More Volatility To Come In Grain Markets, Ethanol Demand

China’s trade surplus almost doubled in the first quarter, widening to USD$46.4 billion – up from USD$23.3 billion in 2006.

“Obviously, the U.S. consumer isn’t finished buying flat screen TVs from Wal-Mart!” EverBank’s Chuck Butler told us. “Not as long as the credit card companies keep sending out credit cards to every Tom, Dick and Harry that may or may not have the wherewithal to pay back what he borrows, without even a hint of a credit check!”

This is not helping matters, as the United States took their complaints to the World Trade Organization yesterday – and China’s commerce ministry said that the case will “severely damage” trade relations between the two countries.

Uh-oh…looks like trouble in paradise.

Now for a commodities update from everyone’s favorite Maniac Trader, Kevin Kerr:

You can blame it on wet weather…cold weather…snow…and the ethanol craze – but the volatility in U.S. crop prices is certainly here to stay for a while.

In addition to problems with the weather, “farmers are facing higher and higher costs associated with corn, such as expensive seed and fertilizer,” said Kevin, in a recent MarketWatch column. “And now in southern states, opting to plant corn means irrigation costs come into play.”

“Mother Nature is not being cooperative and that could be foreshadowing for what could be a very rough weather season. Ironically, the biggest fear is that due to wet conditions, crops will go in late, and then this summer drought and high heat will kick in.

“That could be a double whammy of terrible conditions for farmers. The drought predictions are backed up by the La Nina effect, the same weather conditions that could create violent hurricanes in the Gulf again.”

One thing is for certain: The grain markets and ethanol demand are not going away anytime soon – and for investors there is a lot of money to be made in this sector right now.

Kate Incontrera
for Markets and Money

Kate Incontrera

Kate Incontrera is the managing editor of Markets and Money. She is also the author of Markets and Money's Weekend Edition, a weekly wrap-up of contrarian investment analysis.

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Francesco DeParis
It is unfortunate that the grain markets are becoming so sensitive to the growing “biofuel” trend…but that is the nature of the game! As the markets affect the end-consumers more and more, I would not be surprised if a cheaper and more stable alternative to corn/soy is put out on the market. As those feedstock prices go up with crude oil, there is a perfect entry opportunity for a replacement crop sold at a cheaper price. Who said we need to eat corn or soy anyway? Innovation will lead the way! I comment regularly on the business/investor side of alternative… Read more »
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