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reubencbd
Contributor

Metals and Grains

I'm a young guy still learning.  I've asked the question many times, and I'm hoping someone on the board can help me.  When I read reports lots of times metals are mentioned in with the rise and fall of grains.  My questions are what does Copper, Gold, Silver have to do with the action in the Grains?  Maybe I'm missing something simple, but I appreciate any replies.  Thanks, love the reports, and commentary.

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5 Replies
Jim Meade / Iowa City
Senior Contributor

Re: Metals and Grains

I don't know, but that won't stop me from answering.  Smiley Tongue

Metals seem to me to be mostly a hedge against inflation and a weak dollar.  Grains are also a hedge against the same.  I don't see they have anything to do with each other, they just both seem like vehicles for hedging.

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SWMN native
Contributor

Re: Metals and Grains

Jim pretty much hit it.

 

I grew-up on the farm, majored in Econ. and Business Administration.  Now, I'm in my cube working for a bank typing this.

 

Anyhow,

 

The esaiest way to explain it, is, if your see metals, oil, stocks and grain all move in the same direction roughly the same amount percentage-wise in one day, its not that the values of these commodities are changing as much as it is the value of the money buying them is changing.

 

With things trading in global markets everybody's doing the math to convert to local currency.  For example, The Japanese don't care how many dollars they pay for a bushel of soybeans for food, or for that matter a ton of copper to make electrical systems in cars.  They want to know  how many Yen it costs.

 

I think it was 2006 or 2007 when my dad told me of the first predictions of $6.00 corn.  I said that's the dumbest thing I'd ever heard.  How could anyone make money buying $6.00 corn?  Ethanol wouldn't make sense.  Hogs wouldn't make sense.

 

Come to find out, all it really takes is for the dollar to get cheaper.  $80 Crude oil means $3.00 gas and then, all of the sudden, $6.00 corn isn't so out of line.  Guy who made that prediction was smarter than me.

 

I know some older guys used to get into the habit of thinking about how many bushels of corn something cost instead of how many dollars.  I like that strategy.

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reubencbd
Contributor

Re: Metals and Grains

Thanks Gentlemen.  Helped me out a ton.

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kraft-t
Senior Advisor

Re: Metals and Grains

They seem to respond in tandem with eachother when the value of the dollar falls. It takes more dollars to buy either grains or metals if the dollar is devalued. But then that is not a sure thing because supply and demand are also a big part of the equation. If there is a glut of one commodity or another, it won't matter a whole lot what the dollar is worth because buyers will pay no more than they have to to secure supplies.

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GoredHusker
Senior Contributor

Re: Metals and Grains

If history has taught us anything, it should be noted that the dollar value has a lot more to do with prices than funnymentals do.  In 1980, the corn carryout was 1.6 billion bushels while price was roughly $3.90.  In 1985, the corn carryout was 677 (just 42% of 1980 carryout) million while the price was roughly $2.20.  What happened in that time?  The dollar rallied nearly 40 percent.  We had less than half what we did in 1980, yet the price was almost half of what it was in 1980 by the time 1985 rolled around. 

 

Here's a trivia question for all:  what was the price of wheat the last time we had 800+ million carryout?   

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