Looking ahead to the new year

2011 will go down as the year of record volatility in commodity prices. They nearly doubled, and record daily price moves were breathtaking. It was also the year the Cardinals defied all odds and won the World Series. But enough about that. As a Cubs fan, we don’t live in the past. It’s always on to a new year.

Ending stocks for grains are still tight but we have learned to live with the numbers. Ethanol’s effect on corn prices has been swift and powerful, and the usage a real boost for the rally.

However, the RFS (renewable fuel standard) which mandates the ethanol sector to produce 15 billion gallons by 2015, is a target now nearly reached at 13.5 to 14 billion gallons. That should help to calm the markets for 2012, as well as increase wheat feeding and corn acres next spring.

The story for next year will be the growing economic crisis in Europe. While it will probably take a Christmas break, expect it to return full force to the headlines in 2012. Volatility in credit, banking, and who ultimately gets tangled in the debt crisis in Europe will be the real story.

Markets don’t like uncertainty and the whole situation in Europe acts like a wet blanket on the market. Even if European leaders could agree on fiscal union and joint debt issuance, which they cannot, such long-range changes cannot solve the immediate crisis at hand.

They owe $2 trillion they do not have and spending cuts have been unpopular, causing riots in some countries. Sound familiar?

With the Christmas holidays coming up I don’t want to sound like a complete scrooge, so let’s leave the dark side and go to the light. One needs to remember that there are trillions of dollars sitting on the sidelines in near 0 percent short term government paper waiting for the “all clear” to expand back into commodity risk assets.

Let’s assume the European debt crisis is solved or a least the can gets kicked down the road. World demand for food and feed is still humming along. It’s estimated that China would consume at least 169 million metric tons of feed, up 4-9 percent from last year’s record.

Surging animal numbers are behind the sharp rise in consumption. Therefore, world demand lead by Asia and India continues to point to a bullish agriculture picture despite what might be a quiet winter price wise.
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John Cripe is director of MID-CO Commodies Inc. His e-mail address is jcripe@mid-co.com.