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Beware of Popcorn

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March 14, 2011 – Comments (7)

On February 4th, I wrote a post titled "Don't Cows and Chickens Have to Eat?" which basically said that the corn futures were in a speculative bubble, being pumped for profit by people who had invested 6 months earlier.

At that time farmers were being paid a Jan. spot price of $5.37 for a bushel of corn, March and July bushels were $6.48, while Oct was $5.35.

A week late July futures had been pumped to $6.85, and a week after that Feb 18th, they reached the $7.00 mark. The etf CORN rose from $41.00 to $43.00.

Today a July bushel of corn is worth $6.34 and Oct is $5.15. And farmers do make money at $5.15.

Interestingly, just after investment/trading websites were suddenly tipping all of us off on the CORN opportunity, trading volume in the etf CORN doubled as people looking to turn a quick buck jumped in on the advice. The price did not double though.

Right now the end users of corn - kellogs and coca cola and the ethanol companys for instance - are contracting to buy the corn they will use in October for $5.15/ bushel. Unless there is a weather event that wipes out acres of corn and the farmer cannot deliver $5.15 corn to Kellogs, that is about where the price will stay.

So for those of you that bought a CORN etf, that "invested" in a bushel of July corn for $7.00, You can pray for bad weather and a jump in corn prices, or take a loss, or take delivery.

Beware of Popcorn

 

 

 

Best wishes,

Steven

 

7 Comments – Post Your Own

#1) On March 15, 2011 at 6:51 AM, devoish (98.08) wrote:

Betting on a hot dry unproductive summer to impact corn prices might turn out to be a good bet. As long as you know that you are betting on a hot dry unproductive summer and not ethanol production, or Government mismanagement or a long term trend in Chinese demand.

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#2) On March 15, 2011 at 8:27 AM, ChrisGraley (29.88) wrote:

good hedge in post #2 devoish.

:)

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#3) On March 15, 2011 at 8:35 AM, lemoneater (77.60) wrote:

I'd rather do without the drought this summer. I was interested in the water stock DGW Duoyuan Global Water you picked for chimpcontest. Just reading your haiku made me thirsty.  

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#4) On March 15, 2011 at 12:07 PM, catoismymotor (< 20) wrote:

+ 1 Rec for the RG clip.

Good post.

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#5) On March 15, 2011 at 12:35 PM, catoismymotor (< 20) wrote:

#4, Pt 2: http://www.popsci.com/technology/article/2011-03/polar-based-laser-could-zap-space-junk-harmless-orbits-protecting-satellites-and-space-station

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#6) On March 15, 2011 at 1:05 PM, Gemini846 (51.92) wrote:

I was headed to the feed store to get some corn for the duck pond. How much does a round lot of CORN get me lol.

So basically you are saying that only the summer futures are being pumped by the ETF's that will get burried in the contango?

Are they a viable short?

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#7) On March 15, 2011 at 4:09 PM, devoish (98.08) wrote:

Thanks all, especially Cato, and Chris for noticing, and yes I wanted to make clear about the weather risk..

Gemini846,

It seems to me that ETF's are buying options up to 6 months out. One of the things I noticed that made me believe it was speculation is that the price of eggs/milk for which there is no ETF had not risen like corn prices (CORN) or beef (COW) for which there are. And cows and chickens eat the same feed as beef.

The information was available from the same USDA crop report that was used to suggest that corn prices were driving beef. I guess the trading websites did not look closely, or didn't tell.

Lemoneater,

I am pretty happy with that haiku. At the time of the chimpcontest I was looking at DGW and the end time of the chimpcontest made sense for it. But like I said in a reply in the pitch, I would rather not see Chinese desertification continue. Hopefully they get rain. As it is China has commited to the biggest water relocation project in the history of mankind in the hope of saving their northern croplands from global warming. China is probably screwed, its farmland topsoil is parched and blowing away to the gulf of Mexico, it is probably to late to save it but eventually they can rebuild it. Google Chinese desertification to see them repeat our dustbowl. To win a chimpcontest six months out DGW will need a pump from traders, and a drought to help sell that pump. It will probably be crushed by a biotech. Longer term if it is a real company I think it will do well, and it seems to be real and it seems to make a profit. There are many people on this site better qualified than I am for investment advice. For example if Seth Jayson doesn't like it, I would bet with him, not me. But in the end you have to decide,

Thanks for the replys and thoughts.

Best wishes,

Steven

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