Corn Crashes, Other Commodities Brutalized

Corn plunged another 4.66% today, with September futures hitting $3.73 per bushel, after having already plunged nearly 7% last week. Corn has gotten massacred. Since July 14, it has dropped 15%.

This chart shows its powerful but ephemeral breakout attempt that started in late June and collapsed on July 14.

US-Corn-2015-04_07-27

But it’s not like corn has been in a bubble recently. Corn farmers have been lamenting the crummy price they’ve been getting for their product for a while. In July 2012, corn soared to $8.25 a bushel. Whatever that was – a bubble or a reasonable price – it made everyone smile, from the bankers that were financing farmland to the smallest growers. But the fun didn’t last long.

This weekly chart going back to April 2012 shows the implosion of the price of corn, and the failed mini-breakout recently, circled in red because it’s barely visible. A horrendous ride down for US corn growers:

US-corn-2012_2015-07-27

Corn isn’t the only commodity to get hammered. The Bloomberg Commodities Index dropped another 1.2% today, to 92.15, the lowest since the middle of the Financial Crisis.

So Christine Hughes, at OtterWood Capital in Canada, a country that is also getting hit by the plunge in commodities, posted this about the brutal year and its impact on US states. Note that the first chart below, as of July 23, doesn’t reflect the crash in corn over the last two trading days.

By Christine Hughes, Chief Investment Strategist, OtterWood Capital, Canada:

There has been plenty of focus on the drop in oil however the pain is also being felt in other commodities such as metals and agriculture. The chart below shows how brutal the year has been for commodities.

Commodities

States more reliant on mining and farming (36% of Wyoming’s output depends on mining and agriculture for example) have been disproportionately hit. When we combine the increased unemployment from these industries with renewed layoffs and investment cuts in oil (as we explained here) it doesn’t paint a pretty picture for the US recovery. Although the weakness in these areas has been contained so far, it will need to stay that way for the US economic recovery to continue. Most importantly we will see if the deflation in commodities has any effect on the Fed’s planned interest rate hike this year.

US most exposed

By Christine Hughes, OtterWood Capital

Acrid Smell of Burned Fingers Wafts through the Bond Market. Read… How Much Worse Can the Junk-Bond Sell-Off Get?

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  21 comments for “Corn Crashes, Other Commodities Brutalized

  1. michael
    Jul 27, 2015 at 7:59 pm

    Brilliant and the hits keep coming. Deflation is like a big black hole. The commodities are approaching the event horizon. Central Banks will lose the war.

    • JC Fool
      Jul 27, 2015 at 9:46 pm

      Bingo.

  2. Mark
    Jul 27, 2015 at 10:19 pm

    Thing is you won’t see prices coming down at the retail level. That will just keep rising. Guess why. In the end there will be zero difference in pricing between Canada and the US.

    Just as an example look at the UPS rate charts over the past 10 years. Or the USPS or Canada Post rate charts. Look at the shipping rates for the freight companies. Look at what the clearing houses / logistics charge. Look at the prices of livestock, fruits and vegetables. Gas. 47 dollars a barrel and has the price gone down.. No. It’s gone up. 1.12 a liter here in Ottawa the same price it was when the Oil was at 100 a barrel. So you can imagine how much more the prices will go up in 5 or 10 years when the price of Oil goes back up to 100 a barrel. Just wait the best is yet to come.

    It may be blowing up in commodities but the consumer will never see it. That’s my belief. I may be wrong but time will tell.

    • Spencer
      Jul 28, 2015 at 7:17 am

      …” It’s gone up. 1.12 a liter here in Ottawa the same price it was when the Oil was at 100 a barrel.”…

      Yes Mark. The government is strapped for money. They need to feed the free shit army roaming about. Ottawa the sewer trap, a billion for the transit system, no less, but more for sure. Enjoy your gasoline. And, remember, your health care is free.

      • Mark
        Jul 28, 2015 at 8:28 am

        lol oh I know, but im sure they are enjoying the price more in California at 4 Dollars a gallon. Hell it’s even high in the Southern USA where they think it’s low at 2.45 a gallon. It’s high everywhere.

        Hell Americans should be enjoying there wage hikes, obamacare and free community college more then Canada’s free healthcare. In the end Obamacare will turn into free healthcare.

        We are all in the same boat.

        • jonlaughing
          Jul 28, 2015 at 10:00 am

          There is no such thing as free health care. Someone always pays. In the USA its about 15-17% of GDP. In the rest of the free world its about 7-9%. So go capitalism go! Those commie socialist countries just pay less, and that’s an affront to the capitalist USA. And as a second key point, those commie socialist countries get better healthcare by all measures. So pay more and get less. That’s the american capitalist way. We just need to complain more about those commie socialists.

    • pickled peck of peppers
      Jul 28, 2015 at 9:50 am

      Thus far, that is correct – especially at the pump

  3. Cocoabean
    Jul 27, 2015 at 10:33 pm

    Hot fund-managed money fleeing. Hope the exit doors are big enough for all of them to get out at their expected profits…!

