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First, there are far too many johnny-come-lately speculators, hedge funds and other assorted riff-raff that wouldn’t know sweet corn from dent corn playing in ag futures markets now. There’s far too many commentators constantly spouting off about ag policy, trade policy, farming practices, tax issues, etc.

For reasons completely beyond their control, farmers are now “fashionable” — and I don’t mean that everyone wants to be a farmer (been there, done that, would do it again in a heartbeat - but it is damn hard work). I mean that everyone thinks that because they have a gastrointestinal tract with an opening on one end into which they stuff food, and out the other end there comes fertilizer, that they have some claim to a valid opinion on ag.

They don’t. Many of these financial analysts making commentary on the ag markets in fact know very little about farming, or the macro farm economy. For example, they keep missing the issues about fertilizer. Fertilizer costs have gone through the roof. Well, there comes a point where a farmer knows that additional fertilizer results in very marginal yield gains - there’s very, very few plants that exhibit anything like a non-diminishing linear response to the addition of fertilizer (orchardgrass is one of them). Some of these commentators think that because ag prices are up that farmers are just going to buy fertilizer with both hands. Not entirely so. They will become much smarter about what fertilizer they use, when and how they apply it.

These analysts also like to overlook the issues of basis, which change rapidly when fuel prices go up. We all know that prices of fuels are going to resume their prior levels when the economy picks up - but farmers got to see really up-close-n-personal what their basis was going to look like in the future in 2006 through early 2008. And that is going to start shifting some acreage around too.

Net:net — I think that if we start seeing the dollar devalue and/or inflation picking up that buying into commodities is a reasonably smart move. But commodities are NOT stocks. The price history chart of commodities does NOT look like a stock of a successful large company, where there is a long-term up-trend. Adjusted for inflation, corn STILL hasn’t regained the price high it made in August of 1973. So while it was an OK hedge for inflation in the 70’s, it fell apart as an ‘investment’ in the 80’s. Same sort of deal as gold. People will have to know that there’s a time to get into ag commodities, and a time to get out - same as for all commodities. The price changes want to revert to a long-term mean.

Too many people think that buying some commodity position (whether through futures or a commodity ETF) is “investing in commodities.” It isn’t. “Investing” in ag commodities would require that you buy a farm and start producing them. Most of the public should know that all they can do is trade around price movements of commodities - and that means that when you have a profit in your position, and you got lucky or good on calling the price trend for that season, you SELL. You don’t get pleased with yourself and just look at it on the screen. You TAKE YOUR PROFITS AND RUN.