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Advisor

Around 2040

Noted a comment from some analyst saying that he expected that global grain markets will be mostly adequately supplied for a decade.

 

I'd guess a bit longer than that. The commodity cycle has been pretty regular over the last century. Blowoff peaks occurred in '20, '50 and '80. The recent one was fragmented around '10 from '08-'12 -with energies blowing off in '08, the broader cycle in '11 and the US drought extending grains into '12.

 

The previous peaks all coincided with major inflations- this one was a different animal.

 

That places the next peak at 2040. Prices tend to bump along the bottom for most of the long trough periods. There will be various events along the way- weather, macro, policy- but it will probably be a long time before we see money gushing into commodities in general and grains in particular.

 

When I used to participate in marketing groups back in the 80s and 90s it seemed to me that some of the guys who'd experienced the rush of the '70s boom had a hard time reprogramming to the new reality- they were certain that another boom was just around the corner.

 

I think it is wiser to assume it isn't.

 

Made me think, too, of all the massive on-farm grain storage facilities that have popped up in the last decade. Everybody has different circumstances but I imagine they've already finished off a few dozen operations here and there if where they've been using them as casinos while the years keep rolling craps.

 

If utilized like a distinct elevator enterprise they will provide good ROI in most years. Generally the only ones where they don't are the same as for elevators in general- lacking volume and inverted markets, which are not that common.

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16 Replies
Frequent Contributor

Re: Around 2040

Agree 100%.  I started farming in 2003, so I got to see the blow-off top early.  Since farming is my 2nd career, I likely won't see another.  In August of 2013 I emptied my bin at $7.25. But now the strategy is different, and everyone has to develop their own recipe for success (and that doesn't include whining about things you can't do anything about).  For me, we worked hard to live cheap for a couple of years to be able to make next year's payments (seed, fertilizer, equipment notes) with last years crop.  I sell the crop a year out at least, sometimes about 16 months out, and get much better prices.  I try to deliver as little as possible during harvest, unless I had contracted it way earlier for decent prices.  I leave about 30% unsold just in case there's a weather rally or somesuch, but usually that ends up being the cheapest grain I sell. I can get decent prices on beans locally (compared to hauling it myself, not compared to the $15 we got for a little while), but I haul my corn to an ethanol plant about 90 miles away.  But by doing that, and contracting well in advance when there is a rally, I can realize $.75 to $1.00 more than selling local at spot prices.  For example, right now the local price is $2.87, but the new crop 2018 price at the ethanol plant is $3.54. Between crop insurance and having some unpriced in the bin, I can safely contract part of next year's crop at that price now, if $3.54 gives me an acceptable profit.

 

So that's the marketing side, but production is of course also key.  The local agronomists where I shop are good with seed and chemicals, but I've developed my own expertise in soils.  We have high Mg soils here, so compaction is a real issue.  I am working to get organic matter to 4% with high residue crops, and working to get pH to the right levels.  Trying to gradually get K levels to 4% base saturation. 

 

My situation is dramatically different from even my next door neighbor, so my point is to analyze your operation and develop your own strategy to squeeze out a little more money for your crops, and to grow a little above average crops.  Do that and you can make a comfortable living and not always be waiting for that elusive boom time.

Advisor

Re: Around 2040

Life expectancy tables give me a 60% chance of seeing it, although hard to know if I'll be cognitively able to participate.

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Advisor

Re: Around 2040

Averaging across multiple years of that long 80s-early 00s trough the Bob Wisner "buy puts in May and go away" strategy performed pretty well.

 

There will be weather market and other events along the way.

 

May, or course,  break with the historical trends but I'm not betting on it.

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Advisor

Re: Around 2040

The problem with that strategy was that, say, CZ would fairly reliably rally to at least 2.50 in May, you'd buy an ATM put for .30 and add .20 to your net when the market hit $2, which felt pretty puny compared to just straight up selling.

 

It seemed like forever if it took 4 or 5 years before something happened that popped the market- you got it back plus some by not being sold but it was a long time coming.

 

Crop insurance that is available today may change the calculus of selling by a bit.

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Veteran Advisor

Re: Around 2040

If that is a true statement, about the markets will not turn around until 2040................

 

there will be no farms left.  Things are going to get back the next two years.  Talked to a banker friend of mine.........he's middle

aged and thinking of getting out of the business.........if things don't turn around soon.

