Tuesday, December 30, 2008

Conflict of conscience...
  
Am I the only farmer who's beginning to be slightly creeped out by the oil-grain price linkage?  Oil goes up, corn prices rise, it seems.
Corn, as well as soybeans, and wheat, are economically linked to each other and to the ethanol market, which means prices of those commodities can be traced to the crude oil market. Commodity price volatility in the past year has been the result of the crude oil linkage, and indicates a new era of price levels and market volatility. Creating a grain marketing plan with the price relationships of crude oil and ethanol can be accomplished, since energy prices and energy policy will be major drivers of the grain markets. [More, from the most excellent Farmgate]
The creepy part is the linkage of oil to violence in the MidEast especially, but also just in general.  As the Gaza Strip conflict grinds on or even escalates, the response from oil-producing states like Saudi Arabia is a huge factor in the energy market.
The dollar declined against the euro as Israel’s assault on the Hamas-controlled Gaza Strip in response to rocket attacks raised concern exports of crude oil to the U.S. may be reduced.
The currency also fell versus the yen before a report forecast to show U.S. home prices dropped in October, adding to concern the recession is deepening. The euro rose to near a record against the pound as charts analysts use indicated the currencies may reach parity this week.
“We’re seeing a fair bit of unrest in the Middle East, and that’s having an impact,” said Harry Adams, a currency trader in London at Schneider Foreign Exchange, which counts FTSE- listed companies and wealthy individuals among its clients. “The oil price is having an effect, and we are likely to see more dollar weakness.” [More]

So somewhere in the back of my mind, the "wrong" reaction arises to what is becoming an increasingly dangerous diplomatic and military situation that could spread across much of the Muslim world.
 Afghanistan's Taliban guerrillas Monday called on the world's Muslims to unite and wage war against Israel in response to its air strikes that have killed more than 300 Palestinians in Gaza.
The Taliban, who lead an insurgency against the Afghan government and the Western forces backing it, also chided the United States and some European nations for not condemning the attacks, launched after a six-month cease-fire between Israel and the Islamist group Hamas expired. [More]
Even the tragedy in India had the short-term effect of dragging their already slowing economy down, and shifting spending priorities.  This in turn may slow the ability of the government to buy fertilizer, which had been the only positive export market predicted before the Mumbai massacre.

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