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Senior Advisor

Dependency on Black Sea wheat introduces market risk

This isn't a new idea. But I have warned about it for years. Recently I saw a comment on this idea.

 

This year Ukraine will have just a little more wheat than what it needs domestically - if things go well. @ 1 of 3-4 years they will be out of the export business. Russia's winter wheat may not be all that large this year either though they plant a lot of spring wheat too.

 

Keep in mind that last year's global wheat production was up a whopping 40 MMT. And so is demand. The Black Sea exported a massive amount of wheat. What affect would there have been if the BS production failed last year? My guess is a huge increase in pressure for feed - as in corn and soy. $8-10 corn? Just speculating. What if China had a very bad year (it will happen sooner or later) at the same time? 2007 might look more like a normal year than it goes now. Luckily Australia has had a massive crop. It won't next year.

 

My point is that I believe we aren't admitting how bad things could be. It could be an argument for global reserves. In that respect China is doing the heavy lifting - though I think it is the responsible and strategically correct policy. I think every year will be a throw of the dice for some time. But I argued that before 2007 and there was a lot of resistance to my conclusions. I think events have opened people's eyes more on that score. However, we are 'in the danger zone'. If you remember, my definition of that was based on the idea that normal production variation could put us in a bad spot for supplies. The 'market' will not take care of this as it is still a lagging indicator even though more volatile. By the time the market gives a signal to produce more it will already be too late to do so and avert the crisis.

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Senior Advisor

Re: Dependency on Black Sea wheat introduces market risk

Are you speaking from a global perspective?  I'd think that the U.S. could afford to pay about any price for food it it gets to be a bidding war. It would likley generate some frisky internal politics.

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Honored Advisor

Re: Dependency on Black Sea wheat introduces market risk

Should've been building bins and adding to the US reserves back in the 80's and 90's instead of paying farmers not to plant.

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Honored Advisor

Re: Dependency on Black Sea wheat introduces market risk

Jim you gave me a mental picture-----The US at a table in a restaurant and the waiter says we are out of supply and cannot fill your order.  So the US says "I will pay double if you give me his food", pointing to the other tables in the restaurant.---------------------------------------------sorry that visual image keeps going in directions I don't like.  But the fact is when supply is short it may not be for sale. Even for the big bad check writers.  

 

If we are approaching that position, there is no one else to blame.  There is no reason for the US to ever be that disconnected from it's own agriculture.  But I think we are.

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Honored Advisor

Re: Dependency on Black Sea wheat introduces market risk

That was tried in the 40's through the late 60's, any body old enough to remember that fiasco that was also tried in the 80's with the surplus equals a mess like the dairy is and has been experiencing.

 

No amount of bins will make up for short crops and large demand.. If we have a summer like SA just is finishing up and it spills into Europe and parts of Asia. we will not need the bins we have now. I know for a fact I will not need at least half of my bin space even if I have a normal crop (what ever that is) due to the fact I am going heavy on beans this year.

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Honored Advisor

Re: Dependency on Black Sea wheat introduces market risk

Tiger(Great year coming--go prince),

 Hobby is right the government owned surplus in the 60's was a market depressing(and farm depressing) time which USDA managed poorly.  But like many things we do as a group, the idea was good, we just did it poorly.

A society of 350 million should have something in the cupboard.  AND know how to size and maintain inventory.  

What we do now is rely on the market to regulate the supply and demand through pricing------I think this would work --------if the government would stop manipulating the currency.   Currency manipulation gives the world grain buyer an advantage over the domestic buyer.  The currency manipulation blinds us(the us traders) to the real value on the world market.  Is the $4 corn of 2 years ago the same value as the $6 corn of today? -----not to us but maybe to the competitor from another country. What keeps $12 corn from being cheaper on the world market than $4 corn was a few years ago.  

This isn't stated perfectly but -------an attempt.

Couple this thought with USDA's reports that are only accurate 6+ months after the fact, if they ever are.   And you can see why I doubt we know where we are on the supply side or have any control over it.

 

Am I way off?----------It looks bad to me.

 

 

 

 

 

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Honored Advisor

Re: Dependency on Black Sea wheat introduces market risk

WHOA people. WE are NOT out of corn, beans, wheat, what ever. Just quit loading ships and we will be up to our eyeballs in grain and NO price will be low enough.

 

There are piles under tarps as I type this. No matter the price there will still be some bu's that someone does not sell.

 

just like right now and for the last few months the USA has been a net exporter of petrolum products first time in 62 years, Drill baby Drill got us here. The price has not gone down because somebody esle wants it. In a free (at least semi-free) market place the product follows the money to the highest bidder.

 

Anybody remember Nixon and Carter's grain embargo's? I'm not interested in that senaro again.

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Senior Advisor

Re: Dependency on Black Sea wheat introduces market risk

In my perspective, Jim, there is ONLY the global perspective. Our market is just a piece of the action and it can't be viewed separately. That's not to say we don't have our domestic circumstances and policies, but that's true for all areas of the globe. The change in one affects all. 

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Senior Advisor

Re: Dependency on Black Sea wheat introduces market risk

A further thought. We are still a relatively rich country, but even the poorest countries will pany ANY price for food. In a sense we can't out compete needs of other countries. This is true or petroleum too - though not quite to the same extent, but nearly so. Famine and war is the result of food competition and the price is one we will be involved with.

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Senior Advisor

Re: Dependency on Black Sea wheat introduces market risk

You are right Hobby. We are fortunate to have the resources to be an exporting country. In one sense we always have an oversupply. And it was a very valuable asset in the 20th century to help in the recovery of two global wars and a developing world that we did NOT see globally. We forget, the global vision and integration is new. Our outlook has changed drastically since the 80's. We have abandoned the old Cold War perspective when Carter's embargo was part of a larger struggle to contain the USSR. And we have abandoned food as a weapon from our diplomatic list of options. 

 

The difference is that people and instability can no longer be contained by not knowing about them. We can't restrict out food from the global market in any way. In a sense we will compete for our own supplies - just like petroleum. THAT was the fallacy of D Baby D. The outcome was supposed to be lower domestic prices. You could not convince people that was not going to be the result in free and global markets.

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