Powershares DB Agriculture Fund (DBA) Starting to Pop

It's starting to feel a lot like early March around here - stock market falling, agriculture products skyrocketing. It can only be a matter of time before we hear about rice hoarding at Costco again, eh? As if the world consumer did not have enough problems... we are starting to see the predicted corn inflation [Mar 31: USDA Farm Report] I wrote

While weather will have be the determining factor on what actually is harvested, as I predicted last week [Cutting Back on Powershares DB Agriculture Fund - Focus on Fertilizers for Now] when I wrote With that said, no change to my long term view and I look forward to next week's crop report - my expectation is the exact reverse of what happened last year when farmers piled into corn due to the ethanol boondoggle. With the ridiculous rise in wheat, I expect a huge upswing in wheat plantings and ... *drumroll* a shortage in corn. Which will drive it up next fall/winter ;) And so the World of Shortages continues

Unfortunately for Americans corn has been so subsidized for ages that it literally permeates every part of our food chain. So in 6-12 months when corn begins a new leg up, you are going to be paying for this in a very large way. And it plays right into my prediction of a coming "meat" shortage as corn is a major input in feedstock for chickens/cattle/etc.

Well unfortunately this is happening even quicker than I thought; 2 months later and corn is skyrocketing, now at $7 - the weather we pointed out was causing issues in March [Mar 25: This Day in Agriculture] is continuing to be awful. Weather is so poor in the Midwest that even wheat and soybeans (the latter of which is something farmers would plant if corn is not possible due to weather) are popping. Remember, I kept typing through the fall and winter we needed to pray for perfect weather and our current agricultural policy is "hope for the best". Which ties in beautifully with our energy policy aka Dick Cheney meets in secret behind closed doors with oil executives and won't release minutes to the public, and everyone else "crosses fingers it all works out". But I digress!

Again my preference was to be long corn futures (they only trade in stock accounts in London) so we've been using Powershares DB Agriculture Fund (DBA) instead (corn, soybeans, wheat, sugar) and now that all most of these are moving upward together, it's beginning to take off. And once again, look for another round of price increases at your grocery aisle in the coming months/quarters. And don't forget the meat situation [May 27: Update on Corn and Livestock] So please ignore this post when your government tells you nothing to worry about on the inflation front come Friday morning. Agflation - it's alive and well.

This move has happened so quickly (the wheat and soybeans) that I have not had time to rebuild my stake - but now that the coast is clear, the hedge funds can now run into these commodity markets and do their thing, throwing billions of their dollars into tiny agriculture markets, causing havoc for consumers worldwide - yee haw. Oh and that corn ethanol boondoggle? Ugh - let's not even get started [Apr 28: States, CEO's Beginning to Snap back at Ethanol - the "Administration" Holds Firm]

• U.S. corn futures soared more than 4 percent to a fresh record high for the fifth consecutive trading session on Wednesday as flooding expanded in the U.S. Midwest, harming the 2008 corn crop.
• Corn prices on the Chicago Board of Trade have surged 80 percent over the past year, with nearly 17 percent of that tacked on just this month.
• Soybeans surged 3 percent and wheat leaped nearly 5 percent as those markets followed corn, but the historic rainfall and flooding in the United States also were beginning to hurt soy and wheat crop prospects.
• "There is definitely concern. There is way too much water and, even if it is drier next week, it won't matter now. It's too late to plant corn and even bean yields are being affected," Vic Lespinasse, an analyst for GrainAnalyst.com, said.
• By midday, U.S. corn for July 2008 (CN8) delivery was locked up the 30-cent limit at $7.03-1/4 per bushel.
• The U.S. Department of Agriculture this week slashed 5 bushels per acre from its estimate for U.S. corn yields because of excessive rainfall and flooding in key corn states, including top producers Illinois and Iowa.
• "The size of the corn crop is coming down, and maybe the wheat crop too," said Chicago cash merchant Glenn Hollander of Hollander-Feuerhaken.
• "If you look at corn prices, wheat can only rise. We can't have wheat cheaper than corn," a European trader said.

So what will our leadership do about this? Do they even know what is going on? Based on past performance we will see one of two things (or both) - they will sue US farmers (OPEC) or bring US farmers into Washington D.C. to grill them for price gouging (oil executives). But it won't happen until November 5, 2008 - after all we have voters to pander too. Farmers are voters. But once Nov 4 is done with; all bets off the table - let the lawsuits/grilling commence! (Of course the Congressmen should be suing and/or grilling themselves since they are the nexis for many of the problems, but since we largely elect people we'd like to have a beer with instead of people who understand the issues, that will never happen)

[Jan 18: One Lonely Voice Agrees with Me on Food Inflation]

Long Powershares DB Agriculture Fund in fund; no personal position