Corn Prices At Record Highs: What Does It Mean To You?

| April 11, 2011 | 0 Comments

Commodities are screaming higher.  I’m sure you’ve seen the news.  It seems like every day, a different commodity is having a record year or hitting a new high.

Anyone who watches CNBC knows gold is near record highs and crude oil is skyrocketing.  You may have even seen how cotton prices hit historic highs.

But just this past week, another commodity climbed to record levels… and you might not realize what it is.  This commodity isn’t talked about anywhere near as much as gold or oil.  But the ramifications of its high price are just as important.

Of course, I’m talking about corn.

Corn future prices just hit a record high of over $7.70 a bushel.  To put that in perspective, in July of 2010, corn was trading at under $3.50 a bushel.  Corn prices soared more than 120% in just eight months!

So what’s going on?

In a nutshell… soaring demand.

Demand for corn is through the roof.  And the US produces 40% of the world’s corn.

Rising wealth in countries like China means more and more people can afford corn (compared to a cheaper staple grain such as rice).  Corn tends to become a larger part of a person’s diet as their wealth increases.

Supercharged demand for corn is causing a major drop in inventories across the US.  In fact, inventories are at their lowest levels in 15 years… even though last year’s crop was the third largest on record.

Clearly, the world is demanding corn… and lots of it.

So now we know why corn is skyrocketing.  But why is it such a big deal?

It may not be obvious, but corn impacts many different products across multiple industries.  Corn prices affect a heck of a lot more than the cost of your tortilla chips.

Think about it…

We all know corn is a key ingredient in several foods… not to mention a popular food all by itself.  And don’t forget corn syrup (or is it called corn sugar these days?  I can’t keep up with the propaganda).

For better or worse, it seems corn syrup is in just about everything.  That means all of those products cost more to make as corn prices rise.  Of course, those price increases are generally passed right on to the consumer.

But there’s a lot more to corn than what’s in our food…

Corn is the major ingredient in animal feed too.  And livestock prices can be significantly impacted by the price of corn.  Have you noticed your sirloin getting a little more expensive lately?  Corn is a big part of those hefty prices.

What’s more, farmers are scrambling to add planting acreage.  They want to produce as much corn as possible and cash in while prices are high.

And that means fertilizer is also in high demand.

Larger amounts of fertilizer will be needed to prepare the additional farm acreage.  Of course, fertilizer prices are climbing as a result.

Then there’s ethanol.

In the US, ethanol is produced almost entirely from corn.  Meanwhile, in most states, gasoline is made up of 10% ethanol.  Oil prices are already through the roof… it won’t help gas prices for ethanol to also shoot higher.

Here’s the bottom line…

Corn prices are having a significant impact on many industries.

Some companies are being hurt by higher prices… and they should be avoided.  But, high corn prices are also creating investment opportunities.

For example, a company like Kraft Foods (KFT) is dealing with higher costs because of corn prices.  It’s liable to hurt their bottom line over time.  On the other hand, a fertilizer company like Mosaic (MOS) is seeing increased demand for their products… and likely will see higher revenues and profits as well.

Don’t hesitate to use higher corn prices when making investment decisions.  Big moves in commodities can generate some great opportunities to profit in the stock market.

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Category: Commodities

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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