Sen. Joe Lieberman was in the news this past week with his proposals of limiting pension funds from investing into the commodities markets. Along with other proposals, I tend to think that he and the public do not understand or are incorrect in their assumption that higher commodity prices are the same as higher inflation. It is the fundamental jump in demand for raw materials by domestic and foreign buyers, the cheap dollar along with cheap interest rates, and the inability of producers to bring new supplies to meet the increased demands. Growth in the major populated parts of the world, China and India is responsible for much of the price increase in many commodity sectors. China is consuming huge amounts of energy. Not only crude, but heating oil, and yes, coal. The price of coal is sky high.
I suspect that the speculators aren't pushing that market but merely demand that can't seem to get enough. I doubt that Lieberman cares much about the farmer, but is merely trying to shore up Democratic votes.
Interestingly, silver is not even close to the highs of the late 1970s. According to the Money Supply Growth M3 data, data series continuation grew 4 percent to 6 percent in 2004 to '05, to 16 percent to 17 percent. A 280 percent increase. And, according to the SGS M3 data, the government has continued to print dollars at an expanding rate, which is both inflationary and effectively dropping or keeping the dollar's value down. This keeps U.S. raw commodities cheap in the world market. If it is pure speculation totally driving the prices up, then why is freight rates so high. Demand and a tight supply of freighters.
We will get a glimpse of USDA's numbers on quarterly stocks and planted acres June 30. Everyone knows that we have lost corn acres because of flooding. And while the thought process is that we are planting some of the ponded corn acres to soybeans, we must keep in mind that we not only lost corn acres but bean acres in the flooded areas as well. In fact, with the harvest of wheat late this year, there may be some soybean acres not double cropped. And with the decline from last year's 93.6 million acres to 86.014 million acres for corn, I suspect there were more soybean acres along the rivers, etc., that were lost. Now, no one mentions all the corn and soybeans of old crop that was destroyed in the floods that would have been in elevators or on farms. This should show up in disappearance at a later date. Possibly in a revision?
Basis the stocks report, cumulative residual usage on June 1, tends to be lower than that on March 1. This is because all seed usage is put into the third-quarter report, while not all seed is used by June 1. Residual usage is the difference between calculated stocks derived from subtracting usage from beginning stocks and the reported stocks. Some are questioning the previous two quarterly stocks reports of this crop year since they showed lower-than-normal cumulative residual usage. This should imply that last year's crop may have been understated by nearly 75 million bushels. Should the report indicate June 1 stocks near 670 million to 700 million bushels, the trade may feel the need to ration old crop supply not so important. Still, it is the acres that most will be focused on.
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Projected ending carry for 2008 to '09 is tight and the reality that it may get extremely tight if weather continues to deal us a bad hand with hot dry weather after another week of rain.
