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Bruce Krasting

Bruce Krasting

I worked on Wall Street for twenty five years. I was an FX trader during the early days of the 'snake' and the EMS. Derivatives…

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Are Corn Prices Indicating that $140 Brent Crude is on the Way?

Are Corn Prices Indicating that $140 Brent Crude is on the Way?

Good article on corn this morning by Smart Money Europe (Zero Hedge link).

The bottom line is that corn is sitting at a two year high. Reading SME you have to conclude there is more on the upside. I’m lifting this chart from the piece to make a point:

Corn - Monthly Chart

I was looking at this (ugly) chart and realized this was the same chart for crude. Now look at this chart that compares the two. (Note: I use Brent as I think WTI is irrelevant)

Corn and Brent Crude

This chart is truly ugly. Looking at this it hard not to conclude that Corn = Crude as far as directional price moves go. Which is the dog and which is the tail? I think crude drives corn. It takes a bunch of energy to grow corn (diesel and fertilizer). There is also the ethanol connection. The higher the price of gas, the greater the price for ethanol, the greater the price for corn.

The conclusion is that the dog (crude) is wagging the tail (corn). But that is not what the chart says. Over the past four months corn has outpaced oil. In the past quarter the tail has been wagging that dog.

One of two things will happen. Either corn corrects or crude corrects. My bet? The dog will catch up with the tail. This chart is telling me that $140 Brent is on the way.

By. Bruce Krasting




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Leave a comment
  • Anonymous on April 09 2011 said:
    Interesting article Bruce. This kind of comparison makes one sit up and take notice. Thank yiou. I wonder if Fred would like to comment as I'm not very well infomed on the difference between Brent and WTI.
  • Anonymous on April 11 2011 said:
    Interesting thoughts but I can't see crude oil rising *because* corn has. More I read this as one bullish element in corn's story is high crude oil prices (production costs but more importantly allows ethanol margins/discretionery blending) but then you add Chinese demand, lack of cheap alternatives, really tight old crop stocks, worries about wetness delays for new planting, investment inflows and you've got a pictures that's extremely bullish for months to come.

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