Updating Our Commodity Charts
December 20, 2009
Time to take a look at various commodity prices, in terms of gold. These are all updated monthly to November month-end and the last point is mid-December.
We compare to gold because “gold is money” — this means that gold is a stable measure of value over years and decades. Why would you compare to dollars? Don’t you know that the dollar is a floating currency? Gold is not a floating currency, it is stable money.
Corn is still cheap — about the cheapest it has ever been.
With this closeup of the past three decades, we see that corn is in fact the cheapest in human history. Right now. When you consider that this was in the 40s in the 1950s and 1960s, and is under 4 today, we see where all the family farms have gone. If we want to have family farms in the future, growing 1910-style corn (“organic” etc. etc.), we should be willing to pay more for corn — like 5x or 10x more. 10x today’s price is about $0.66 per pound, which is not exactly a crushing burden. Go eat a 1 lb. bag of tortilla chips (the “party size”), or cornbread with a pound of dry cornmeal in it, and tell me if that wasn’t plenty of food for $0.66.
I pay $1.50-$2.00 per pound for my grains (mostly rice) and beans. This is the deluxe organic stuff. Although this is about 30x the wholesale price of corn, this is still not really very much. It is maybe $30-$60 per person per month, and that is only if you eat a lot of grains and beans at every meal.
Crude oil. Still on the low end of the scale. In general, I expect recession/inflation to depress the value of oil compared to gold. However, “Peak Oil” factors will tend to support the price over the longer term.
Sure does suck to be a cattleman.
Cheapest in history. By a wide margin too.
Cotton made all-time lows recently, then rebounded a bit.
A very small rebound!
People are jumping up and down at the “high” price of copper. This is because they are mentally anchored to 1990s prices. When you correct for the devaluation of the dollar, copper prices are quite low — as you would expect in the midst of a depression. In fact, copper is cheaper today than in the worst of the 1930s! The selloff earlier in 2009 matched historic lows for copper. It was so cheap, Chinese people started to stockpile copper. People thought they were crazy. But, when you look at this chart, and considering that copper is easy and cheap to store, stockpiling copper makes perfect sense, no? Of all the base metals, copper is the most “money-like.” Chinese have a long history of copper coins.
Let me make a prediction: Chinese farmers stockpiling copper ingots at the lowest prices in history will make out like bandits. Fancy-shmancy portfolio managers buying stocks/bonds/tbills at the highest valuations in history (for bonds and bills, and stocks are pretty high too) will get steamrolled.
We see again that copper matched historic lows.
A similar story for lead.
Lead has had a big recovery in nominal terms, but it is still well off its recent devaluation-adjusted highs.
Natural gas is cheap. Real cheap. Consider that recent spikes in 2000 and 2006 went to 10x the present value. Wow.
Another grain near the lowest real price in the history of the world.
Matching recent lows.
Sugar used to be at super-lows, but then it had a little rebound. However, this is the front-month contract. The out-month contracts are significantly cheaper, and represent an interesting investment/speculation if you ask me.
Like other grains, wheat is cheap!
Plummeting to all-time lows. Anything that has fallen as much as wheat can fall further. But you know wheat is never going to zero.
Zinc’s rebound in real terms is much smaller than its apparent nominal rebound.
Before the rebound, zinc made an all-time low.
In general, it looks to me like commodities are very cheap here. You would expect that, given the economic situation. However, if there is limited downside, and considerable upside — many could double vs. gold and still be comfortably within their long-term trading bands — then you have a pretty good risk/reward situation if you ask me. I particularly like the grains.
The reports above are some serious research, and you should read them.