Copper is a hot commodity in China. Chinese pig farmers are the newest speculators to enter the market. It is estimated that they hold about 50,000 metric tons. These supplies are off exchange purchases. Private investors are also holding 20,000 tons of nickel.

On the Shanghai Futures Exchange copper contracts tallied 97,396 tons, a two year high.

Why the rush to copper? The answer is that with China's $586 billion dollar stimulus program, demand has come in the construction and auto industries. China's imports of copper rose to a record 2.1 million tons in the first seven months. The State Reserve Bureau has contracted to take 300,000 to 400,000 tons of refined copper into its stockpiles from overseas. This estimate is from the Macquarie Group Ltd.

Freeport McMoRan (NYSE: FCX) closed at $65.48. Copper is recently up 3.85% to 296.250 according to Bloomberg. FCX call option volume of 44,375 contracts compares to put volume of 19,700 contracts. FCX September option implied volatility is at 48, November is at 55; below its 26-week of average of 65, according to Track Data, suggesting decreasing price movement.

streetTracks (NYSE: GLD) is recently down 18 cents to $93.69 in pre-open trading. Gold is recently down 0.34% to $955.55 according to Bloomberg. GLD September call option implied volatility is at 15, puts are at 16, October calls are at 17, puts are at 19; below its 26-week average of 26, according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

What are Roubini's new predictions? This time the noted economist is future casting the price of commodities. He is looking for the global economy to move toward growth in the later part of 2009 into 2010.

When the world moves into greater production, the need for raw materials rises. Roubini, sees commodity prices moving up during this expansion stage.

Already China's $585 billion stimulus package has spurred lending and sent share prices skyrocketing. China's economic growth surged 7.9% from a year earlier and is well on the way to meeting its target of 8% growth this year. China's purchasing manager's index stood at 53.3 in July, up from 53.2 in June. A reading above 50 indicates expansion in the the economy.

TheStreet.com's Jim Cramer says the plunge in China overnight is being blamed on the industrial metal, so expect some carry-over.

It turns out copper was the metric. Drats, I thought it was the dollar or oil. I thought we were supposed to buy the cyclicals on earnings being better than expected. I thought we might be buying the minerals and the steels and the oils off the morning proxy of the Baltic Freight Index, known as the Baltic Fright Index in the days when it kept going down, and kept us out of the Freeports (NYSE: FCX) (Cramer's Take) and Vales (NASDAQ: VALE) (Cramer's Take) and Union Pacifics (NYSE: UNP) (Cramer's Take) and U.S. Steels (NYSE: X) (Cramer's Take).

Silly me.

Freeport has taken a hit, and is not only still standing, it's ready to take on new challenges. I'm Reiterating my Buy rating for Freeport McMoRan (NYSE: FCX), first recommended on March 23, 2009 at a price of $41.87.

The global recovery appears to be underway, and with it demand for key commodities, such as copper, will increase. And Freeport, the world's second largest producer of copper, is poised to capitalize.

Is there a big commodities rally underway? Let's look at the numbers:

• The Commodity Research Bureau index (CRB) of 19 energy, metal and agricultural prices gained 14%, the most since 1974
• Gasoline soared 30% in May
• Gold and copper also surged
• Corn and soybeans reached their highest levels since last September
• Crude oil has jumped 29%, the most since 1999
• Gasoline futures for June delivery surged 31%, the most since 2006
• Cotton futures were up
• Gold is at $980.00 per ounce
• Silver posted the biggest monthly gain in 22 years

So you are probably asking: What is fueling this rally?

The U.S. stock market remains one characterized by considerable risk: It has shown some internal strength recently, but all its takes is one sub-expectations earnings report -- or one public policy error in Washington -- and the bears will be out in force again. Hence, discretion is the order of the day, with a premium placed on companies with demonstrated business models. With this in mind, Freeport-McMoRan is worth a review.

Freeport (NYSE: FCX) is a preferred miner due to its copper and molybdenum operations. Yes, the gold operation is sexy, but the copper operation is the backbone here, with the company boasting about 100 billion pounds of proven and probable copper reserves.

This post is part of a special annual report -- Top Stock Picks '09 -- in which TheStockAdvisors.com asked 75 leading newsletter advisors to select their favorite investment for the new year.

