Vince Farrell
CNBC Contributor

Melissa Francis asked the right question on Tuesday's "The Call" show, "is corn the next oil ?" The price of corn is up 200% the last two years and if you compared a current chart of corn and oil they overlay almost perfectly. With unusual demand from ethanol production, are we to see an extended move up in corn ? There are differences of opinion, but I don't think we will see a repeat of the multiyear price spike in oil.

Corn is planted every year and weather can be a crazy variable, but sooner or later the production will catch up to the demand. If there is a profit to be had, people will move in and pursue the opportunity. There might be floods in Iowa again, but every year there is a chance to renew the corn supply.

Not so, of course, in oil. If we decided today to drill in the Alaska Wildlife Reserve it would be upwards of 10 years before we would see first production. If I had to guess, we will see corn back under $5 a bushel within two years compared with the current price of almost $8. But it may go higher first as this years planting is so damaged by the weather.

Trish Regan and Dylan Rattigan- in a tan suit that set the fashion tone for the next few days- drilled down on Secretary Paulson's meeting with Chinese finance officials in Maryland. The New York Times highlighted the talks in a front page article as well. Paulson is in a tough spot.

The Chinese have allowed their currency to appreciate but there is still a large trade deficit. They handled the aftermath of their earthquakes far better than we did Katrina and they wonder, says the Times, why should they be lectured on how to run their affairs.Paulson made 70 trips to China when at Goldman and he has enormous personal credibility, but little institutional credibility. These talks will go nowhere.

Melissa will be on her way to Saudi Arabia for the special meeting the Saudis called for Sunday to gather producers and consumers. As I said recently, the meeting has a far better chance of achieving success if we were to open the Strategic Petroleum Reserve to help relieve the oil supply situation.

_______________________________________

Vincent Farrell, Jr. is a Principal of Scotsman Capital Management and a regular contributor CNBC.

Tools:

PrintEmail Del.icio.us Digg It

Next Post

Previous PostBack to Main Page