Today's Vibe, And Some Food For Thought

28/04/11 -- The pound has hit a fresh 17-month high against the dollar this morning, peaking at 1.6745 before falling back a little on profit-taking. Can it break through 1.70? It hasn't spent any length of time above that level since October 2008.

At 1.4880, the euro is also setting it's sights on breaking through 1.50 to test it's own 17-month highs of 1.5140, a break above that level would see the single currency trading at it's best levels since August 2008.

We're clearly looking at dollar weakness here, and last night's comments by Fed chairman Ben Bernanke that the labour market there was in a "very, very deep hole" and that it intends to keep interest rates low "for an extended period" seem to indicate a loose fiscal policy for some time to come.

That could mean the US dollar becoming the new whipping boy in the forex market for the remainder of 2011.

The overnight grains are higher on the back of that sentiment, with beans up around 10c, corn is 6-8c firmer on old crop and 2-4c higher on new crop. Wheat is trading around 2-4c firmer.

The bulls remain firmly in control, having scant regard for downside potential.

US and Canadian spring plantings of soybeans, corn, rapeseed and wheat are behind schedule. There is talk now that if price rationing hasn't kicked in for USD8.00/bu corn then maybe it will take USD10.00/bu corn to do the trick?

Stocks are tight, new crop is going to be late, demand is strong. Let's buy, buy, buy. This thing can only go one way. Yet wasn't everyone saying that in 2008 also?

Corn plantings were late in that year too, delayed by cold and wet conditions, yet US yields ultimately finished up the second highest on record at the time.

Back then the Dec08 corn future went from just under USD5.00/bu at the start of the year to a high of almost USD8.00/bu in late June, before tumbling to under USD3.00/bu in early December.

This year we've seen Dec11 corn start the year at USD5.00/bu and hit a high for the year so far of almost USD7.00/bu, with USD8.00/bu looking highly achievable by June as things stand at the moment.

Now let's make this clear, I'm not sat here forecasting that corn prices will be USD3.00/bu by Christmas. In 2008 we had the sub-prime led financial meltdown in world markets didn't we? There's not likely to be any nasty surprises like that coming our way this time round surely?

The point is though that in June 2008 the market perceived that corn was worth almost USD8.00/bu and by December that notion had changed dramatically. The "financial crisis" didn't actually lead to more corn being produced, OR much less being consumed to radically change the supply/demand fundamentals.

For what it's worth the USDA pegged corn usage from the ethanol sector at 4 billion bushels in June 2008, and despite the price of crude oil falling out of bed in the second half of the year it was still 4 billion in the November report of that year.

What had changed though was that the "smart money" got out.

Is it different this time? Is the smart money really here to stay for the long haul? Or could something get them spooked again? We've already had earthquakes, tsunami's, unrest in North Africa and the Middle East to test their resolve.

China's oft-quoted "insatiable" demand for commodities couldn't be about to take a serious hit could it? That particular juggernaut has largely been responsible for dragging us all out of the recession perhaps a lot quicker than many had imagined.

Some believe that it might: Is the Chinese bandwagon about to blow a tyre?