With the U.S. providing much of the corn and soybeans for the
world, the drought in America's Midwest has driven up the ETFs for
) and soybeans (
). Needless to say, speculators have jumped on board, sending
soybean and corn prices even higher.
[caption id="attachment_71390" align="alignright" width="300"
caption="Has Bernanke foiled the drought and spoiled corn's run
In addition to food,
corn is also used for fuel and alcohol products.
Also folded into the mix was the
anticipation that the U.S. would initiate more
economic stimulus measures
in the form of a new round of quantitative easing (QE3). QE2
lowered the value of the U.S. dollar, sending prices soaring for
commodities such as grains, oil, silver and gold as traders piled
into hard assets. Corn prices and soybean prices both surged as a
result. Central banker actions resulted in a bearish market for
many fiat currencies.
In recent trading, however, the prices for the exchange traded
fund for CORN and SOYB have started to diverge. CORN and SOYB had
both risen steadily since June. As the chart below shows,
this also happened in the March to June quarter.
This could tell us that speculators are starting to sell and
book profits. There have been many pullbacks along the way of SOYB
and CORN prices soaring to new records. The price increases for
each has far exceeded the shortfall in the harvest, creating a
fundamental imbalance that market forces will eventually close.
Federal Reserve Chairman Ben Bernanke's speech on Friday
disappointed many who were expecting the announcement of a third
round of quantitative easing (QE3). Instead Bernanke
described what one analyst termed a program of "QE forever." That
is hardly the gift traders were hoping would drive up commodity
prices, as happened during QE2. It is much more likely that SOYB
will follow CORN down, as it has been corn prices that havfe driven
up those for other grains.