| What's your outlook there? What is driving these price increases? Kevin Kerr (Kerr): We've been bullish on a lot of these commodities for a long time, Mike. A couple of years ago on corn, it was kind of a no-brainer with corn-based ethanol coming on board. Corn was trading about $2.50-$2.75/bushel. It was a bargain. And now here we are up at $5/bushel - it's doubled in only a couple years. It's been a fast run. It's in the media too - everybody's talking about it. And now, we had problems with wheat [production] last year, so we saw those prices run up. It's an ongoing thing. As we look at the grain and agricultural markets right now, we're seeing a pivotal shift from the pricing we used to know to a new base of pricing. [The reason is] we are using some of our food now for fuel - not only corn, but also soybeans. We're turning it into bio-fuel, and sugar into ethanol as well. As this process continues, the stuff that we eat and the stuff we are turning into fuel, we're not going to have enough of it to turn it into oil. Norman: So basically, in the past, when we saw a price rise in agricultural commodities, the response would be more planting. But now we've injected a whole new element of demand into the equation related to this bio-fuel theme, and this is something potentially monstrous. We don't know to what extent it could take prices [up] over the next five or ten years, right? Kerr: Yeah, as a trader, it's a real challenge to try to figure out. Farmers as well have a real challenge trying to figure out what to plant next year. What's going to be in short supply so they can get the highest price for it, while still planting what they know will sell? It's a tricky situation. We find all that out when we get the planting intentions report in April. Right now I think you're going to see plenty of corn planted again, probably even more than last year. Norman: Yeah, there's supposed to be a record amount of corn acreage planted as forecast by the USDA. In a normal market, one where we're using corn primarily in the food supply, that would pressure prices. But having that whole ethanol theme going on, perhaps we'll still see elevated prices. What do you think? Kerr: Well, again, it was nice when it was at $2.75/bushel, Mike. It was a big buy. Up here I get a little more cautious, but I'm still a buyer. I think you will see corrections; you'll see more volatility this year. You won't just see the straight up move that we saw the last couple of years. But the input costs for corn, for example, have all gone up: fertilizer and everything else it costs to do farming. So prices will ratchet up even just based on those costs. The bottom line is going to reach a level at some point where everybody gives a lot of pushback. The cure for high prices, they say, is high prices. Where that level is ... I don't think it's there yet. I think it's probably more around $7/bushel for the corn. Norman: What about, for example, cotton? We saw cotton surge recently. That was one of the commodity markets that had been depressed relative to the others. Is that a function of some acreage being used for other crops? Kerr: That's exactly it. The World Agriculture Report came out and it showed already that farmers in the South are not going to be planting more cotton. They haven't been planting it. They're going to start trying to grow corn, which is probably absurd in some of the states like Texas and elsewhere, but they're going to try because they can get money for that crop. Cotton has been so depressed for so long and there has been so much extra in the world that it's just not a great crop to grow right now. So we think that by next December ... we're already seeing prices ratchet up a little bit ... [but by December] we will have much higher cotton prices. We're going to have a shortfall. Norman: A shortfall. And I guess that applies to most of these agricultural commodities, right? Kerr: Yeah, I think so. I don't think you're seeing a glut of any of them. When we see the prices fall back, we see buying come back in and move the prices up. Recently a big fund sold a whole bunch of wheat and we saw wheat just kind of turn right back up. Norman: In Part II, we'll talk about the outlook for investors and how possibly they could trade these markets, because they do look like they're in a bullish trend.
Make sure to check Part II of HardAssestsInvestor.com's interview with Kevin Kerr | 
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