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John_Walter
Advisor

Heard on the street

In his column this morning, Heard on the Street (full story), Andrew Peaple writes:

 

"A rising tide lifted all boats, but the recent fall in commodities prices has been far from uniform. A 9.4% fall in the S&P Goldman Sachs Commodity Index in May masks a wide divergence in underlying prices, with silver down 28% but corn up 0.1%. After years of close correlation in commodity prices, investors need to become more discerning."

 

Peaple goes on to point out that corn and wheat prices, though off their April highs, "have stayed high reflecting concerns about global supply." Meantime, oil and base metal prices have weakened.

 

The global economic boom has masked differences in underlying supply and demand dynamics for individual commodities, he writes.

 

It's intriguing that ag commodities have broken from the pack this way and have captured the attention of analysts in this context. Does it not indicate some fundamental strength overall for U.S. agriculture?  Thoughts?

 

John

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3 Replies
rightone
Senior Contributor

Re: Heard on the street

Excess dough at the higher up/ fund levels has trended to make ALL commodities a "general" deal over the past 4 years.

 

Eventually there should be more differences noted between products simply because they are different products thus  uses and true ground level demand/needs differ etc..

(granted we may be so far OFF base now as to the paper markets having anything to do with cash or real product markets, that the "general gamble" trend of high concentrated money volume but low people volume  in the paper markets will not change much too )

 

Corn is not wheat, wheat is not soy, oil is not milk, protiens are not starches, metals are not food, etc..

 

 

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iowastateisgreat
Contributor

Re: Heard on the street

People in the poorer countries that have been demonstrating in the streets are not up in arms about the price of silver. Governments around the world now know it is easier to keep their people fed thean deal with the consequences.

 

It seems quite ironic to me that many of the countries that are dealing with food riots are mostly oil exporting countries that have a say in how much oil to export. As the supply of oil is restricted and the price goes up, the price of ethanol and the demand for corn to make it goes up. The wealthy in these countries benefit from this while the masses are hungry.

 

Bottom line, food is higher on the hierarchy of needs than oil or precious metals.

Palouser
Senior Advisor

Re: Heard on the street

Food IS a fundamental that can't be tied to other commodities if it is experiencing differing physical fundamentals for the reasons you and Rightone describe. Grain fundamentals will overrule all other market signals when there is significant divergence of the underlying from other commodities.

 

The resultant issues with food price increases aren't in OPEC countries as far as I know. China, India and Egypt are the centers of concern for food inflation in terms of possible unrest. Those are the countries that are probably doing the most to tamp down food inflation. If they were energy exporting countries I'm sure there would be less social tension by the 'have nots'..

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