We mentioned in the spring that after the historic rise in wheat [Feb 8: Wheat is the new Corn], farmers would be planting a ton of this product in 2008 to take advantage of those prices, and moving away from corn. [Mar 31: USDA Crop Report] That's exactly how things played out [Apr 3: Corn Jumps to $6 - Start Stocking up on Soda Pop]... and wheat prices dipped (dipped is being kind, it's more like shellacked) on expectations of a huge crop later this year. Since both ETFs/ETNs above have wheat and soybeans in their holdings they have returned only 7-8% in the trailing 6 month period (mostly due to the pain from wheat since its spike). So 43%.... vs 7-8%. That makes a huge difference.
With that said, wheat has been cut nearly in half from its "bubble" highs and really is it that hard to guess whats going to happen next spring? After the historic prices we are going to see in corn by this fall, NEXT year's crop is going to be corn heavy - causing a shortage in... yeh you guessed it... wheat. So maybe buying here with a year time frame on the wheat side would not be such a bad thing. And so we'll go year after year, as too many humans want to eat well, and too much farmland is being devoted to such things as new homes and apartments, the world over.
The frightening thing is that while in more developed countries with mature capital markets, farmers can hedge their sale prices in the futures markets and borrow against that to buy the necessary seed, fertilizer, equipment - that is NOT the case in developing markets. So some farmers are simply unable to pay for fertilizers (which are now priced on a global scale), petrol is making running equipment too expensive, and some are simply walking away from farming. And that only creates more shortages. I guess some of the poor 2nd/3rd world farmers can go back to inefficient use of farm animals, but you still need to feed said animals and well... it's all circular - they're expensive to feed as prices go up on food! So there is no escaping it. Inflation is pure evil. These are the type of things that make me stare at the ceiling in the deep of the night and worry... not a good situation at all.
Below is a list of the major commodity ETFs/ETNs ranked by Year to Date performance, courtesy of Richard Shaw's blog. Note, this list is not exhaustive - we've seen a flurry of commodity ETFs hit the market the past 3-6 months [Apr 17: Four New Agriculture ETNs] but this list does show you where the gains have been. Aside from corn (which is not on this list since we don't have the investment vehicle available in the US) all the usual energy suspects are showing, headed by natural gas.
(click to enlarge)
2 comments:
Interesting comment from your big bro Coxe - while ethanol is projected to consume about 25% of the corn crop, the ethanol producers have first call contracts on the corn, so they receive the product first. That means with any crop failures due to weather like planting delays we are having, as much as 40% of the reduced corn crop will end up in the ethanol tank.
That's frightening.
Do you have a link to his comments? I don't get a chance to read him much other than in general news stories.
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