Well here's my take on things. Lets look at the ag commodities now corn appears set to make a major move north. Just how will this affect other related commodities moving forward?
1. Corn is the principal source of fructose syrup, the most commonly used sweetener in the US food manufacturing sector. It is also the main feedstock for ethanol manufacture in the US. This can only be inflationary for sugar when you consider there is a potential for rationing of corn feedstock most likely by price, and sugar is trading 80% lower than its historic high of 64c back during the last oil shock in the 70s. Will the US be forced to allow imports of sugar to keep its booming ethanol sector alive? Not to mention the number of sugar producers world over who will be eying grain based opportunities, but especially in India. A lot of acres of sugar will move to rice on the subcontinent.
2. It has to be friendly to cotton given the ability of cotton growers to safely switch to corn production. Most US cotton is already planted but into next year is where it will get interesting on the acres battlefront. On an aside cotton has to be a major beneficiary of hyperinflating energy values too as people struggle to afford heating bills in the northern hemisphere and look to 'rug up' in heavy cotton apparell (OMG who'd of thought this farmer could predict fashion trends? LOL)
3. The meats! It has to be hyperbullish as it is going to pull the bullish case for meats forward at a rate of knots as the weak or illiquid corn feeding operations head for the sidelines and dump inventory (front months) leaving a likely shortage of animals (deferred months). I believe meat commodities will likely double in the next 12 months and this is my preferred futures play moving forward.
4. Fertilizer - given that this event will cause almost all ag commodities to likely test record highs we will once again find farmers have reason to justify paying the record prices currently being charged for fertilizer commodities currently. I think this is bullish for fertilizer demand and given we have no speculators in the fertilizer market (ie no futures markets) I can't see any correction in prices arriving for at least another year or so. that can only come from producers getting on top of demand and that is going to take mass investment in infrastructure and capacity which of course takes time (generally 3-5 years). I am most bullish nitrogen and potash. Any political instability in Morocco and it is game on in the phosphate market also. Don't expect China to be an exporter of any fertilizer in 2008 and possibly 2009. Its going to remain tight, tight, tight ...
5. Oilseeds - you have to be bullish on a commodity group that really can't help but be inflated by runaway energy prices. That the US soy crop is likely detrimentally affected by the floods also makes the case for bullishness a very safe play IMO. And just quietly the Australian canola crop is not off to a particularly ideal start.
Trade well! Just a mug farmers' take on the ag scene at the moment ...
