Monday, January 16, 2012

Grain stocks up - rationing works

Supply and demand does work! 

When prices go higher, there will be demand rationing as clearly note in the USDA higher than expected stocks number last week. When corn prices were above $7.5 per bushel last June buyers back-off. This process actually started the previous year since prices were at record levels in 2010. Demand cuts do not respond immediately, but companies start to look for substitutes and start to squeeze out every last ounce of production. Innovation takes hold and works. The food inflation of last year around the globe is down. 

Global consumption is still had high levels and this is not going to change. Price levels will be remain high but a one direction market is off the table until we see developments in the Midwest weather pattern for planting. Corn around $6 per bushel is more likely than any extremes from last year. 

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