Commodities (LIKE CORN, SOY BEANS) plummet on falling crude oil prices

http://www.wtop.com/?sid=589604&nid=111

NEW YORK (AP) - Commodities fell sharply Monday as another big drop in crude prices prompted traders to shed copper, corn and other hard assets as alternative investments.

Crude tumbled as much as $5 a barrel during the day on a host of bearish news items, chief among those investors' belief that Tropical Storm Edouard wouldn't damage oil and natural gas facilities in the Gulf of Mexico.

Corn futures sank to their lowest level in more than four months as traders who bought the grain as an inflation hedge began unloading their positions.

Crude's decline Monday "encouraged more selling in the grains, not that any encouragement is needed," Vic Lespinasse, of Grainanalayst.com, said in a note.
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NOTE that grain commodities are going down because energy is going down - NOT because of any conditions pertaining to the realities of grain supply and demand !! Despite the fact that USDA has forecast a DECLINE in ACRES PLANTED IN CORN THIS YEAR(farmers are moving to wheat- what you mean demand from ethanol isn't running the market???? UNBELIEVABLE!!!), DESPITE THE FLOODS IN IOWA WHICH PUT IN JEOPARDY A SIGNIFICANT PART OF THE CORN CROP - CORN FUTURES DROPPED 5% in trading Monday.

The traders are going elsewhere because they don't think they can make money trading crop futures and other commodities anymore. Once the traders (speculators) leave the field there isn't the possibility of increasing prices anymore - because they were a big part of the reason the prices were going up (so much) - yes prices are still likely to climb because of growing world demand for grain and inreasing wealth in the developing world - but not with the rapid price Changes like we have seen). In other words, if you remove the speculators you can return to what is called a more orderly market.

__ JW

based on the fact that the futures traders are (as even the NY Times admits) skewing the largely unregulated markets?

especially now that they have a way to make ethanol from the husks.

Switchgrass is still a better choice though.

According to a Merrill Lynch commodities strategist we would have been paying 15% more for gas if ethanol hadn't been supplying some of our fuel needs. THis is why the oil industry hates ethanol so much it cuts into the money they can make. they could have been getting $4.72 a gallon instead of a measely $4.10 a gallon for gas had ethanol not been there. Exxon-Mobil could have made $.80 per gallon of gas instead of $.08 (that's what they say they made from their retail gasoline operations separate from other operations which were much more profitable). They would have made even more windfall profits.


according to researchers at Univ California Davis, the price delta could have been even more than that: http://repositories.cdlib.org/ucei/csem/CSEMWP-159 - Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand Jonathan Hughes, Christopher R. Knittel, UC Davis Dan Sperling, University of California, Davis]

if you compare the cost of the excise tax credit to the gas blenders for blending ethanol with gasoline in 2007 the money saved in oil not imported less the cost of the blenders tax credit we saved about $11.5 Billion dollars in 2007 and the cost of the blenders tax credit was $3 billion so we had a net savings of over $8.2 Billion. Some boondoggle. So sorry EXxON-Mobil. http://www.geocities.com/jwalkerxy/savings_oil-not-imported.htm

in oil not imported.


http://www.geocities.com/jwalkerxy/savings_oil-not-imported.htm

I wonder what oil will go to next year? Once it hits $5.00 a gallon will be going into a depression. OF course that will bring down the priceof gas. But how many will be out of work to accomplish a price reduction that way?

And how sad for them that Edouard didn't do much damage.

disrupts markets leading to wild price swings and worse.

democrats have been trying to get legislation passed to limit excessive speculation but of course, the Republicans are effectively stopping it - moral terpitude pays, i guess

That remarkable coincidence which happens every year, regardless of speculators or global supply/demand.

all this talk about alternative energy sources has got the oil companies thinking its time to lessen up on the American people one more time and pull the rug out from under these alternative energy sources. If gas prices come down again - funding alternative energy becomes more expensive.