Many will not make it thru this......even those who have paid off assets.  When you have such so small margins, and the cost of

living keep going up, it will not work.  Some say you should get a job.......think about that, you have to get a job to help support

the grain elevator, seed dealer, fertilizer sales, and chemical sales ????

 

the monkeys will go crazy on this, but the blunt truth is, the market does not work anymore.  you can say all you can, but if

you use economic tests, it fails.  When you want my market price to equal that from someone over 2000 miles away, that has

lower land cost, equipment costs, along with all inputs, and their commodity prices are low due to a terrible transportation

system, and a non-develop economy........please, don't preach to me, I've read, I've researched.  

 

to tell me I have to take the price that is in south America is nuts.  our costs are twice as high, and there is a bigger demand base here.

the real problem is, the buyers have figured out this little story to sell, and so they can get their raw inputs at firesale prices..and they

 

make even more.  it's so silly, they don't even stockpile product, knowing they can buy it so cheap, they do the "just in time"

inventory.  The example of a "just in time" inventory, is that there is no price movement, and there is no incentive to hedge

or lay in a supply, due to the market being so cheap.

 

in industry this is utilized, but the item is contracted and thus a stable price.

 

some said on here  "there is nothing you can do"......that's not true.  but you've been told that.....so you will not think, will not try.

prime example of this America now......nobody will try, nobody will work........they want someone else to do it.

 

years and years ago.........we farmed with 3 bottom plows, small cab combines, we milked cows, by hand, raised chickens and

had eggs to sell you hauled to town.  I got in on the very end of that.......despite all of that......we had time to have activities,

and do things, we participated in things, our farm groups were real groups, we had political clout..........

 

yes, progress is wonderful

 

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Senior Contributor

Re: Around 2040

Hey Nox, where would we be in the cycle without ethanol?

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Advisor

Re: Around 2040

Farming is usually centered on a smaller 26 year cycle which has passed the last few years as lows. The depression cycle is usually 55-60 years so the flushput won’t happen until the middle of the 30’s. The war time cycle comes into play during the 40’s.
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Honored Advisor

Re: Around 2040

I like the idea of being a fortune teller, knowing what will come based on the cyclic human nature and weather patterns and divining price from that.   However, I have to wonder aloud if the federal reserve, government policy and world demographics haven`t pushed us into uncharted territory? 

 

We should`ve had a depression in 1990, but the federal reserve put their thumb on the scale, some would say "yay! that`s good!" weeeell there`s always unforeseen consequences that are often worse than just taking our medicine.  Some cycles may`ve been compressed and others stretched out, so who knows anymore, I sure don`t.

 

https://www.forbes.com/sites/greatspeculations/2011/02/14/exploiting-war-and-peace-cycles-with-commo...  

 

 

1999: The Last COMMODITY PRICE LOW in the "PEACE CYCLE"

In a controversial book titled “War Cycles Peace Cycles,” Richard Kelly Hoskins correlated secular commodity price trends with war, peace, and the manipulation of money supply by governments dating back to 1763. Hoskins’ book was published in 1985 just after the end of a “peace cycle” which he believed had bottomed in 1980. We now know, with the benefit of hindsight, that commodity prices have risen steadily since 2000. When the New Millennium began 11 years ago, food, energy, metals, and materials had finally bottomed after many years of gradual price declines. Since 2000, prices for these basic necessities have steadily increased, creating several economic busts along the way.

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Advisor

Re: Around 2040

Periodicity aside, it is same 'ol in commodity markets. Occasionally demand catches up to structural supply, a lot of money rushes in which increases capacity and ultimately meets and exceeds demand. Once brought on line most of that capacity sticks around, even if the marginal return to fixed investment is near 0- it is just somebody else farming it. 

 

Global capacity now exceeds usage. Barring weather (and those things will happen along the way) or major policy changes, major war etc. that's going to remain the case for quite some time.

 

I would allow that we're more than likely in the lower part of the price range that will dominate but am pretty certain that we'll spend very little time in the upper parts of the range that's been set.

 

Super boomer crops like '82, '94, '04 also occur at about the same rate as major shortfalls. That would be a problem if we'd happen to do that next year and the rest of the world does OK.

 

But don't worry (Cheapo) Unc will ride to the rescue with a new farm policy that, like ethanol, will work for a while until it doesn't.

 

I guess if you really want to worry I'd point you to the likelihood that we're entering an almost unprecedented period of uncertainty about governance. If I were part of the D congressional majority that will be in congress in '19 I'd expect funding for nutrition programs as quid pro quo for farm support. If 

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