What’s Driving Global Commodity Prices?
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What’s Driving Global Commodity Prices? Chris Hurt & Corinne Alexander [email protected] [email protected] Purdue University March 31, 2011. Rapid World Economic Growth. Weak Dollar. Ethanol. What Can Ethanol Plants Pay for Corn?. Corn Price ($/ bushel). Crude Oil Price ($/barrel).

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What’s Driving Global Commodity Prices?Chris Hurt & Corinne Alexander [email protected] [email protected] UniversityMarch 31, 2011

Department of Agricultural Economics

Purdue University


Rapid World Economic Growth

Weak Dollar

Ethanol

Department of Agricultural Economics

Purdue University


Department of Agricultural Economics

Purdue University


What Can Ethanol Plants Pay for Corn?

Corn Price

($/ bushel)

Crude Oil Price ($/barrel)

Source: http://www.farmdoc.illinois.edu/marketing/mobr/mobr_11-01/mobr_11-01.html

Department of Agricultural Economics

Purdue University


Department of Agricultural Economics

Purdue University


Stocks Situation

Department of Agricultural Economics

Purdue University


2011

Corn + 5%

Beans - 1%

Wheat + 8%


2011 What To Plant???

Department of Agricultural Economics

Purdue University


Estimated Variable Cost Per Acre: Average Quality Indiana Land (161 bu corn, 49 beans, 70 wheat)

Department of Agricultural Economics

Purdue University


Department of Agricultural Economics

Purdue University


Crop Insurance Prices

Protected Revenue calculation assumes average quality land in Indiana, and Coverage level of 85%

Department of Agricultural Economics

Purdue University


$7.10


Department of Agricultural Economics

Purdue University


$15.50


Department of Agricultural Economics

Purdue University


New Crop Pricing Alternatives

  • Pricing strategies that tend to work well in the Pre-harvest period include:

    • Forward cash contracting

    • Selling futures to hedge

    • Buying put options

    • Selling cash on a forward contract and also buying new crop call options (this is called a synthetic put), and

    • Fence which combines buying a put and selling a call


Recommended Strategies

  • 1.

  • 2.

  • 3.

Department of Agricultural Economics

Purdue University


Now You Know

Which

Direction

To Go

In 2011/2012!


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