The American people are pretty fickle when it comes to this. Gas will become cheaper. And we'll forget about the world's dwindling oil supplies while the world's consumption continues to grow. Then - they'll again lower the boom on us in 4 years when Obama is running for re-election - making it look like he is the cause of rising oil prices and taking his eye off the ball.

No matter what happens to gas prices - even if they get down below $2.00 a gallon (which I really don't think will happen) Obama has to keep the pressure on weaning the U.S. off of oil. He has to keep hammering that if we don't do something now - that we will face this same crisis again in the future. Hopefully - with a Dem congress - he will get the support he needs to forge ahead and make us energy efficient without being beholding to OPEC and the oil companies.

"Oil initially turned lower after the Commerce Department reported that consumer spending fell in June as shoppers dealt with higher prices for gasoline, food and other items. That bolstered analysts' arguments that a U.S. economic slowdown is forcing Americans to scale back on energy use."

Funny how that works.

be using a primary food source for a fuel source...EVER

if you assume that gas settles at $3.68 a gallon before 2008 closes and also assume
a 10% per year inflation that would be:

2009: $4.05
2010: $4.45
2011: $4.90
2012; $5.39
2013; $5.93

Ethanol has kept the price of gas down anywhere from $.40 to $.70 a gallon based on the demand elasticity estimate you use (a Merrill Lynch commodities strategist says ethanol has kept the price of gas down 15% or $.60 at the top). If we increase the amount of ethanol being supplied and meeting some of the demand for fuel that will moderate these price increases. It will take several years and considerable money for plug-in hybrids to have much impact on the demand for gasoline (perhaps 15 years to have a 3% impact). Now when gasoline gets around $5.00 a gallon we will go into a depression and millions of people will be out of work (making it even tougher to sell expensive plug-ins). That will bring down the demand for gas quite effectively, but who wants to be the ones out of work? It's a pretty tough way to bring down demand for gasoline, if you ask me.

Ethanol's impact on food prices has been over-stated. It's about 2%-3%.

the impact of ethanol on food prices is under-calculated, either by flaw or on purpose. Whether or not I myself believe that, folks that are 9th generation farmers DO believe it, and they talk about it at breakfast, during gatherings and anytime they have a chance. The increase in price on seed corn/wheat/beans ALONE was astronomical..UNHEARD of increaes. The price per acre they got for wheat, and what they estimate they will get for corn and beans, is unheard of. That said, the prices they will get per bushel will not offset the increases they had in diesel and gas, seed corn, and the price of fertilizer went through the roof....amazing increases. ALL gets passed down. And farmers will hold grain until its painful in its shortage if they do not see the prices holding where they need them.

We have yet to see these price increases. Get ready.

directly affected by energy prices. Chemicals used for farming are strongly affected by energy prices (particularly petroleum prices). Dow chemical recently announced a roughly, 20% increase in their costs because of petroleum price increases.

A study by the OECD shows that petroleum costs are the biggest contributor to food price increases http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x164765 . The data from this study also showed that demand for corn for ethanol was only a one percentage point of the total demand.



Ethanol only uses the starch portion of the corn kernel. The protein is recovered and sold as Dried Distillers Grains and Solubles (DDGS) sold to cattle and hog farmers as a high prtein feed. So actually there is no loss to the food supply due to ethanol except as it competes for acreage against other food crops. In 2007 soy beans did lose acreage to corn. But this year corns acreage went down as farmers planted more wheat and soybeans - because they could get more for those crops.

Yes, crop prices will be going up because fuel costs are going up. Ethanol helps meet some of that demand holding the price of gasoline down (about 15%) which helps keep down the price of just about everything else in the economy affected by fuel prices.


Note however, some of the price increases is the result of speculators trying to make money on the rising prices of commodities. In USA Today, today there is an article pointing out that the Commodities rush could be over - (at least for this year). We will be going through the same thing next year, I'm sure. But the speculators exacerbate the situation making it worse for everybody else.

