Commodities Watch: Auto Prices to Rise on Commodity Costs; Wheat-Corn Switching Places; Gold Busts $1,500/ounce (GM, TM, F, GLD, SLV)

In today’s commodities news another automaker is raising prices to meet higher commodity prices, corn and wheat continue to jostle for position as the higher-priced food, and gold prices keep climbing.

General Motors Co. (NYSE: GM) has said that it plans to raise auto prices by 0.4%, or $123/vehicle, as a result of higher commodity prices. The new pricing becomes effective on May 2nd. The price hike puts GM in the same group as Toyota Motor Co. (NYSE: TM) and Ford Motor Co. (NYSE: F), both of which have already announced price hikes. Ford will raise prices by $0.4%, or $117/vehicle, and Toyota plans a hike averaging around 1.7%.

Higher prices for iron ore and metallurgical coal used in steelmaking have certainly contributed to the higher prices, but some can also be attributed to supply shortages resulting from the disaster in Japan. If parts and vehicles are harder to get, the price will rise, provided demand doesn’t fall. GM’s end-of-March inventory showed a 10% rise in unsold US inventory compared with the end-of-February figures.

In addition to higher steel prices, aluminum prices remain at three-year highs around $1.20/pound. An average car contains about 325 pounds of aluminum, and because aluminum refining requires so much electricity, the cost of thermal coal also has an impact on the cost of aluminum. For cars sold in the US alone that amounts to more than 1.6 million tons of aluminum. Fortunately nearly 60% of that is recycled. By 2020, the aluminum content of an average vehicle is expected to amount to more than 375 pounds.

Steel, aluminum, rubber, and copper all sit at or near price tops. As this affects the cost of the vehicles, buyers may also be shy about buying due to the ever-rising cost of gasoline. Even new, more fuel-efficient models may not be enough to tempt a buyer worried about keeping a job and making a house payment.

The relatively modest cost increases that these automakers are proposing are probably not equal to the increase in their overall costs. The automakers are probably figuring to make it up on volume, which could work if enough buyers open their wallets.

As this is written, corn is selling for $7.60/bushel and wheat at the Chicago Board of Trade is selling for about $8.25/bushel. The ratio of the wheat:corn price is 1.08, well below the average since 1970 of 1.4. When the ratio falls below 1.25, cattle ranchers begin to think about substituting wheat for corn for feeder cattle.

Corn stocks are low, the weather is not cooperating for spring planting, and more corn is being directed to ethanol production. All these forces are keeping corn prices high.

Wheat is not so much of a bargain either, mainly due to very dry conditions in Oklahoma and Texas. The reason the wheat:corn ratio is so low has little to do with the outlook for the wheat crop and more to do with the outlook for the corn crop. Competition from ethanol producers, who get a government subsidy for every gallon of ethanol they make, could push the price of corn even higher if this year’s corn crop doesn’t meet expectations. At that point, wheat for cattle feed will start to compete with wheat for other food stuffs, like bread and breakfast cereals. Higher prices for beef could easily follow.

Gold briefly pushed through the $1,500/ounce barrier and silver pushed to with pennies of $44/ounce on another day where fears of inflation, geopolitical unrest, and sovereign debt woes sent traders to the safe haven of gold and the comfort of silver. The SPDR Gold Shares ETF (NYSE: GLD) posted a new 52-week high of $146.24 before falling back to $145.85. The iShares Silver Trust (NYSE: SLV) also set a new 52-week high of $42.88 earlier, and is trading at $42.83 late in the day.

Paul Ausick