Biodiesel fuel and ethanol fuel demand may push soybean and corn futures to record highs over the next few months.
U.S. government subsidies, global warming and high fuel costs have led to a significant increase in ethanol and biodiesel plants and the consumption of commodities such as corn and soybeans. Ethanol fuel and biodiesel fuel demand are using up huge supplies of corn and soybeans at the expense of feeding poultry, pork and cattle. Pigs, chickens and cows still have to eat so what will happen to corn futures prices and soybean futures prices if the green fuel demand continues to increase?
Many analysts believe that if the price of crude oil stays above $45 that the profitability of ethanol fuel and biodiesel fuel will continue to encourage the production of more biodiesel and ethanol plants to be built. More biodiesel and ethanol plants will require more corn and soybean supplies.
What happens if the El Nino weather pattern causes a hot and dry summer in the grain belt and the US Dollar continues to decline? Hot dry weather certainly will not help soybean and corn yields. A weak US Dollar makes US soybeans and corn cheap to foreign buyers and therefore increases demand. Soybean future prices and corn future prices may reach record highs this summer.
The "what should a farmer plant" conundrum may also influence corn future prices and soybean future prices over the next few months. Should a farmer plant corn at the expense of soybeans or vice versa? Both biodiesel fuel and ethanol fuel demand are growing by leaps and bounds and the current corn futures and soybean futures prices do not seem to be hindering current demand or production levels. It is estimated that nearly 100 new biodiesel fuel and ethanol fuel plants were built or were under construction in 2006.
How can an ordinary investor speculate in corn future prices and soybean future prices? There two basic ways to invest in soybeans and corn. There are commodity options and commodity futures contracts. Both avenues have their pros and cons and should be fully investigated before investing in either. Visit www.tkfutures.com/basics.htm to learn the mechanics of each. Commodity future trading and commodity option trading are both very risky and only risk capital should be used when investing in either. There is substantial risk of loss in corn and soybean futures and options investing.
The author is a 13 year veteran of the corn futures and soybean futures markets.
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