Three Price Signals Worth Watching Every Day

Ag economist looks at other things besides corn price.

Published on: Jan 30, 2009

What is the first thing you do after you're awake, dressed and sipping your first cup of coffee in the morning? Maybe you head for the Internet to check the weather. Odds are one of the first things you do, if not the first thing, is check the markets to see what happened over night. As soon as the opening call begins, you will likely be watching to see which way corn and soybean prices are heading for the day. This could be especially crucial if you've got old grain still in the bin to sell, or if you're ready to forward contract new production for next season.

Mike Boehlje doesn't see anything wrong with doing any of those things. But none of them make the Purdue University ag economists' list of the first three things he checks each and every morning. He's identifies other key factors which serve as more reliable signals of what the market trend for the near term might be than the markets themselves.

"The fundamentals I watch are the value of the dollar, the price of oil and the price of wheat," the ag economist says. "If I know what those three markets are doing, then I can get a fairly clear picture of what the corn market is likely to do short-term."

The value of the dollar relates directly to exports. A positive for many months, a basic shift in the value of the dollar now makes it less favorable for many countries to import American goods, including corn. It's a factor worth watching as corn markets unfold in the near-term, he notes.

For many months oil and the price of corn have acted as if they were linked together like ham and eggs. If oil went up, you knew corn would follow. Both topped out at about the same time last summer, Boehlje says. Then both hit the skids at about the same time. This connection is already not as tight as it was just a few weeks ago, he notes. And Boehlje expects the two may part ways even more so in the coming months. That's because the ethanol market is maturing, and price relationships that existed between ethanol and oil are shifting.

Vale of the dollar and price of oil make sense, given the explanations. But where does wheat fit into the picture? "It's a feed grain, not a food grain, especially globally," Boehlje says. "If farmers around the world can buy wheat at $4 per bushel, they're not going to pay more than abpout $3.60 per bushel (local price) for corn. Wheat is very much a substitute for corn for livestock feed in the global scheme of things."

Maybe Boehlje's logic won't convince you to stop checking the corn market each morning and during the day. But if you want to zero in on price trends ahead of time, it might pay to keep your other eye on his big three factors- value of the dollar, price of oil and price per bushel of wheat on the world market.