Money floats around the world attempting to find a place to get lost. This excess investor money is looking for a quick buck and now it is being parked in commodity markets for gold, platinum, wheat, corn, beans, etc. If you have ever observed bubbles and cycles, usually toward the end there is a run up in asset values created by speculation. Tulips in Holland in the 1600s, the railroad in the 1800s, oil in the 1970s and the stock market in the 1920s and 1990s in the U.S. are classic examples of irrational behavior created by “funny money.” By the way, my business partners in the dairy creamery coined this term.
A recent example of funny money and speculative behavior exists in the urban and suburban real estate market, now named the credit and sub-prime lending crisis. This money is now on the Chicago Board and other commodity markets, creating an illusion of prosperity.
One must be extremely careful of developing long-term investment plans and borrowing based upon these price spikes. When funny money or speculative money leaves a market, it creates a vacuum, which can result in a crash or correction. The new normal in commodity prices could be a false normal, which producers, lenders and agribusiness people must put in the business planning equation.Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at firstname.lastname@example.org.