Demographics shift along with the times and after reading the following article about booming corn prices, I can't help to wonder if some small street in Nebraska will some day soon become the "Wall Street of the Midwest".
For those of you who don't pay attention to commodity markets, corn inventories have hit a 37 year low. Boosting prices over $7, a price range once considered outside the realm of possibility. In spite of today's "pop", there is a realistic potential for corn and other grains to go sky high.
The situation is dire for grains, in general. Global inventories for all grains will drop 13 percent before the next harvest according to USDA estimates. Increasing demand is causing isolated food shortages and accelerating inflation in developing countries even as it boosts farmers' incomes and shifts planting strategies. Considering the recent revolutionary trends in the Middle East this situation may get worse, before it gets better.
Corn is currently $200/acre more profitable for farmers than soybeans, yet they are still struggling to keep up with demand. Increased meat and dairy demands are also helping to drive this emerging corn bubble. Keep in mind that most of America's corn goes into the bellies of feeder pigs and not into supermarkets aisles and shelves.
I remember reading a book at the CBOT about five years ago. There was a great deal of qualitative and quantitative evidence given as to why corn would never go over $6.
Corn is near $7.25, as we speak and many predict it hitting the $8-10 range by 2012. Others are looking at soybeans, wheat and rice as having a greater peaking potential.
Many of you guys had strong opinions on the global warming issue yesterday...yet it seems like very few people are interested in discussing the danger surrounding price spikes in the area of our most valuable commodity.
Grains, as the first line of defense from hunger,so-to-speak are beginning to enter dangerous territory, price wise.
For those of you who do your own grocery shopping, you must have noticed some very strange looking price changes in the grocery aisles recently. Going to buy a week's worth of groceries is starting to look like a trip to thepits.
Even my butcher nodded sympathetically when I asked him about Pork Chop Puts earlier this week.
So what is the smart play for the investor here?
I am always inclined to think that we wouldn't be in this situation if it weren't for U.S. farmer subsidies...but perhaps that is irrelevant...or is it?
Are there other reasons to look at?
With all of our talk about silver manipulation, maybe the ag, soft and grain markets should be getting a closer look from regulators?
Will today's pop in the corn bubble be a long term effect or is the bubble just beginning to inflate?