Something that is a bit outside my area of expertise is commodity prices. Since the beginning of 1995, at least, the price of gasoline has dragged the price of oil higher. Natural gas, given its more local characteristics (as it is not easily transported globally) has been more independent, with radical price differences in various countries. At some point recently, the relationship between gas and oil has changed, with oil being the driver. This despite the fact that there are still no new refineries in this country, nor have there been for the last 30 years. Some have made the case that this relationship has changed due to the weakening US economy and stronger foreign economies. On the face of it, this could be true, and, in fact, probably is a contributing factor. However, there is other things going on in the US. Anyone who has bought gasoline lately, except perhaps in New Jersey and Oregon where it is too dangerous to up you own gas, will have notice that much of the gasoline sold has 10% ethanol. This is helping to keep the price of gasoline in check. Elsewhere in the world, ex Brazil, there is little ethanol use and therefore higher oil prices.
This is being confirmed by higher agricultural commodity prices, and, consequently, higher retail food prices. Everyone and their brother is planting corn, pushing up the price of of every other commodity (as farmers switch to corn) but corn. The price of wheat hit an all-time high this morning.
What does this all mean? The pundits think that the higher inflation generated by food prices will keep the Fed in check. However, the Fed takes a longer term view usually and realizes that short term runs up in food prices will push farmers into planting more acreage of whatever is getting a high price. In this country alone, there is significant acreage, controlled by large farming conglomerates, which will be planted to capitalize on this supply/demand imbalance. The biggest problem here is transporting these commodities to market; that is why Warren Buffett, among others, is buying up the US railroads.
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Railroads could be the net big thing (again)I am familiar with a small railroad in eastern PA called the Reading and Northern. The Reading and Nortehrn was constructed by an entrepeneur from trackage discarded or sold for a song by CSX and NSC or their predecessors. This little railroad has capitlized on the need for large scale transport.
Since WWII, most developed countries (and many developing countries) added rail trackage. The U.S. has been a notable exception. The U.S. fell in love with the interstate highway system. Long haul trucking companies sprang up taking advantage of not having to maintain infrastucture (rails and road beds) and not having legacy expenses.
Railroads folded one after another as trucks, which can carry commodities from point to pint without transfer became popular. Since fuel was cheap, trucks continued to roll.
Now, with fuel prices rising, trains are becoming popular once again. Trains burn far less fuel than do trucks per ton carried. The are less susceptible to bad weather and are rarely affected by traffic.
Railroads do have one glaring problem. A good amount of their previous rights of way have been soldoff for other purposes than rail traffic. With space at premium, strict zoning laws and a general trend towards NIMBY, it is unlikely that new routes will be developed.
Since rail capacity is limited (there have been reports of shipping backlogs during the past few years)railroads can, within reason, name their prices for large scale transportation of goods. Buffet is not stupid.
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