Rice Strong while Food Prices Retreat

In the past five weeks since peaking at $6.67 London sugar futures have retreated a full 14%, closing down at the low of the week for the second straight week t $5.74.  Coffee prices have been sliding for the past year on heavy supply from Brazil, Colombia and Vietnam, even with a short rally in January, having slid from a high last April of $3.09 per pound for Arabica.  Prices for coffee on the COMEX have been stable the past few weeks, but the chart has a definite Enron aroma to it, which is nothing like the aroma of a good cup of coffee.  While coffee futures were up slightly on Friday at $1.78 per pound, they are still most definitely range bound between $1.74 and $1.80 per pound.

The Corn futures curve is projecting much lower prices through 2015, but I’m loathe to believe to be true and would be taking those 2014 bets in the $5.50 per bushel range knowing what level of inflation is coming from the Federal Reserve, the ECB and the BoJ. But, that said, Corn looks bearish here with support at $5.94 and $5.77.  This has brought down the price of cattle and hogs from their February highs.  The commodity markets which are strategically important to the U.S. economy have been talked into submission by the Federal Reserve for now.  Food and gas prices look stable for the Obama re-election campaign season.

The reality, though, is in the Rice and Soybean markets which are responding both to real supply constraints and the exportation of inflation to the developing world.  Soybean oil and Palm Oil are joined at the hip due to rotation effects, so Soybean Oil prices are a proxy there.  Food prices in the emerging markets that are dependent on Rice are going to continue to weigh heavily on their economies, unfortunately.  But, the Fed doesn’t care about that, they only care about making sure Jamie Dimon gets his pound of flesh every month.

 

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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