Homeostasis is a term borrowed from the natural sciences, and, according to dictionary.com, it is "the tendency of a system... to maintain internal stability." I often find myself examining the markets with a homeostatic eye, and lately I've been focusing on grains (particularly corn and soybeans). I perceive this season's dramatic increase in U.S. corn crop (to meet ethanol demands) to have created a variety of imbalances in the worldwide markets, and I'm trying to identify means by which the markets will move in adherence to homeostasis. Here are two specific ideas I am researching.
Archer Daniels Midland (NYSE:ADM) and Bunge (NYSE:BG) could benefit as many U.S. farmers have shifted their fields from soybeans to corn to accommodate increased ethanol demands. Brazilian producers may offset a large portion of the decrease in U.S. soybean crop, and grains importer/exporters like Bunge Alimentos S/A and Archer Daniels Midland Brasil ltda may reap rewards by bringing international grains markets back into balance.
ADM 1-yr chart
BG 1-yr chart
Kellogg Company (NYSE:K) should benefit from decreasing corn prices. In Kellogg's April 30th 2007 conference call transcript the CFO makes it very clear that commodity prices [which include corn] are a major risk and they had recently impacted profitability. The recent decrease in corn prices should have a positive impact on Kellogg's earnings. I wouldn't be surprised if management (and analysts following Kellogg) increased next quarter's earnings guidance which could cause significant stock price appreciation.
K 1-yr chart