You are here

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"

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.

As producers move towards spring planting, it's likely most will buy some
kind of revenue insurance for major crops, pushing their 'deductibles' to
low levels by various methods. Optional units in many locations could be
expanded to enterprise units, whole farm, or even GRIP coverage to maximize
the value of high price levels (puts/calls are much more expensive than
revenue insurance!). It will be relatively simple to make money this year -
just insure it up front (70% coverage insures a profit for most grains), and
then simply sell the market at the top!

Sounds simple enough, doesn't it? But the execution of those plans are more
difficult. Already, it might have been that HRS wheat highs are already
made (late February?). Soybean prices might top in late spring (will
soybeans get the acreage needed? Did South America get a good crop?).
Corn prices might top later, especially if US planted acreage of corn is not
there. That debate continues, as we hear many profess that corn acreage
will remain corn, and instead soybeans will be short. We'll see in due
time, but for now the excitement in agriculture continues!

The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be
reliable. The opinions and recommendations contained are based on
our judgment and do not guarantee that profits will be achieved
or that losses will not be incurred. Recommendations should not
be construed as an offer to buy or sell commodities. There is
substantial risk of loss in trading futures and options on

If you have questions about this column, call Progressive Ag at 1-800-450-
1404, or email Ray at (return receipt requested).

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.

Read more about