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Senior Contributor

Crude oil's fall & its lid on the grains

Remember when we were talking about $75/barrel oil being the bottom end of a trading range below which other markets would start to react more strongly? Well, that was about a week ago and we've lost almost $10 in that market since then. One analyst says this morning that's doing a lot to keep a lid on any gains in the grains. 

 

This crude oil thing is pretty wild to me. Could we start seeing some structural changes to the markets, in terms of how different variables interact with one another, because of this oil market falling so sharply? Remember when some folks were saying a few years back we'd never again see sub-$100 oil? 

 

Are you changing your marketing strategies or plans, or doing anything substantially different on your place in general because oil's getting so cheap? 

 

Hey, here's what else is cookin' this morning. Sounds like we've got a "heat wave" coming the next few days here, too. Anybody got any corn left to pick? 

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Veteran Advisor

Re: Crude oil's fall & its lid on the grains

$50 crude is not going to support $4 corn, nor $5000 land. Better batten down the hatches and get ready for a rough ride if oil stays cheap cause its not going to be pretty.

 

Just heard of an area farm that went for $5800 per acre, flat black wet ground that needs some drainage, but still.....two years ago, guys would have been fighting it out to buy it for $9000 or more. And times are still pretty good, with farmers still having cash in their pockets. Wait for a year or two, and see where we are.

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Frequent Contributor

Re: Crude oil's fall & its lid on the grains

A lot of the issue with land prices is still not directly tied to corn and bean prices. It has a lot ot do with returns on money. If you are involved in farming especially if you still farm and still rent some land, cash can be converted to land and at current levels in our area it will return nearly 4%. Not many places to put money with that level of safety and return. There are quite a few people in my situation ( early 60s, thinking about how to step back from the field a little) who view it as  a more comfortable way to financially plan.

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Veteran Advisor

Re: Crude oil's fall & its lid on the grains

Good luck getting current land rental rates with $3 corn. I don't have a crystal ball but I have been to this rodeo before, and bought land in 1984 , on the downside, that quickly lost half of its value. I had the ability to hang on , and buy more, but it was a good learning experience about the value of patience.

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Senior Advisor

Re: Crude oil's fall & its lid on the grains

I have a day or two of corn left to pick, and will get started on it pretty soon now.

 

Ths is a good time to think about locking in fuel needs for the next year, especially if you need to spend some money this year for tax reasons.  My dealer shings diesel will go down further, so it's a bit of a waiting game to see if that holds true.

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Veteran Advisor

Re: Crude oil's fall & its lid on the grains

the emerging markets economies will reall roll with cheaper oil:

india, china, brazil, whole Pacific Basin.

 

I figure they'll be buying alot more of the usa agri products too because of the cheaper oil.

 

perhaps the key to say $5.50 cash corn is in fact $45 crude.

 

guess we'll see.

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Senior Advisor

Say again?

Guess I don't get the connection between crude and corn. IF .... cheaper fuel means more driving, and SINCE we have a mandate for an ethanol fuel mix - why, exactly, would oil affect corn negatively ???

 

Interestingly, I was just reading how much money funds and corporate specs have lost because corn and beans were supposed to keep going lower but they haven't - supposedly because farmers are stupid and refuse to sell everything as the prices dropped as the powers that be told them to do - and hurry up !!!

 

Maybe someone can explain the connection between corn and oil  in a way that even I can understand. I know it's a challenge because of my limited capacity to reason things out.

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Advisor

Re: Say again?

The oil price is going lower but the dollar is getting stronger.  So good ole USA will see the most savings.  Just as a reference the yen is now trading around 119 yen to the dollar.  Just a couple of years ago it was in the 70ish yen to the dollar.  So when it takes almost 60% more yen to buy a dollar worth of oil, or other commodities, the savings erodes pretty quickly.  Maybe other currencies are not doing as poorly, I have not kept track.

 

This oil war may be just what some farmers need to "save the farm" as commodities push lower.  Going to be interesting.

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Advisor

Re: Say again?

More thoughts along the line of "I sure hope they know what they're doing."

 

Lower oil means a smaller supply of petrodollars floating around the globe, which probably means a stronger USD, which means that all the EM debt that's denominated in dollars short gets more burdensome and there is still a huge overhang of short USD carry trades even if that is soooo 2010s.

 

Next financial crisis might look a lot more like the 90s crises- the Mex Peso one in '94 and Asia/Russia in '98.

 

I know we, and most certainly the market are completely confident that central banks and governments will always be able to intervene in those events but in '98 LCTM almost took the whole thing down on a few hundred $billion of levered bets. Any guesses on what's out there now, how many zeroes?

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Advisor

Re: Say again?

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