Category Archives: Commodities

Corn Price Could See Further 25% Downside

corn price

Michael Phelps is a good icon for Corn Flakes and an even better representation of what is going on in US these days – we are swimming in corn!  It will only get worse once harvest comes.  What does that mean for the corn price that has already collapsed over $1.00/bu since mid-June

Using historical analysis, 2016 corn futures prices as of 8/19 still remain pricey despite huge decline over July/August.  Assuming the USDA August WASDE ending stock levels, the stock/trend use would be burdensomely high, suggesting further pressure on prices.  For the full story and the analysis approach, read on…

Never Invest in the Commodity Market

Stating the obvious sometimes seems unnecessary.  Yet, people are willingly buying into the fad of ever more specific ETFs being created in seemingly every permutation of underlying asset classes which now unfortunately includes commodities.  If you put something in their face, they will buy it. There is no rationale for adding room for passively adding commodities to your portfolio.  Veer clear of the commodity market.

The slight benefit of improved diversification is outweighed by the huge drawback of it providing no real returns with sometimes large volatility.  Commodities do not generate income like other assets and rely solely on the greater fool theory to ever make a profit.  To read a more eloquent rationale for avoiding gold, check out Warren Buffett’s 2011 Letter to Shareholders:

http://www.berkshirehathaway.com/letters/2011ltr.pdf

Ignore for a second the high management fees, low trading volume, and wide bid/ask spreads.  Who would choose to “invest” in an asset that has performed just marginally better than cash over the last 200 years (see Common Sense on Mutual Funds by J. Bogle)?  To make matters worse, the commodity market can be subject to significant volatility and thus a speculative commodity position offers atrocious risk-reward ratios.

Heretofore, to avoid confusing the reader I will refer to speculating in commodities as hoarding instead of using the term “investing.”