    Common sense tells us there will be BIG bargains in selected commodities and efficient commodity producers sometime soon…

  4. Cocoabean
    Jul 27, 2015 at 10:38 pm

    BTW, Christine Hughes…”Although the weakness in these areas has been contained so far, it will need to stay that way for the US economic recovery to continue.”

    All together now, herd…stay on this side of the boat!!!

    I would most definitely not like a “recession-denier” investing my money…

  5. Julian the Apostate
    Jul 28, 2015 at 6:39 am

    Mark, I tend to agree with you on prices not dropping. Our tractor fuel is about half of what it was at the peak. Since the surcharge per truck is pegged to the price of fuel the savings on freight rates alone should have reached down to the retailers by now. But the grocery bill keeps growing. Beef is very expensive, and what used to be economical alternatives are not much better. I have recently noticed that a steak dinner is homing in on a $20 bill before extras. I treated the wife to dinner at Ruby Tuesday and the bill was nearly $55. And this is in farm country in Iowa. When I was in CA and OR last week it was very expensive even for fast food. On a positive note, customer service seems to be improving, except at Denny’s…I don’t think they’ll ever get it. They are the main restaraunt in the Flying Js but they still think they’re feeding 98 pound coeds in Malibu. They bait and switch a lot. I’ve given up on them. Again. I’ll be interested to see what the fallout will be over the Looter-in-Chief’s suspension of Home Rule, especially in Chicagoland, where they are building warehouse space at an incredible rate. This probably won’t affect cities like Omaha which now covers most of Douglas County, unless they’re allowed to loot the towns across the Sarpy County line like Bellvue and Papillion. Scott Walker has a 2% lead over Trump in Iowa, partly because Walker is our neighbor, and partly because of heartland distrust of the Northeast. We used to joke about going behind the Cheddar Curtain, but no more.

    • Lee
      Jul 30, 2015 at 10:38 pm

      “I have recently noticed that a steak dinner is homing in on a $20 bill before extras. I treated the wife to dinner at Ruby Tuesday and the bill was nearly $55.”

      If you think that is expensive take a trip down under.

      A ‘four course’ meal down the road will cost you $55; 6 courses – $75.00; and 8 courses only $105. That is without drinks. So our bill from that night out for the three of us without drinks was ‘only’ A$235. (That was at a place over 50 kilometres from the CBD.)

      Wanna be cheap and go to Micky D’s – the “Big Mac” medium meal will set you back a little over A$9. Burger King/Hungry Jacks is about the same.

      Gasoline has its cycles here. We just ended the cheap price cycle yesterday with the price jumping by 28 cents a litre in one day from $A1.17 to A$1.45.

      Our gasoline is based on the TAPIS crude price which is at about a 20% premium to the WTI price.

      How about a coke from a vending machine (If you can find one!!) – A$1.60. A 600ml bottle at a gasoline station will cost you over A$4.00.

      A desexed dog registration for a year will cost you anyhwere from $35 to over $75.00 a year depending on where you live.

      A bottle of 96 ibuprofen tablets will run around A$13.00 at a ‘discount’ place…………..(US$10.00). How much do the generics cost at Walmart?

      Autoparts? Try four to five times the price in the USA.

      Postage? International letters to the USA cost A$2.75 for the basic letter then jumping to over A$7.00 for the next weight. Domestic letters are now 70 cents, but may go up to $1.00 for 2nd or third day delivery. A$1.50 for next day delivery.

      Housing? Much discussion here about that.

      Sydney’s median price hit over A$1,000,000. Melbourne (We are better than Sydney, but cheaper!!) is a little over A$688,000. A house down the road sold for A$970,000 the other day.

      The other streets are well over A$1,000,000 around me.

      I want to get a biggger yard and a smaller house in the same area so I did a search of the city/village I live in. I wanted 1/2 acre minimum so I looked for properties in the 1/2 acre to 1 acre range.

      Only one with that land area came up: $A2.2 million. It had 3/4 an acre and a bigger house. Guess I’ll pass on that.

      I can hardly wait to get my reaal estate tax bill this year………………

  6. Dan Romig
    Jul 28, 2015 at 7:11 am

    My contacts in the seed business in Foxhome MN reckon it will be three years or more until farmers can reach a break even point in corn, wheat and soy – let alone turn a profit again.

    Generally speaking, the cost of growing corn is just under $700 per acre, and yields can range quite a lot, but 180 bushels per acre in that area is pretty much the max. Doing the math, 180 bushels times $3.73 = $671.40 income per acre. That would be best case scenario.

    Wheat has gained acres in the Dakotas and Minnesota this year as it is considered the crop that will likely lose the least money. Barley has also gained acres, and Limagrain Cereal Seeds has a new barley variety that’s catching on as a premium malting barley that can be grown under contract to supply craft breweries.

