Everyone Loves a Conspiracy Theory ... but on Corn?
EF Musings
Trying to profit from corn in recent times has proven challenging. For the average commodity investor it may seem 'surprising' that despite all the bullish news on demand for US corn, reduced US acreages, reduced crop yields in other producing nations, and even China now becoming a importer of US corn much earlier than anticipated, the market has become fixated on but one fundamental fact - the expectation of a record US corn crop. So one has to question why corn futures have not rallied stronger.
I have a theory and it relates to the longer term security of supply of the liquid fuel (gasoline) market in the US. Cellulosic ethanol is being touted as the next feedstock on the liquid fuel market shopping list. In order for that dream to come true two things will need to happen. Firstly with cellulosic ethanol you must first have the infrastructure necessary to 'digest' or chemically degrade the complex sugars that are cellulose down to simple sugars. Secondly you need the infrastructure in place for these sugars to be fermented anaerobically to produce ethanol.
The current low price of corn and high price of gasoline has encouraged a flood of IPOs and private equity investments in ethanol production capability in the US. This massive infrastructure project will only be viable and continue if this cheap feedstock and expensive liquid fuel market predominates. We know that from an energy perspective it makes little sense to turn corn grain into ethanol. In the end with grains stocks at dangerously low levels, many of these ethanol plants could face a shortage of grain and the associated abliteration of profits that would be inflicted by hyperinflation of grains commodities. But what is left in the wake of such a likely scenario is a heap of indispensible infrastructure for the production of ethanol. And this is where the penny drops. Once the technology and infrastructure capacity is on ground to reduce cellulose to simple fermentable sugars, these plants once again become important to the national fuel security of the US.
How does this relate back to corn and the average investor looking to profit on rises in corn prices? Well the longer the price of corn can be held at bay, the more physical infrastructure can be assembled in the heart of the USA. So I have reason to believe there is manipulation occurring in the US corn market mostly through information flows to the investment community. But then again I have always been a cynic! Simply read the daily end of session CBOT reports. Very little reporting even of tonnages sold now.
http://www.investorshub.com/boards/read_msg.asp?message_id=12344104
Add to My Watchlist
What is My Watchlist?