This Just In...There's Too Much Damn Corn! Futures Get Trashed

Corn futures are getting absolutely trashed this morning...along with basically everything else in the commodities sector.

July futures are down nearly 8% as I write, as the USDA just reported that corn stocks are up 6% from a month earlier. Obviously the market does not like this supply news, and corn is being heavily discounted as a result.

The USDA also reported soybean stocks down 12%, while wheat stocks are up 118% from a month earlier. Wheat and soybeans are also down on the report...beans down only half a percent though, so a decent performance in the wake of the carnage.

This looks like another "all or nothing" day in the markets - with the dollar and T-bonds up, and everything else down. We've been keeping an eye on this lack of decoupling...and I think we can assume it hasn't happened yet.

Notable performances in the commodity sector today by rough rice and orange juice...the only green ticks amidst a sea of red. Keep an eye on these two, as strong performances on down days can imply good things to come.

I wouldn't interpret this as a nail in the coffin of the bull market in agriculture - more likely just a respite for this year. The old saying is that if corn doesn't rally by July 4th, it's not going to happen.

We still appear, though, to be playing a game of Russian Roulette with the food supply - we basically need a bumper crop every year to keep this cheap food party going. Grain supplies remain near record lows, so the 2010 grain contracts may be an interesting speculation in the near future...or perhaps right now.

Puking up corn chunks...right past the line of support.

(Source: Barchart.com)

Interested in investing in agriculture...a la Jim Rogers? Check out our weekly series This Week in Commodities.

PS - If you haven't taken our 3-question reader survey yet, please take a minute to do so - much appreciated, as it helps me gauge what type of content we should focus on here.

Wheat, Corn Stocks Still at 30-Year Lows

Despite record harvests last year, corn and wheat stocks are still sitting near 30-year lows.  Which means, anything short of a bumper crop could send the grains skywards once again.

Here are some very cool charts, courtesy of Chris Mayer at DailyWealth, that depict the stocks-to-use ratios of of wheat and corn since 1970, versus their inflation-adjusted prices.

Investing in grains is actually pretty easy - when supplies are low, and prices are low, you know prices should eventually go up.  Then, at some point, high prices spur enough new supply onto the market that prices come down.  Ideally, that's when you go short!

You'll notice from the charts that grain stocks and prices move in fairly long cycles - about 15 to 20 years in length.  It takes time to bring new supply online, to replenish stocks...ultimately to rebalance the supply/demand situation.

This time should be no different.  China is industrializing in a big way, and its citizens have taken a liking to eating, a habit they're not likely to give up, no matter how bad the global economy gets.  Most notably, they are adopting Western style high protein diets, with lots more meat...and livestock require a lot of grains to raise.

Bottom line - it's safe to tune out the talking heads on TV when thinking about agriculture...just focus on supply and demand.  It's that simple.  When demand exceeds supply, prices will rise, until supply is able to overtake demand.  Sure, things like currency devaluation, a falling dollar, will toss fuel on the fire...but at the end of the day, it's all about supply and demand.

Rice, Anyone?

Props to our buddy Pharmer, who called this one on the correction a few weeks back.

Rice was the last shoe to drop in the grains correction, and the first to be roaring back out of the gate.

I just had one contract filled at 18.98, and rice is currently sitting at 19.05 - basically an all-time high.

Rice has doubled in the last year, but we'll see how much room it has left to run. I'll probably look to add a contract or two on continued strength.

WSJ - Heartland Sees Boom With Grains In Demand

By JULIE JARGON

February 15, 2008; Page A1

ALBION, Neb. -- The U.S. economy may be teetering on the brink of recession. But there's a bountiful harvest down on the farm.

Grain prices are surging to historic levels. Spring wheat, a variety often used in bread, hit a record $18.53 per bushel yesterday. Corn is trading above $5 and soybeans are bringing in more than $13, all 25% or more above their year-ago prices.

Net farm income is expected to hit $92.3 billion in 2008 -- a 51% increase over the 10-year average of $61.1 billion. Across much of the Great Plains, unemployment rates are well below national figures and housing markets remain robust. Robert Moskow, a food industry analyst at Credit Suisse, has proclaimed this the "golden age" of agriculture.

Rest of article (subscription required)