    • MC
      Jul 28, 2015 at 10:05 am

      Your comment is intriguing.
      Here in old Europe, despite the price of corn being inflated by edict (Common Agricultural Policy effectively set floors for many agri commodities), corn, the king of cash crops when ethanol was introduced in our fuel, has become a net loss generator, so much this year prices were again inflated by edict to offset the effect of cheaper US corn sending ripples worldwide.

      Given most of Europe experienced a serious drought this Summer and given most varieties cultivated here are highly susceptible to corn rootworm (this pest arrived a few years back), this year promises to be a bloodbath despite the mandated price hikes.

      In the past couple years I’ve seen acreage dedicated to corn steadily decrease, but this year corn is back with a vengeance, possibly because so many farmers betted on those mandated price hikes. They are in for an extremely rude awakening.

    • Pl
      Jul 29, 2015 at 1:31 am

      Since China was the driver of the global economy since 2008 building monumental amounts of ghost towns and other infrastructure that is sitting empty — returning 0 — and causing a credit crisis.

      I fail to see how commodities will recover.

      China could only build so many ghost towns — and now their economy is in a total shambles (but of course still growing by 7%!!!)

      It will get worse before it gets better (its stock market is a zombie)

      There is no other country or region that can step in to be the driver of the global economy

      Which means commodities will almost certainly drop further in price.

      Which eventually means catastrophic bankruptcies – job losses — and a deflationary death spiral.

      I fail to see how there can be any other outcome — we might get a few bursts of stimulus along the way which delays the inevitable….

      But growth is dead.

      Normally lower commodity prices especially oil would restart the engine – but that has not happened.

      This time is different.

      There will be no recovery. There will be collapse. An Apocalypse.

      • Banno1966
        Jul 29, 2015 at 6:59 am

        Well said Pl.

        Why am I surrounded by apathy!! There will be no recovery this time, not under the current global debt and fiat system.

    • Greta B
      Jul 31, 2015 at 9:43 am

      I’m sorry for the farmers, but since over 90% of corn is GMO and 99% of soy is GMO, what goes around comes around. I personally no longer eat any corn, soy or wheat. Many people I know have walked from these foods. The celiac thing has destroyed American health and lost faith in American grain. Chinese don’t want our Syngenta corn either. Now that the food labeling law gave the GMO industry freedom from disclosure, other countries will turn our ag products down. It’a amazing how American producers haven’t seen that world market opinion is their survival. The govt can’t force people globally to eat this food. Maybe all the farms (which are mostly big now) going broke will let the Chinese come in and re-arrange our agriculture. Our corporations and FDA are corrupted. I hope the small producers can hang on.
      Russia just announced it will never allow GMO, and zero hedge had an article with a global map showing countries turning from GMO. And, it’s the one’s with the most money.

  7. Petunia
    Jul 28, 2015 at 8:10 am

    We need to start planting cotton again. I can’t find a decent set of cotton sheets that isn’t imported and costs $300-$1000. This is just crazy. I didn’t want to mention it, but underpants made of cotton are non existent, for the ladies.

  8. Sgt Milstar
    Jul 28, 2015 at 10:39 am

    Earlier this year my wife and I purchased a set of sheets on sale at T@rget for $39.99. The regular price was $69.99. Well they lasted just four washes before the bottom sheet developed tears in the upper part where the pillow are placed. I guess it’s back to $100 dollar sheets with 800 or more threads.

  9. Winston
    Jul 28, 2015 at 11:40 am

    “$373 per bushel”

    Shouldn’t that be $3.73 per bushel as in 373 100ths? Otherwise, that’s awfully expensive corn.

    • Jul 28, 2015 at 1:10 pm

      yes it should be … dang decimal point. Thanks.

  10. PL
    Jul 29, 2015 at 1:14 am

    Superb analysis:

    Nine Reasons Why Low Oil Prices May “Morph” Into Something Much Worse
    Posted on July 22, 2015 by Gail Tverberg

    Why are commodity prices, including oil prices, lagging? Ultimately, the question comes back to, “Why isn’t the world economy making very many of the end products that use these commodities?” If workers were getting rich enough to buy new homes and cars, demand for these products would be raising the prices of commodities used to build and operate cars, including the price of oil. If governments were rich enough to build an increasing number of roads and more public housing, there would be demand for the commodities used to build roads and public housing.

    It looks to me as though we are heading into a deflationary depression, because the prices of commodities are falling below the cost of extraction. We need rapidly rising wages and debt if commodity prices are to rise back to 2011 levels or higher. This isn’t happening. Instead, Janet Yellen is talking about raising interest rates later this year, and we are seeing commodity prices fall further and further.

    Let me explain some pieces of what is happening:

    http://ourfiniteworld.com/2015/07/22/nine-reasons-why-low-oil-prices-may-morph-into-something-much-worse/

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