Growth stock expert Mark Skousen looks to the commodity sector for a favorite idea for 2009. In his specialty advisory service, The Turnaround Trader, he explains, "While the market continues to be volatile, we believe Freeport McMoRan (NYSE: FCX) offers an opportunity for profit."

Skousen continues, "Industrial commodities have been beaten down in the face of a deep, global recession. Aluminum was $1.50 a pound a year ago, and is now down to 66 cents. Copper was more than $4 a pound last year, and recently fell to $1.40.

"But the outlook for commodities is changing quickly with all the talk of bailouts, stimulus, and easy money.

"Aluminum, copper, and other base metals have risen recently on the news that President-elect Barack Obama has pledged 'substantial' spending to fix and add buildings, roads and bridges as a way to revive the economy.

"And then there's China. The world's largest emerging market recently committed to stimulating domestic growth, and announced plans to purchase 1 million tons of base metal for about $3 billion. China's massive stimulus plan, combined with Obama's, could be enough to reignite the commodities boom.

Copper is often referred to as a bellwether commodity that reflects business activity in such industries as housing and autos. This past year, both industries have been beaten down, and so too has the price of copper. According to the Wall Street Journal (subscription required), nearby copper prices fell 6.40 cents to settle at $1.2530 per pound. The most active March contract fell 6.45 cents to $1.2810 per pound. The poor housing numbers recently released were just another catalyst in the price decline.

Copper, like many other commodities, has been in a liquidation phase where market participants are selling their inventories to raise cash. Traders have often looked to China for an indication that buying there will spark a rally. However, this did not happen. There was no follow through after a gain in the Chinese market last week.

Very much like the supply situation in oil, there is an 87,000 metric ton surplus of copper, when adjusted on a seasonal basis.

Just call it another data point confirming the breadth and depth of the global economic slowdown. Freeport-McMoRan Wednesday suspended its dividend and cut production by 5% in 2009 and 11% in 2010, due to a sharp decline in prices, the company announced (pdf).

Freeport said it will reduce capital spending by $1.2 billion, a gargantuan 50% reduction from its previous estimate for 2009 capital spending. The company also suspended its $2 annual dividend.

Shares of Freeport (NYSE: FCX) Tuesday closed up 91 cents to $21.82 amid a broader market rally, but are declining $4.02, or over 18%, in premarket trading (8:27 am).

For the cutbacks, Freeport cited a large decrease in key commodity prices stemming from declining demand. Copper prices have declined to an average price of $1.69 per pound in November, compared to a nine-month average of $3.61 per pound as of September. Molybdenum prices have decline to $9 per pound as of December, compared to about $30 per pound in mid-October.

Falling copper prices hurt Freeport-McMoRan (NYSE: FCX) in the third quarter, the company announced today.

Profits were down 33% as net income slipped from $775 million in the third quarter a year ago to $523 this year. Profits were a $1.42 a share (excluding one-time items), falling short of the $1.45 expected by analysts.

The stock is down about 5% in trading as of 3 pm, to $34.85.

An analyst quoted on Bloomberg, Kerry Smith of Haywood Securities Inc. in Toronto, said that while lower copper prices won't force the company to close mines immediately, it could do so if copper prices stay low or even keep falling over the next few months. The cost of operating mines has been rising, and Freeport may close higher-cost mines in the coming year if prices do not recover.

Freeport has also announced that it will suspend a stock buyback program. It had bought $500 million in stock in the third quarter at an average price of $79.15 per share, more than twice the current stock price.

The market for copper is extremely unsettled right now. The big question is how severe the global economic slowdown will be, and how long it will last. A long slowdown will likely send copper prices even lower. So while some (including the irrepressible Jim Cramer) are arguing that this represents a buying opportunity, it may just be a point along a long downward fall.

Oil continued its month-long decline Friday, as investors and traders reduced their stakes in the world's most vital commodity on concerns slower global growth will slow demand for commodities and raw materials.

Oil fell $3.62 to $116.40 in mid-day Friday trading. Other major commodities also declined. Gold fell $18.30 to $859.60 per ounce, silver fell 87 cents to $15.38 per ounce, and copper declined $223 to $7,442 per metric ton.

