Views on commodities and energy
Plotlines: Grain prices in a bubble?
Beans in the teens, wheat in the teens, corn in the … well, above $5 a bushel. Do we have a bubble here? On Thursday, a Wall Street Journal story said farmers were wondering if grain prices would go the way of dot-coms or, more recently, housing. Wonder they should. (A Sept 28 Reuters story “U.S. ‘grain bubble’ in the making,” now looks a little premature.)
U.S. wheat prices are up 6 percent so far this year, topping $14 a bushel for the first time ever, at least on the Minneapolis Grain Exchange. That followed a 77 percent gain last year. Corn in 2008 is up 10 percent at 11-year highs, following last year’s 14 percent rally. Soybeans are toying with $13 for the first time, having gained 76 percent last year.
Some argue that agricultural commodities are less susceptible to a U.S. economic downturn. People still must eat. The Chinese are able to improve their diet as they get richer, for one. The biofuel crop craze has diverted food from people and livestock. Strange weather around the world has also wrought havoc on supply. Yet, over the last three decades, it looks like downturns in economic growth have preceeded declines in agriculture prices. (In the chart above, recessions are the shaded gray columns.)
And what are some of the most dangerous words in the market… “This time it’s different.” But what do you think? Are grains overbought?