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Senior Contributor
ray h.
Posts: 439
Registered: ‎05-14-2010
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Lopsided Markets

    Every commodity produced today exception oil and its related products is in a lopsided position compared to lawyer,doctor,CPA,engineering,ins.co's some managerial positions in a lot of companys.manufacturing,(ah,$300,000 combines ex, to$50,000 pickup trucks,) you name it.The thought of wheat with a 4 in front,orcorn with a 4 in front,soy with a 8 in front,and on the latter two I will confess that I am guessing, is a ludicrous emotional thought! I am a producer of specialtie commodities and it is unbelievable of the difference buyers will pay when thing are going their way as apposed to the opposite. Is it possible that in this capitalistic environment that the government receiving tax,(income) on $15.00 wheat,$12.00 corn,$20.00 beans they would have more resources to feed the poor.After all we all know that the amount of raw product in a box of crackers is almost insignificant at any price mentioned. The point I am trying to make is that we need a correction in markets,or the lopsidedness mentioned will some day cause a snap in the general econ! In a perfect world there would be some degree of safty net in food supply,and the stockpile would be ONFARM!

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hardnox604008
Posts: 5,518
Registered: ‎05-14-2010
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Re: Lopsided Markets

Hi Ray,

 

Over the last 40 years our "food policy" or whatever it is has gone through the following general stages:

 

High support prices and a farmer owned reserve. Didn't work, just created a land bubble and priced us out of the market. Huge surpluses built up.

 

Ultra low support prices even to the extent of paying buyers to take it came next, coupled with direct support prices. It didn't work- was hugely expensive and didn't increase demand as advertised, particularly export demand.

 

Then came a massive ethanol program with very, very rapid mandate timelines. Didn't work, although how it blows itself up is yet to be seen- either fire or ice (we actually build stocks off good crops and the expected elevation of production costs can't be met without government supports; or, we blow a crop up bigtime before stocks are built and trigger another and bigger global food crisis.

 

Where to go?  As a basically conservative person I'd say first is to do no harm, or as little as possible. If the market wants more grain ethanol than the mandate, let it buy it but not one more penny of incentive or gallon of mandate.

 

Probably then you will need some form of reserve program and support level because the market could quite possibly seek out the current loan level under different supply demand scenarios. Even though the construction of the current policy was very poorly conceived there does need to be some form of policy response to keep it from becoming a complete disaster on the backside.

 

As to price on a FOR, I'd say something like $3.25 on corn, $4.50 on wheat and $7 on soys.  Many farmers would bleed for a while on those numbers but the industry wouldn't hemmorrage and we don't want to commit the same mistake of the '70s by placing support too high- we also don't want and aren't going to get the kind of federal money that we got in the '80s-'90s.

 

Then you step back and let things work themselves out.

 

 

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason."

J.K. Galbraith
Advisor
hardnox604008
Posts: 5,518
Registered: ‎05-14-2010
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PS

It also goes without saying that any any policy response will likely be reactive rather than anticipatory, late and flawed.

 

And the next direction will be primarily driven by trying to cure the problems that the previous policy created.

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason."

J.K. Galbraith
Senior Contributor
Artifice
Posts: 392
Registered: ‎05-13-2010
0

Re: Lopsided Markets

HARDKNOW---good post, your 1sr replyy

artifice