Thank you for pointing out how fuel prices so marketedly affect farm costs. I expect we will not increase ethanol production fast enough in the next couple of years to avoid a deep depression caused by climbing petroleum prices. This will slow the adoption of plug-in hybrids even more and put off even further the reduction total gasoline demand they would have provided.

sure. The annual back to school commodities correction is no big deal, happens every year. Wheat is in, nothing else coming on from the cornbelt for a WHILE. It will go back up.

The problem is you cannot produce enough ethanol to make the kind of dent in gasoline prices that would matter, without taking more from the food crop. I am not speaking of prices, I talk of shortages. Never a good idea.

Blame prices on anything you like or can chart, that is not my issue. My issue is that you should never use crops that supply food for the majority of the world as fuel. Use sawgrass, SOMETHING else....if no one can see the problem with this, well then, happy starvation! The recent rice drive up was due to a shortage through crop failures, speculation and hoarding out of fear, not fuel prices.

Not arguing with you on prices and what is driving them, arguing with you on the WISDOM of it. :)

corn for ethanol only produces about 1% or 2% of the total demand for food. (and I don't even think they are taking into account the fact that ethanol from corn also produces feed for animals, DDGS, which the field corn would have gone to anyway). (By the way, one of the areas in which the developing world is increasing their demand for food is in greater demand for meat.)

Yes, switchgrass is better, but is it available NOW? simple answer: NO. Petroleum prices are going up unless we cut demand andor increase supply. IF we do not increase supply enough with ethanol (by the way I have posted and talked to people about importing sugar for ethanol for a faster growth in ethanol supply, corn is not the only way to produce ethanol but it is a system we have in place. Even going to sugar takes some adaptation time on the part of the ethanol distillers.) we will see gas prices go up enough to put us into a depression. This will happen, without enough ethanol (and conservation) in the near term.. This will happen before we can get shitchgrass and fuel cells and plug-ins enough to have much impact oil demand.

So we can make our choice, more ethanol to hold down gas price increases or reduce demand for petroleum with a depression. Then we will be feeding millions of people who are out of work.

that means at the top instead of $4.10 a gallon it would have been $4.70 a gallon. Ethanol kept us from going into a depression this year. Right now, instead of about $3.88 a gallon it would still be around $4.50 a gallon. We would be dropping into a depression right now if ethanol had not been meeting some of the demand for fuel. The elasticity of gas prices is such that the ethanol was keeping the price down by about 15% and that made a hell of a difference.

What concerns me now is next year. We need to be increasing the amount of ethanol being made to avoid the depression. If we go into depression it will probably mean GM would be finished (they are fighting to stay alive right now, without a depression). It would definitely slow the adoption of plug-in technology and this would be very bad.

Ford is developing a direct injection ethanol enabled engine (developed by MIT researchers) that will get 25% to 30% better gas mileage using only 5% ethanol and 95% gasoline. This engine will only cost $600 - $1,000 dollars more to produce than the typical ICE now in use in all cars. Ford plans to have this for sale in 2010 or 2011. THis is a technology that people can afford (as opposed to a $37,500 Volt) and will be much more rapidly adopted. This engine if all cars on the road were using it (GM is in talks with Ford right now to share engines and development costs) we would reduce total gasoline demand by 25% to 30% using an amount of ethanol that was only 5% of the total fuel supply. This would enable us to get to the next level - plug-ins and electric cars (adopting plug-ins will take some time even without a depression (see: Cost and timeline for the Volt to cut our gas consumption..).

We need the plug-in technology but we may not get there soon enough if we don't use ethanol to deal with the cost of gas now and prevent a depression.

Wisdom has got nothing to do with the environment or energy policy, you goose.

On edit: Food-based biofuels are a crime against humanity.

What was I thinking?:crazy: Tying major food sources to fuel is such a GREAT idea!