Oil's Big Push on Corn

You would think that with oil crisis levitating over $100/barrel and gasoline continuing its relentless march towards $5/gallon, farmers would be wringing their hands, wondering how they can afford the fuel for their machinery. Not so.

The burgeoning demand for energy has spilled over to the corn market, where demand for feedstock by ethanol refiners is going from strength to strength. Nearly 40% of the country's corn crop is being diverted to ethanol production. Margins at the big ethanol producers, like Archer Daniels Midland (ADM), once nonexistent, are now widening rapidly.

I have been a huge bull on the whole food complex since I put out my watershed piece last May (click here for "Going Back Into the Ags"). Now that we are into the planting season, you might expect the volatility of food prices generally to increase. There are still drought conditions in many of the world's major producing areas. Stockpiles are near record lows. Much of the unrest in the Middle East is over rapidly rising food prices, where they are huge importers.

Notice that once the S&P 500 bounced, the first thing that traders poured back into were the ags, soaking up ETF's (JJG) and (DBA) as fast as they could click their mice. I think we are one year into a decade long bull market for food, and that investors should be buying every substantial dip in the sector.

By. Mad Hedge Fund Trader