The weather sure has been different. I think we've had the frost come out of the ground at least three times already this winter. A week or so ago we hit nearly 70 degrees. Within three days, we had 40 below windchill. There were an awful lot of motorcycles out and about Sunday as it was around 70 degrees. I almost fired mine up.
The problem with energies right now here in the U.S. is a supply problem. The last time gasoline stocks were as high as they are was 11 years ago. If you take the category that includes all crude and crude products, we're at all time highs when comparing weekly totals from now and comparable weeks in years past. Even ethanol stocks are nearing all time highs. What makes this extremely odd is the fact that the winter especially in the Northeast where they primarily heat their homes on heating oil (diesel) is/has been extremely cold. Heating oil stocks the first week of February are the highest on record compared to the first week of February in any other year.
From what I've read, the Egyptian thing has already spread to other countries. I believe it was Tunisia that was the first to overthrow their gov't nearly a month ago. Jordan has seen protests. Iran is protesting. The countries protesting are seeing two things: extremely high unemployment and double digit inflation. I would venture to guess we will see more countries protest as long as both high unemployment and high inflation exist. If crude is going to make it to triple digits, it will take protests and shutdowns of oil producing countries. However, crude has been reluctant to make big gains. In September, the TransCanada pipeline which brings in 435,000 barrels a day was closed for a week. Yet, we saw no big gains in crude price. A month ago the Trans-Alaska pipeline which brings in 15 percent of U.S. crude shut down. Crude responded by falling roughly 10 percent in price. Currently, crude oil is trading at its lowest level since around Thanksgiving time.
The last time corn futures were at 7 bucks, crude oil was trading in the 140's. The biggest reason crude hasn't followed the rise in grains probably stems from the fact that the big Wall Street bankers are playing along this time around. It has been reported that Goldman Sachs and JP Morgan have their smallest commodity risk exposure in seven years. The question should be: what do they know that we don't know? Cargill who is thought to be the most knowledgeable and shrewdest of all agribusinesses just sold off Mosaic at a time when everyone and their dog is trying to get into agriculture. Again, what do they know that we don't know? Today, Gary Schilling came out with a forecast that by the second half of this year to the first half of next year commodities will take a big hit. His reasoning stemmed from the 1000 pound gorilla in the room, China. He says their growth rate will fall to 6% which will have huge implications for the price of commodities. It should be noted that once protests broke out in Egypt that China halted internet domestically because they didn't want their people seeing what was happening in Egypt. I read an article that stated China's food inflation is 10 percent. Considering China has entire cities, colleges, etc. that aren't even occupied; they could get by with what they already have built for decades without buying any additional building supplies such as copper, metal, etc.
Right now, we have different groups out there staking claims in why food inflation is running rampant. Some claim it's because of our dollar value and our Fed policy. Some claim it's because of excessive speculation in the markets. And, some claim it's because of the U.S. ethanol policy. The fact of the matter is it's more than likely a combination of the three. I'm of the opinion that something is going to change, and I don't think it will be beneficial for prices from a producers viewpoint. It's not like we haven't been here before. In 1980, we had 1.6 billion in corn carryout and nearly a four dollar price. In 1985, we had roughly 42 percent of the carryout in 1980 and roughly half of the price.
I suppose your synopsis sounds logical. I just heard yesterday that the traders are trading brent now instead of wti, so the "real" price was $103. Maybe this is just dicta... Does this have any relationship to the nyse selling out to heineken, lol. This egyptian thing could get real interesting if it spreads to other countries, especially to ones that actually pump oil, and they all decide to go on a three week work holiday also!