The United States does not trade crude oil with currency. We don't hand them cash for the barrels of oil. Instead, we ship our commodities to them in exchange for the crude oil. Unfortunately, the bulk of the commodities exchanged is food. We ship them wheat and corn and soybeans. We also export byproducts of our corn, like ethanol, plastic resins, etc... They ship us crude oil.
Here's where the tricky math comes in...
When the USDA reports came out in the spring, saying that planting was being done at an alarmingly fast rate, and corn crops and weather conditions were promising. That made the US average corn yield numbers high. That meant there would be a plentiful supply of corn. When that happened, the futures price of corn started to fall from over $6.50 per bushel, all the way down to $3.70 per bushel. Because the corn would be so plentiful, farmers would be competing with each other for sales to elevators and the Chicago Board of Trade (CBOT) projected those lower prices. It was all done on speculation. They made an educated guess. Because of that, the amount that we get paid for our commodity drops, and then, what we trade it for also drops, because we could give more cheap corn and recieve more barrels of oil. That lowers the US Dollar price per barrel of oil. Once we get this cheaper crude oil, it takes time for the refineries to process it, and when it goes out, there is a time delay between the time it is "paid" for as crude, and us consumers buy the refined finished products. So, the refined price lags behind the price of a barrel of oil. So, the ever decreasing prices at the gas pump had nothing to do with anything except market speculation that we farmers would have a bumper crop year. Every time the USDA put out a monthly report which decreased the average US crop yields, the speculated price of corn, wheat, and soybeans rose, indicating that the USDA supply would be smaller than previously speculated. When the USDA finally came out with their bombshell report last month, indicating teh severe nature of the widespread drought, it lowered the average US yield by 20 bu/a from 166 bu/a to 146 bu/a, with a specualtion that by harvest time, the number could be below the 120bu/a mark.
When that happened, the speculated national supply and reserve numbers came down, and the price of a bushel of corn started to climb to it's current levels over $8 per bushel.
(as a side note, I got into an argument on here years and years ago, when a gentleman suggested that the $5 corn we had at teh time was a fluke and the price would never again get that high, whilst I debated worldwide grain export numbers rising. To you sir, who ever you were... I would just like to sincerely say, "NANNY NANNY POO POO!!!)
anyhow...
As the corn and other cash crop commodity prices climb higher based on our expected low yields, the price we pay to our commodity producers climbs higher, which gets reflected back on the theoretical US dollar price of a barrel of oil. So, when corn and scrap steel prices go up, the price of gasoline is sure to follow. When scrap steel and corn goes down, guaranteed the price of a barrel of oil goes down. They are the same thing. We aren't paying any foreign country our US Dollars for their commodities, we are paying our US commodity producers our US Dollars, they are giving the commodities up for trade and in return, we get the oil, and the Chinese and Indian merchandise or whatever else the USA imports from other countries.
I hope that clears up any confusion... but, yes, there are other factors. I just touched on the current global exchange situation. I can almost guarantee you that if corn hits $10 per bushel, gasoline will rise to $6 a gallon, unless the government steps in and subsidizes more ethanol production. In that case, it is cheaper just to not give them the corn, and turn it into our own fuel and let them sell the crude oil to china or another country. When that happens, OPEC limits production, in order to drive the price back up.
It's all a big cat and mouse game... and it's cliche, you've heard it about a trillion gazillion billion times, but I'll say it again...
Supply and Demand... It's all about Supply and Demand.
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