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$100 crude, $9 wheat; $6 corn/$15 soybeans?

Agriculture.com Staff 11/21/2007 @ 12:37pm

It has truly been a remarkable year in the commodity markets! Crude prices have been close to $100/crude recently, wheat rallied to $9.60, and it makes one wonder just what is up next in the commodity world.

Crude oil and wheat prices hit levels that were at least three times their early 2002 price levels, and it doesn't seem that far away for gold or silver to achieve the same type of price appreciation. For corn, though, which started 2002 at around $2/bushel, prices have so far hit about two times their 2002 price level (stalling at the $4 level with large 2007 acreage), with three times that level around $6/bushel. Soybeans are in similar territory, with prices in early 2002 at about $5/bushel and prices currently hovering around two times that level at $10+. Given what other commodity markets have accomplished, is it out of the question for corn to hit $6/bushel or soybeans $15/bushel?

These seem like astounding price levels, levels we at Progressive Ag would have dared not mention just 12-15 months ago. But one has to be extremely impressed with the commodity moves that have taken place in the past 15 months.

Last fall, it was only corn that was rallying in a 1970's type mode, with soybeans still at $6-7, and wheat at $5 levels. These were very low prices relative to $4 corn futures, and it seemed that corn was out there on its own in new high price territory. Today, price levels for the next 3 years out (2008, 2009, and 2010) has harvest price offers around $6.80-$7.25 wheat, $4.25 corn, and $9.50-$10.25 soybeans. We made new highs in soybeans (both old and new crop) and crude oil this week, with Mnpls and KC wheat new crop prices also reaching new highs.

Corn is within 10c of new crop highs. Never before have we had price offers so far out into the future at such high levels! But here we are in November, with lots of time left for an acreage battle, and one has to realize that there are some historic price moves currently being made in markets, perhaps even signifying a new paradigm for grain markets.

What could possibly cause corn to run to $6 or soybeans to $15 in the coming year? Aren't we high enough now? Certainly, no one anticipated crude oil to run to $100/barrel just a few years ago. Certainly, no one anticipated the US dollar to plunge to levels today that we are at (even the Canadian dollar is at a premium to the US dollar).

Could it be that it won't be long before the Mexican peso will be more valuable than the US dollar? It would be quite the news item if soon Mexican authorities are debating 'securing their borders' with a fence such that US workers won't keep illegally immigrating to Mexico! The plunging US dollar and increasingly expensive crude oil are both contributing to huge price moves in all commodities, especially grains.

Investment firms are talking about having a commodity investment of at least 5% in individual investment portfolios - a development mirrored by the success of index funds trading commodities the past few years.

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