The other major energy commodities also fell Friday. Unleaded gasoline fell 8 cents to $2.92 per gallon, heating oil declined about 10 cents to $3.13 per gallon, and natural gas dropped 19 cents to $8.37 per million BTUs.

Likely slower global GDP growth weighs on oil

Economist Glen Langan told BloggingStocks Friday two factors are driving oil lower. First, the prospect of slower economic growth will likely slow oil demand growth in emerging markets. Second, a stronger U.S. dollar is reducing the appeal of oil as a currency hedge.

The dollar strengthened about 3 cents versus the euro to $1.5043 and about 2.5 cents versus the British pound to $1.9190 on Friday at mid-day.

"Regarding oil and gasoline we know that demand destruction is occurring in the United States. Now, at least initially, it appears slowing trade and global GDP growth will affect oil demand in emerging markets, as well. If the latter is the case, oil could fall below $100 or even below $90 per barrel," Langan said.

Billionaire investor George Soros said Thursday that the boom in commodities is still in a "growth phase" despite the fact that prices for oil, wheat, rice, and gold have risen to records in 2008, Bloomberg News reported Thursday.

Soros said the relative stock market slump, combined with favorable, long-commodities demand, has prompted institutions to direct money to commodities, creating a "commodity as asset class" phenomenon, Bloomberg News reported. He added that increasing institutional involvement was creating a generalized commodity bubble.

Relative shortages

Moreover, demand for selected commodities (oil, rice, wheat) is so great, it's creating relative shortages, Soros added, which is only heightening the return on equity potential of commodities, Bloomberg News reported.

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and a competitive advantage in established markets, preferably with a favorable global trend as a support. And with this in mind, Freeport-McMoran is worth a review.

Globally-oriented miner Freeport-McMoran (NYSE: FCX) is the world's second-largest copper producer and a major miner of gold and molybdenum. Further, FCX's purchase of Phelps Dodge in 2007 means that it has proven and probable reserves of: copper, 75 billion pounds; gold, 128 million ounces; and molybdenum, 1.9 billion pounds, net minority interests.

But perhaps most important, Freeport is one of only eight companies that have the economies of scale to compete in the global mining sector of the early 21st century. Look for continued merger/acquisition talk in the sector, but don't think of Freeport as an acquisition play: FCX has a large portion of the global copper market, geographical diversification, and enduring relationships with key customers, among other strengths, to continue to perform well in the years ahead. The Reuters F2008/F2009 EPS consensus estimates for FCX are $10.07/$11.07.

Further FCX's p/e of 12 is reasonable given its advantageous market position and prospects for growth. Don't expect Freeport's ascent to be perfect and calm, given its dependence on commodity prices, but that does not blot-out the secular trends that point to good things for FCX's in the years ahead.

The risks? Freeport's copper segment would be hurt by a global economic downturn.

The First Call mean rating for FCX is: Buy [19 firms]. Mean 2008 target: $117.00 [high: $135, low: $65.00].

Stock Analysis: Freeport is a moderate-risk stock not suitable for low-risk investors. Investors should expect above-average volatility with FCX. Don't buy FCX if your portfolio already contains a mining/mineral component. Investors with an investment horizon longer than two years should be rewarded from FCX's shares. Sell / Stop Loss if you were to buy shares in this company: $68.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Reuters reports that the market value of some homes is less than the street price of their copper pipes. The result is that thieves are ripping out the pipes and selling them. Copper prices have risen 400% in the last three years while home prices fell 11% in the year ending January 2008 and could drop as much as 50% from the peak. This creates the ultimate domestic value play.

Here's the opening anecdote from Reuters: "Shards of broken glass outside the basement window of 31 Vine Street hint at the destruction inside the three-story home. Thieves smashed the window to break in and then gutted the property for its copper pipes -- a crime that has spread across the United States as the economy slows and foreclosed homes stand empty and vulnerable."

Demand for copper in China and India has boosted prices dramatically. Scrap copper sells for about $3.50 a pound, against 70 cents just three years ago. Scrap traders estimate that more than 80% of recycled copper is exported to China and India. So if a foreclosed home has, say, $5,000 worth of copper and is on the market for $100, investors could make a profit buying up the house, stripping out the copper, and selling it as scrap.