Commodities perfect storm continues
The commodities 'Perfect Storm' continues, with nearly all commodities rallying to new highs this week (gold, silver, crude, corn, soybeans) as the US dollar continues to crumble to new lows.
The US and world economies continue to worry more about recession and economic slowdown than inflation. So, inflation is like an 18 year old's home party continuing unabated while the parents are on vacation! There is really nothing checking the outrageousness of commodity markets at this point, other than the party animal speculators (who may have finally closed down the party at the Minneapolis HRS wheat exchange). The numbers of bodies left ravaged from the splurge in Mnpls, however, continues to pile up (note MF Global's 50% loss of equity by one single trader in just hours). This is clearly a market not for the slight of heart or wallet.
We also last week completed the crop insurance price insurance setting period in February for most of the country, with corn prices set at $5.40, soybeans at $13.36, and HRS wheat at $11.11. This is about one-third higher than last year's corn price, two-thirds higher soybeans, and over 100% higher HRS wheat. I doubt we ever have had or will again have a more rapid change in the major crops than 2008 - what a market year we are having! Pro Ag noted that wholesale inflation for food prices were up over 20% annually in Jan 2008, perhaps a sign of pending inflation in the US??? Problem is, policymakers are trying to CAUSE more inflation now (and slow down mortgage foreclosures and expand consumer spending), and aren't even worried about inflation. This is truly an unusual situation economically, and is still the perfect storm for commodities.
While revenue insurance prices are high, the market actually continues to rally higher. RMA was forced to raise the prices of almost all other minor crops to compensate for the rising corn/bean/wheat markets, which make up 85% of all tillable US acreage. A rising tide lifts all ships! Crude oil, gold, silver, corn, and soybeans all rallied to new highs this week, with only HRS wheat market crumbling under fund selling (and farmer "me-too" selling).
HRS wheat prices in Mnpls have collapsed to the point where they no longer hold a large premium to Chicago. Have the funds had their fun already with Mnpls? It was unusual for the HRS to rally to so much premium to Chicago - perhaps that has solved the shortage of HRS for now as millers may have switched to using more of the lower priced winter wheat in their products??? Also, those holders of HRS wheat may have become more willing sellers now that a potential high price has been set in Mnpls. Overall, the bullish trend in commodities is continuing, with new highs this week in corn, soybeans, gold, silver, crude oil (sharply higher yesterday), and new lows in the US dollar. That still sounds like a recipe for a continued bull market, although things are becoming more erratic from day to day.