that can fall.

Let’s talk now about the grain markets, which are perhaps operating on their set of fundamentals. Talk a little bit about the supply outlook and also how the whole movement into biofuels perhaps supports prices long term.

Kevin Kerr, www.kerralert.com (Kerr): It does. I think clearly biofuels are dependent on if the crude oil price is high, because this is just an alternative fuel, and of course if fuel comes down, then those prices go out the window. But at the end of the day, we still have a huge demand for grains. In the recent pullback in commodities, we’ve seen grains get thrown out like the baby with the bath water - out the window. As energy corrected, and it should have, we saw grains just fly out the window, and the bottom line is, we won’t know what we have from the harvest until we go to harvest. A lot of these agriculturals got in the ground late because of the cold weather, the wet weather, and at the end of the day, those farmers are going to leave those crops out there as long as possible, and that subjects them, especially soybeans, to early frost.

Norman: But haven’t the estimates … let’s just understand for the folks listening: The estimates on the harvest have been phenomenal, above prior high expectations.

Kerr: I read my daughter bedtime stories each night. I was going to read her the grain report because it sounds like a fairy tale. Everything is wonderful.

Norman: I thought you were going to say because she has insomnia and that will put her to sleep. I wasn’t sure.

Kerr: I don’t think it’s as good as what the government’s telling us. I call farmers every day and I talk to people in the Midwest. On this side of the street, you have great crops … best ever. On this side of the street, the worst crop … worst ever. This report reflected that everything looks fantastic; it will be a bumper crop. I just don’t believe it.

Norman: Everything … we’re talking soybeans, we’re talking corn, we’re talking wheat, we’re talking cotton even.

Kerr: We’re talking peppermint. Any of these crops that these guys grow - and they do grow peppermint - are not looking that great in some places, while in other places they are looking fantastic. I just think overall the yield is going to be lower than what we need.

Norman: Let’s get back to this speculator angle. Recently we saw the Commodity Futures Trading Commission reclassifying the position of a large trader in oil. The trader was technically a hedger, but the positions were not being used to hedge. And you talked about speculators playing both sides - buying long, selling short. But we still have the interest on the part of the so-called index speculators, these long-only passive investment funds, pension funds and endowments. Won’t they continue putting money into materials, because they now view that as an asset class?

Kerr: They do. It was a long stretch to get those guys to come over and start looking at commodities as an asset class, and now that they have - and even though they might have left because of the pullback - they’ll probably come back a lot faster, because it’s now a part of their lexicon. Before for years - and you know this - for years it was never part of something they would ever invest in, and now they’ve been there, left, now they’ll probably come back even quicker. I really think that the paradigm shift has happened for commodities.

Norman: So given that and the potential that that represents in terms of … look, there’s trillions and trillions of dollars under management in traditional assets, and even if a small part of that continues to flow into commodities - which are relatively small markets compared to securities markets - it could represent really an upward slope for the long term.

Kerr: It could, and it’s truly global. I’ll be traveling later to Europe, and I speak to people in countries all over the world, and we’ve never seen that before. This is money that comes in in huge numbers and leaves almost as quickly, but it will come back in quickly as well.

Norman: Now the last thing I want to touch on is policy, monetary policy: A lot of people have been critical of the Fed for keeping interest rates down, and some say the next move is going to be up. I don’t think it’s going to be soon, but if that happens, do you think that will have a negative impact on commodity prices?

Kerr: I’m pretty vocal about that. A stronger dollar means lower commodities prices. I think you’re right; I don’t see it happening any time soon. That’s the dilemma, how can the Fed raise? But honestly, yes, I believe that if they could raise, and then can raise when they can, and the dollar starts to firm for real - not just interim pullbacks - then we’ll see weaker commodities.

Norman: All right, well, there you have it folks. Thanks for tuning in. Stick around, there’s a lot more to come here on this great Web site, HardAssetsInvestor.com. I’m Mike Norman. That’s it for now. See you later. Bye-bye.