Corn Futures (CBOT:ZC=F)
Journal Entry – Day 11 – Quarantine
We are running low on rations. The 10th day of quarantine I saw a Best Buy delivery man drop off a new refrigerator… yet it was empty. What gives? These are burdensome times. I must start harvesting the avocado trees in the backyard… I believe that my destiny will allow me to find value in the Walmart delivery platform. But the cost of everything has exploded this year…
As you can tell, I’m very over this COVID experiment. I had a new refrigerator delivered to my home. I also bought an additional freezer. Why? Because I’m about to fill both with frozen vegetables and other food items before prices get really out of hand. If you want to understand how unprecedented these times are, have a look at this chart:
This chart tracks corn prices back to 1973 when the Chicago Board of Trade standardized corn futures contract. There are only four outliers on this chart to the upside: the 1987 boom, the 1973 run when inflation topped 6%, and the 1978 even bigger stagflation that pummeled the economy in 1978.
Corn Futures Jumped 33% Over Two Months
And we’re not even through May! So, I’m staring at this chart wondering how much higher it can run. My thoughts are that corn prices could easily top $9 in the months ahead. And at that rate, it’s possible that we see rationing across the nation. This would dramatically impact our meat and ethanol industries.
There’s another reason why this trend is important. Corn prices are not the only ones that continue to rise. We’ve seen lumber prices, steel prices, and the cost of chemicals surge.
There doesn’t seem to be a reversal in the cards. And as we move deeper into the summer, the cost of everything will go higher. This is going to create marginal pressures on a lot of U.S. companies. The only firms that are able to pass on rising prices to their consumers will succeed.
We’re still very early in this game. Not only do I expect commodity prices to go higher, but I am expecting a huge planting season. What goes up will eventually go down. So, there will be many companies that struggle this year and develop strong buying opportunities when they are able to better manage margins at the onset of 2022.
