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Libyan unrest & the grain trade

Jeff Caldwell 02/23/2011 @ 3:38pm Agricultural content creator and marketer.

Unrest in the streets in northern Africa and the Middle East is half a world away from the corn and soybean fields of the Midwest. But, the commodity markets -- namely crude oil and, as a result, the grains -- are reacting with sharp moves.

Wednesday saw crude oil futures surge past $100 per barrel for the first time in 2 years, according to a Dow Jones Newswires report. The last time prices were this high was in October 2008 as the world economy began slipping into recession. And, traders say prices will continue on their current track as long as the unrest keeps up, especially in Libya.

So, what will it mean to your pocketbook? Grain futures tumbled Tuesday on the news of the new protests in Africa and the Middle East, but losses were trimmed Wednesday. But, the trade remains fixed on the situation across the Atlantic and what it's doing to crude oil, which could cause a major structural shift in the grains and how they're impacted by the oil market.

"Some of the things that are going on in the world to me is nothing but bullish for anything that has an energy component. If these Middle East oil producers halt there oil production for any length of time, we could see the old highs in crude oil taken out and new highs established," says Agriculture.com Marketing Talk member p-oed Farmer. "I can tell you that the grain markets have not calculated $150-plus-per-barrel oil into the mix...Unprecedented times for sure."

In the short term, many agree that the triple-digit crude oil prices will pressure the grains lower. Further out, there's not as much concensus. Some grain farmers say the higher oil prices could move forward the adoption of 15% ethanol as a way to hedge against higher petroleum costs.

"$140 oil would make 15% ethanol a no-brainer and might have to up to 20%. An EPA waiver will be forthcoming if oil goes north of $150/barrel," says Marketing Talk member unlgrad. "I expect the price break to last another 60 to 70 cents."

But, the last 2 days' reaction in the grain markets should be put in the right perspective, adds Marketing Talk member jrsiajdranch. "This move, as a percentage, is just like a 10-cent move from $2.50 to $2.40 [in the corn market]," he says. "Really just ho hum!"

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