For the first time ever, with oil prices pushing $140/bbl on Friday, the U.S. national average price for gasoline cracked $4/gal:
NEW YORK (CNNMoney.com) — Gasoline rose to a milestone mark Sunday as the national average compiled by motorist group AAA reached $4 a gallon for the first time.
The national average for regular unleaded rose 1.7 cents to $4.005, according the daily measure on the group’s Web site. That surpassed the previous record of $3.989 set Thursday.
People are starting to get the message, as gasoline demand is softening. This week I had to rent a car. I had requested a small, fuel efficient model. Guess what? Fresh out. How about this Nissan Titan with a powerful V8 instead? Same price as the fuel efficient model. I took it, because 1). I don’t have to drive much while I have the vehicle; 2). I didn’t have much of a choice unless I wanted to go to another rental agency. Jet lag across seven time zones argued against that.
Corn also reached an all-time high of $7.01 a bushel:
CHICAGO, June 6 (Reuters) – U.S. grains and oilseed futures markets caught fire on Friday, with corn notching an all-time high above $7 a bushel, caught in a frenzied broad-based commodity rally led by soaring crude oil, traders said.
Further boosting corn and soybean prices were worries about the young U.S. crops. Torrential rains pummeled the American heartland this week, increasing prospects for a yield drag on both.
“There are Noah’s Ark-like conditions in the Midwest through next week,” said Vic Lespinasse, analyst for grainanalyst.com.
Farmers were hoping for ideal growing conditions this year given the huge world demand for grains and oilseed for food and feedstocks to produce biofuels.
Corn prices are caught up in a perfect storm. Of course high oil prices have a direct impact. The diversion of corn into biofuels has a direct impact. But I have warned and warned and warned that there was a very big potential danger from diverting food into fuel: A bad harvest would cause grain prices to spiral out of control. (See Unintended Consequences). I always used the example of a Midwest drought, but it looks like Midwest flooding is accomplishing the same objective. I also suggested that it would take something like this to cause us to reevaluate our biofuels policies.
A little over a year ago, I wrote an essay called The Mythical Ethanol Threat. At the time, corn was bouncing around $3.70/bu (Ref: Historical Commodity Futures Charts for Corn). After noting the number of new ethanol refineries under construction, and after repeatedly predicting (accurately, it turned out) that overbuilding would lead to additional ethanol mandates, I wrote – Note to self: Corn futures to double again by 2009. Another $0.20, and that milestone will be reached.