Weekly commodity wrap-up

Inflation Rate Blasts Toward 10%

The Producer Price Index (PPI), released by the Labor Department Tuesday, rose at the highest level ever recorded. Higher costs for food and energy at the wholesale level led the way. The Fed is concerned retail prices at grocery stores, shopping centers, gas stations, and other retail marketplaces are likely to follow. Many see the PPI as a predecessor to the continued inflation we’re experiencing, irrespective of supply chain and COVID-related factors. Crude oil for February delivery traded at $70.70 per barrel midday Friday, while Feb gold traded at $1,805 per ounce.

Fed to Raise Rates on Faster Schedule

The skyrocketing PPI prompted the Federal Reserve to state on Wednesday that it would withdraw financial stimulus sooner than planned and possibly raise interest rates as many as three times in 2022. The Fed’s main tools to counter-act or cool down inflation are the withdrawal of bond-buying and raising rates. Many economists believe the longer they wait, the more raising rates will hurt economic growth. So, the Fed is facing a dilemma regarding the pace and level of increasing both long-term and short-term rates.

Farmland & Fertilizers Sprout Sky High

Input costs for producing corn and soybeans have been climbing at a record pace, with fertilizer prices more than doubling, led by anhydrous ammonia. But a doubling of farmland values in many regions is adding longer-term costs, especially for farmers who lease their land. As a result, auctioneers and real estate offices are busier than usual all across the Midwest, from North Dakota to Kansas. In addition, a farm in Iowa sold for $8,464 an acre in the summer of 2020, then in October of this year, that same farm sold for $13,100 an acre–a whopping 54% increase. A number of factors are pushing prices up, including a strong economy, fears of inflation, and low interest rates.

This year is expected to end as a profitable year for farmers overall, with strong grain prices and a good yield contributing. Corn for March delivery traded at $5.92 per bushel near the close on Friday, whereas March beans brought $12.86.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.