Corn

Last Friday I spent all day driving to northwestern Iowa and back to bring one of my daughter's home from a camp. Besides just missing a storm that blew through Omaha, we noticed many of the crop fields in high water. It is not news that Iowa has been hit hard by flooding--though the most severe problems are east of where we drove. One thing that I thought of looking at those corn fields was the rising price of corn.

Well it turns out that the dire reports of corn shortages may have been vastly overstated. Today's Wall Street Journal reports that while there has been signficant crop damage, estimates did not account for increased planting this year from last. An innocent mistake. Yet, that misinformation caused the price of corn to skyrocket (and plummet again based on this news).

No doubt in the market there will be winners and losers because of this -- I sure would like to have sold corn short! Still, this kind of news has business people pulling their hair, especially if they insist they can make data certain decisions.

Commodity Prices

I spent the last week with managers from several different industries--agriculture, steel, large industrial pipes, newspapers, technology services. These participants confirm the fact that commodity prices in addition to oil are increasing steeply. Biofuels and overall world demand is driving up the cost of grains. Skyrocketing steel costs are driving up costs for anyone using steel (gone up 75% in just last year according to one of these managers). Newsprint is also going up, impacting newspapers.

Today's Wall Street Journal reports that soaring transportation costs (along with other factors) is starting to bring manufacturing back to the U.S. If soaring fuel costs have this kind of impact (see chart), other chain reaction impacts will occur that will be upsetting to consumers and a number of industries. Commodity prices are causing havoc.

But are they? Commodities tend to be driven by supply and demand. These commodities that are going up are feeling supply and demand pressures (either increased demand, sagging supply, or both). When there is demand pressure, prices naturally go up, which incents companies to increase supply. So these price increases are actually a beneficial effect of supply and demand. In an environment where business is allowed to operate freely (relatively speaking) forces will soon emerge that increase supply or find less expensive substitutes. Also, consumers will change their habits to decrease demand as they have more trouble paying the high price.

And it does hurt a lot of companies operating in businesses using the commodities. But it also opens opportunities for businesses who identify market needs and find ways to exploit them. Of course, politicians will get involved and rarely do they make things better in the long run. So watch in this next cycle of the elections for politicians to pander on the rising commodity prices, promising to fix the short-term pain that is part of business. But don't bet any of their solutions will be effective . . . just hope they do little harm.

Gino Fever

The summer schedule allows me to do more reading -- and catch interesting articles such as the one in today's Wall Street Journal. On the back of the the Marketplace section is the story of Boston's new craze with an anonymous character from a 1977 American Bandstand video - you can find the article here (and don't need to be a basketball fan to enjoy).

Breifly, this video clip is being shown at Celtic games (pro basketball) and the shot of this young man (in the typical mid-70's style) has created quite a stir among the Celtic faithful. Funny thing is that you might find the video overrated after reading the article, but I guess you have to be there at the game to appreciate it. (Here is the link to the video).

In this day of million dollar marketing campaigns, it is still a mystery sometimes of what fad can take off on a life of its own, often making someone very rich. Interestingly, the "Gino" character drawing all the attention in the video is not around to enjoy his sudden posthumous fame. I imagine, however, there must be some relatives looking for a lawyer to cash in -- or more likely the other way around.

Loyalty

This past week Scott McClellan's new tell all book of the Bush Presidency has created some buzz. I haven't read the book, but the story is that McClellan has turned on his old boss by saying, for example, Bush mislead on the run up the war, for example. The most interesting assessment of McClellan and the book comes from Byron York. Here is one excerpt:

He [McClellan] was there because he was extremely loyal to George W. Bush, and there was a group of people who came with Bush from Texas -- Harriet Miers, Alberto Gonzales. Perhaps Matthew Dowd was in this group. These were people who were not particularly conservative. In some cases, they weren't even Republicans. So they come here, and their only thing is their big loyalty to Bush.

I think this analysis is about right. Although loyalty is a great thing in a family, including a dog, loyalty is overrated by many managers. Ironically, Bush came to the White House as one of the few, if only, MBA’s. Unfortunately, he has consistently overvalued loyalty in his selection of some top lieutenants. Also ironic in this case is that loyalty does not guarantee someone won’t go off the reservation. As York notes later, people like McClellan (especially ones put in a job they are unfit for) are likely to become disillusioned and turn on the very person they admire. Managers of all ilk should read this as a cautionary tale.