Thursday, 23 August 2012

Corn Commodity Price - How Much Has It Increased

The midwest drought this summer is all over the news, particularly regarding the sharp increase in commodities such as corn.  It is so bad that livestock such as beef are being slaughtered to save money on feed rather than to raise them further as a future investment.  But how much has it actually gone up?

As you can see from the chart below, Corn has jumped over 30% from mid June just 2 months ago.  That is an astounding increase.  However, if you look over the last 2 yrs, Corn is only 5% or so higher than the peak in June 2011.  If you extend to the last 5 yrs, the same story shows where the 2008 peak is relatively close to its current level.

What is surprisingly however is the constantly higher baseline after each spike over the last 10 yrs.  From 2002 to 2007, corn was pretty stable at ~$115/metric ton .  After a spike in 2007 and 2008, corn returned to a pretty stable price but at a higher baseline of ~$170.  This was then followed by a spike in early 2011 which established  a new baseline of ~$271.  With the current spike in price, if past trend holds, we can expect a higher baseline for corn than its historic average.

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