My colleague John Stewart and I have worked hard to defend our view that the high corn-soybean prices of 2007-2013 were due not strictly to so-called crop fundamentals, but also to the long positions by large spec futures traders.

The view is important for commercial strategy, because it undermines simplistic overviews such as, "Fix the RFS and that will bring high prices again!"

Have you noticed, by the way, that the "food vs. fuel debate" has subsided these days? Today we are grinding the same amount of corn for ethanol as several years ago, but grain prices have tumbled by half. The difference of course is crude oil price, which John and I believe is the crux of the issue.

It's not as if crop fundamentals do not matter, they do! The Think Piece here works out both China soybean import and US biofuel demand in "equivalent acreage demand" on crops of the Americas (North and South together). The numbers are immense.

But think of the whole price issue this way: How could the global prices of oil and all hard and soft commodities have exhibited tight covariance (as in the period 2007-2013) unless there was something else going on besides the fundamentals? In other words, did the carryout-to-use ratios of a dozen or more commodities become simultaneously identical, so that their global prices went lock step? Of course not.

We think the key is that crude oil price was a proxy for spec interest in futures, and that the Great Recession of 2008-09 gave large investors lots of cheap money to put in "baskets" of commodity futures.

A few economists are starting to agree with us. One insider at a meeting of the principal academic modelers a few weeks ago at Argonne told us that many of these people were admitting that their giga-fundamental approaches had simply not caught the grain price explosion of 2007-2013.

What? Do you mean that computer calculations of "world land use change" using detailed supply-demand may not be a valid way to establish global carbon accounting? This can't be--the Congressional Energy Act of 2007 and the EPA have spelled this method out, let alone the California Energy Commission!

View the report here.

March 23/24, 2016. PRX Seminar, a dandy! We'll have climatologist Roy Spencer on the odds of an 1983 style La Nina cornbelt weather problem for 2016, followed by USDA Chief Economist Rob Johansson on the new crop outlook (and the Department's 10-year Baseline), followed by yours truly and the entire JSA team on futures (including the Commitments of Traders reports with John Stewart's empirical evidence of spec positions), basis, and transportation issues. Alan Barkema will cover the economy, the Fed, and the big puzzle of low growth/low inflation.

Happy New Year!