HardAssetsInvestor

Written by Brad Zigler  |

August 21, 2008

Corn As Comfort Food

Details

Yes, I know. Ethanol's a big bust. We've tracked its rather depressing trail in numerous articles. And we follow the weekly progress, or rather, the deterioration, in ethanol refining margins, too. At last look, before the proceeds of distiller's grain sales are counted, ethanol production nets only 58 cents a bushel, 90% less than what could be earned a scant 18 months ago.

 

CBOT Weekly Corn Crush

 

Spikes in corn prices are generally blamed for unraveling ethanol distilling profits. There is, indeed, a correlation. Earlier this year, when corn prices spiked above $7.50 a bushel - a level about three times the grain's 25-year average price - the corn crush was squeezed to only 23 cents a bushel.

It's not just the demand for corn that's caused its price to rise, though. Inflation's had a role as well.

Earlier this year, we took a rather deflating look at gold ("A Picture's Worth Words (Or Dollars)") to assess its effectiveness as an inflation hedge against crude oil.

If we do the same thing for corn, we can see the recent spike only gets grain prices halfway to breakeven with 1973 levels.

There ought to be some comfort in that. For someone.

 

CPI-Adjusted Corn And Gold Prices

Sources: London Bullion Market Association, Bureau of Labor Statistics, Financial Trend Forecaster