Barron's is wrong, the price of corn is going up (alternate title: the Government's Nuts)
I just had an opportunity to take a look at this morning's USDA Planting Intentions Report.
The report showed that farmers are planning on planting 86 million acres of corn in the United States this year, 8% less than they planted last year. Another interesting number that the report contained is the quarterly grain stock estimate which showed that as of March 1st the U.S. inventory of corn was 217 million bushels lower than analysts were estimating it would be. There is a good chance that this shortfall was caused by the fact that the USDA overestimated the size of last year's corn crop. Whatever the reason, the reduction in corn planting and the low stock level is causing the price of corn to skyrocket. Ordinarily, an increase in the price of corn would convince some farmers to plant more, which would eventually help lower the price. However, the Midwest has been experiencing extremely wet weather lately which has prevented some farmers from getting their corn in the ground. Soybeans can be planted several weeks later than corn can. As a result, continued wet weather may further increase the price of corn as farmers who originally stated that they were planning on planting it switch to a crop that they can plant later. Not only that, but if we end up having a dry summer, or if there is even a hint that there might be a drought in the weather forecasts the price of corn will explode.
Add to this the fact that after some positive developments early this weekend, the farmer's strike in Argentina is going as strong as ever,
And the price of corn is going to continue to rise. So what you say, blah, blah, blah corn this, and corn that. Who cares? I don't invest directly in commodities and I'll just eat less corn on the cob this summer. Well, an increase in the price of corn will have a dramatic impact upon many stocks and the price of the food that you buy for your family at the grocery store. For example, ethanol producers are doomed as the price of producing ethanol from corn will continue to rise. Restaurants will likely feel even more pressure, as the prices of their ingredients continue to rise and consumers begin to feel the pinch of higher food prices at home and cut back by eating out less. If the price of meat, bread, etc... gets too high consumers are going to really start to feel the pain. Higher food prices may cause consumers to cut back on buying "fun" things like electronics, vacations, $10 cups of coffee at Starbucks... Consumer spending makes up two-thirds of the U.S. GDP. As the consumer goes, so goes the U.S. economy. The absurd government ethanol boondoggle is going to end up hurting everyone.
In addition to destroying the economy, you know what else the governments' absurd ethanol policy is destroying? The rain forests. I'm far from a tree-hugger, but the following article is enough to make you sick:
I've about had it with the current administration, between an unnecessary war that has wasted trillions of tax dollars (not to mention thousands of innocent lives) and hurt the U.S. dollar by running up a massive federal deficit, they are destroying the economy with their absurd energy policies. As the bumper sticker goes, "If you're not mad, then you aren't paying attention." And this is coming from a registered Republican.
To say something positive and constructive, let's talk about who the high price of corn will benefit, besides farmers. I see the companies that cater to farmers as the main beneficiaries. Namely, anyone who sells farm equipment, seeds, etc... like John Deere (DE), CNH Global (CNH), Monsanto (MON), Dow Chemical (DOW), and Syngenta (SYT) as well as the fertilizer producers (but they seem a little expensive to my taste for the most part).
Clarence Beeks er, uh I meen Deej
Long DE, CNH, DOW, and SYT
P.S. Anyone know that my fake name was in reference to?