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How Many Bushels Of Corn Can You Buy With 1 Ounce Of Gold?

There are two questions that come up at every seminar and webinar I’ve had since this fall:

“How much lower will grain prices go?”

“How far can prices rebound when they turn higher?”

To answer these questions, it’s important to look back. It’s also key to think of other ways to measure the price of grain. Can the value of grain be measured over the years by comparing it to something other than the U.S. dollar?

I think about the price of grain all the time, and I’m starting to think more about the meaning of price in this global market.

The charts I make showing the perceived international price of corn or soybeans indicate how foreign buyers view the value of U.S. grain.

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Universal Value

What if you bought bushels of corn but paid using gold instead of the U.S. dollar? How would your purchasing power have varied over the years?

Prices are down, so you could predict that a buyer paying with gold could buy a lot of bushels.

In fact, the long-term continuation charts for corn and soybeans show prices dropping down to the lowest price level since 2009 for corn and 2010 for soybeans. I also know that this is really cheap, because it is well below your cost of production, no matter where in the world you grow corn and soybeans.

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Take a look at the bushels of corn you could buy with an ounce of gold (see Al’s Goldfinger Corn Buyers’ Index above). In October 2014, an ounce of gold bought 375 bushels of corn – the most ever. The last time corn was even close to this cheap on the Goldfinger Index was back in May 2010, when gold bought 351 bushels of corn. Going back to 1980 (when gold was at $870 per ounce), a single ounce would buy 248 bushels of corn at $3.50 per bushel. Corn is currently that cheap, and measured against gold, corn in 2014 is cheaper than it was 34 years ago.  

Now take a look at the bushels of beans you could buy with an ounce of gold (see Al’s Goldfinger Soybean Buyers’ Index above).   An ounce of gold currently buys 130 bushels of soybeans. Before that, the all-time high was in December 2011, when an ounce of gold bought 154 bushels of soybeans. In 1980, a single ounce would buy 100 bushels of soybeans at $8.70 per bushel. Soybean values are just a fraction higher than they were 34 years ago.

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2 important lessons

I’ve learned a lot of lessons trading futures over the last 40 years. These are two of my most important lessons:

  1. Do not buy something just because it is cheap. For one thing, it can stay cheap. It can also get cheaper and stay there longer than you can imagine. Economist John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”

  2. Price works. When grain prices get below your cost of production for more than six months, then odds are good they will not stay that low for another 12 months.

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Answers To Questions

Getting back to those two questions that have been asked at fall farm meetings, here are my answers:

  • How much lower will prices go? The short answer is “not much more.” The corn market was due to put in a major 68-month low in September 2014. If the September low at $3.18 is taken out, then look for the final low to develop by December 2014 in the $2.90 to $3.10 price level. For soybeans, the long-term low is not due until the first quarter of 2015. If the $9.04 September low is taken out, then look for the soybean futures market to bottom in early 2015 at $8.40 to $8.80.

  • How far can prices rally back? The short answer is “an amount worth waiting for.” Use the September lows and watch for a retracement in July corn futures. This sets up a target in the futures market for it to go back to $4.17 to $4.39. For soybeans, the retracements project a rally back to $10.20 to $11.

The key to success is being patient and disciplined.

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