OK so not that far back. On June 7th I posted a chart which contained a list of different items along with their returns. See it here. I then expounded on sweet sugar. Well sugar has climbed ~20%, but that isn't the real story. The story is wheat. Back around then, wheat was going for ~$4.45 bushel (depending on the time frame, market, etc.) and the outlook was a little gloomy for wheat prices and the farmers who grow wheat. Well with a drought in Russia and a ban of Russian wheat exports (with a little help from some "friends"), wheat has reached new heights. As of now, according to Bloomberg, wheat is trading at ~$7.55 - $7.70 a bushel depending on the time frame, market, etc. That equates to a return of ~ 69% - 73%. Not bad and quite dwarfs the return on sugar. Let's see what happens when the "friends" of Russia decide to close out their long wheat positions and Russian exports start back up. Can you say crash. Can you say short. At the moment every grain elevator operator in the world is trying to get in on the action and sell at what are historic prices. The best line I have seen regarding this shocking rise "The markets wheat themselves".
Another question to ask is "who does this affect"? It will affect the consumer who buys the loaf of bread. It will affect the chip manufacturer who makes the chips. It will affect other commodities (sugar?) when the price stabilizes.
So let's say that the nightly news is all a bubble over the rapid rise in the price of bread (pun intended - I couldn't resist), along with the increase in the price of chips. The consumer, seeing the nightly news reports with the headlines "Wheat Crisis 2010 - Is the World About To Starve?" or "What You Can Do To Protect Your Children and Widowed Mother From The Coming Wheat Crisis Catastrophe", thinks it's a valid reason for a $1.00 bag increase in their favorite chips. The consumer decides that since the chip company is not price gouging but passing along a perceived valid increase, then its not that bad to pay the extra dollar for the salty goodness. But see, the news doesn't report when the price declines. The chip makers count on the short attention spans of the chip addicts and slowly respond by lowering their prices gently over time until it stops at $0.50 higher than before the "wheat crisis". The chip addict thinks its great that the price has declined, and the chip maker is happy to pocket the extra $0.50. Hedge fund "friends" are happy that they found a way to capitalize on the suffering of millions by unloading an unprofitable position using government manipulation (bribes, payoffs, equity, etc.). Everyone comes out happier than before. (SARCASM)
Anyway, time to end the tirade. I received an answer to a question that has held me up, so back to reading fascinating government prose on SWPPP.
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