Hang on, Commodities are Movin
Published: 25 October 2010
Last week when you read this column, reported estimates of the 2010 corn crop were really bouncing around. Since that column, the USDA Crop Report has caused a jump in corn prices, as the agency has now forecast the 2010 corn yield to be down 3.4 percent.
The national corn harvest is about 50 percent complete, so the report sent U.S. corn futures close to a two-year high. This has helped some and has hurt others in the agriculture business. This bouncing around in any market hurts all, because it makes it harder to plan for the next year. When corn rose so fast in 2008, some ethanol plants were forced into bankruptcy, which may have also been poor planning on their part. The food versus fuel debate continues.
But, as corn rose last week, it also raised the price of gasoline 10 cents, along with the price of oil and, of course, wheat and soybeans. Manufacturers of farm machinery, fertilizer or large seed companies also saw their stocks rise with the price of corn, as did the stock of the large crop processors – they will be able to charge more with tight supplies. This all means the price of groceries will go up, which will particularly hurt the meat counter.
Those involved in any part of the livestock business have seen prices drop this past week, after rising a couple weeks ago and dropping a month ago after the USDA Crop Report lowered corn harvest yields. Many people question the accuracy of the USDA reports, as they have made some commodity traders a lot of money, while others have lost.
Commodity trading is big business these days. Hedge fund money has been flowing into commodities, and particularly agriculture. Investments by major funds in corn, soybeans and wheat are close to $50 billion. If one is looking for a place to invest, some say go into agriculture, and preferably crops and related agricultural industries. One thing is for sure, if we’re short of corn and wheat, there won’t be any grown until next year in the northern hemisphere.
We all realize that, in commodities, there is a good for every bad. Now coffee is trading high on the boards, so your morning cup of coffee will cost more for everyone. Grains are up, which is great for farmers and processors, but not so good when we go to buy groceries. They say that, if a family now spends $200 a week on groceries, their grocery bill could rise close to 20 to 30 percent next month. Eggs, milk and bread will rise first.
So, as in all commodities, it is all about when you buy and sell. If someone hasn’t yet sold their corn, they might want to hang on. Prices should stay high, unless USDA releases a conflicting report. Livestock producers, for the most part, have sold, and many have delivered, their calves, yearlings and lambs or locked in their price for feeding them. They have lucked out.
The best part is that, in American commodities, and buying and selling, it is our decision as to when and how.