This bigger picture includes the runaway bull market in competing crops, the acceleration of inflation and an ongoing asset allocation shift into commodities. We would therefore like to elaborate a bit more on these points.
First and foremost, we have the rally in new crop soybeans and grains, which continue to rise from one record to another as we are approaching next season's planting period. November'08 soybeans closed at $ 10.77 a bushel today, while December'08 corn closed at $ 4.54 a bushel.
Spot wheat briefly traded over $ 10.00 a bushel this week before retreating somewhat and December'08 corn is still at $ 7.94 a bushel. The latest USDA report predicted that soybean stocks would be down 68% from year ago levels and wheat stocks would be at a 30-year low, which should keep these markets on a firm footing.
The corn market got another boost from the passage of the Energy Independence and Security Act, which President Bush signed into law on December 19. This bill requires the production of 36 billion gallons of renewable fuels by 2022, of which 15 billion are required to come from corn, 20 billion from cellulose-based ethanol and 1 billion from biodiesel.
Renewable fuel production, still mostly coming from corn ethanol at the moment, is expected to grow from 7 billion gallons this year to 9 billion in 2008. This new legislation ensures that corn will use up an increasing number of acres for energy production at the expense of food and other crops, such as cotton.
marketing@alchempro.com
