Corn Moving, But Where?
If you are in the business, it has become a new reality that corn and other grains are on the move upwards. We saw the fall of 2006 take corn upwards when it seasonally would go down. That led to few people buying corn expecting it to go lower. Once it was at levels not seen since 1996, several people bought corn only to see it go down until the fall of 2007. It stayed low on the harvest crop and has been having upward pressure since.
With a previous 25 bear market in grains, few believes this bull market is for real since in the past a big crop would take care of the higher prices with supply. This bull is different though. It is “common knowledge” now with ethanol that there is upwards pressure on grains. That, is not the entire story though. In fact, I think the other story is larger.
Ending stocks in grains are at some historically low levels even with the increase in technology and yields. China and India are two nations that are hitting “middle class status” in record numbers and increasing the demand for feed grains as they change their diets. The world is looking at a “demand” shift versus a typical one-sided “supply” market. This is the tough part about reading grain and other commodity markets.
So where is grain going from here? Not a person on earth can answer that with high levels of certainty because it is too tough to call with too many factors in play. The supply is low even with record crops and yields. World demand is increasing. Inflation and potential for an economic slowdown worldwide are factors. The “credit crunch” worldwide is still in the works with Citibank and Meryl Lynch writing off an additional 30+ billion in the past couple of days. Uncertain weather conditions and higher energy costs. The list goes on and on. I get a kick out of the following conversation I had not long ago.
“There was a storm in the Barring Sea that caused feeder cattle to go down.”
“Sorry…..what do you mean?”
“The storm caused the refineries to go offline. Oil went up which caused gasoline to go up. That in turn took ethanol higher. Then the grain traders got on board and took corn higher. The potential cost of gains then scared off the feeder cattle traders and they took it down. Don’t you know anything? ! ! !”
It sounds like a joke doesn’t it! Or is it?
Trent Adams
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With the holiday in the US today, they are missing out on a world wide wreck! The TSX in Canada was down 600+ points today, so I would imagine that the stock market, all GRAINS, cattle, commodities, currencies, etc go down on Tuesday morning.
Hold on to your hats ladies and gents! The volatility is just beginning!
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