Investors are looking to feed commodities and livestock futures for investment growth according to an article in the New York Times:
Wall Street commodity funds that have been investing heavily in energy futures are now loading up on agricultural commodities like corn and livestock futures.
The flood of investment has raised concerns among grain traders and agricultural producers that speculative money is gaining an undue influence over their markets, which help set the prices of raw commodities for a host of consumer food products.
-NY Times
I don’t know what this really means, I don’t do stocks and bonds. All my stock are the kind that graze my other asset, land. But the obvious thing I can see is the cost of feeds going up which has been also talked about over the past few months due to the increased use of corn in ethanol production:
The price for corn — the nation’s No. 1 crop and one of the most ubiquitous ingredients in the American food supply — has jumped nearly 55% since mid-September, when U.S. corn farmers began harvesting their third-biggest crop ever. Grain prices usually slump to their lowest levels of the year during the harvest season. Yet the price of corn in recent weeks has shot through the rarely breached $3-a-bushel mark and appears headed higher.
“The consequences of ethanol are the biggest thing going on in agriculture today,” says Keith Collins, chief economist of the U.S. Agriculture Department. “We are talking about a higher new benchmark for corn.”
The prospect for a new plateau in corn prices represents a shift in the balance of power in the farm sector. It also portends headaches for global food producers, which have benefited for nearly a decade from an abundant and cheap supply of ingredients made from U.S. crops, such as corn.
Corn is used for everything from fattening pigs and chickens to making soda pop and breakfast cereal. The corn rally is hitting packaged food brands already coping with a sharp run-up in wheat and sugar costs this year. “It’s just a story of commodities,” said Kellogg Co. Chief Financial Officer Jeffrey Boromisa late last month when explaining to analysts why the breakfast-cereal company’s third-quarter gross profit margin declined from a year ago.
The trend is bruising some livestock farmers. Dairy farmer Mike Aardema, who milks 4,000 cows near Burley, Idaho, says the corn rally is increasing his livestock feed costs by hundreds of thousands of dollars a year. He usually spends about $6 million annually on rations.
-Wall Street Journal [Also see 1, 2]
Seems like this is going to first hurt factory farms, feedlots and people who feed corn or other commercial feeds. Then consumers will likely feel the pinch as the higher costs are passed on in the form of higher food prices at the store. That may help farmers who don’t corn feed as they may see more market for their pastured beef, pork, poultry and lamb.
Makes me glad that our livestock are primarily fed pasture and not grain fed. Something to ponder about on these long cold, winter nights as we plan for next year and beyond…