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Honored Advisor

Difference in Oilmen and Farmers

https://inspectioneering.com/news/2020-03-26/9119/oil-refiners-to-further-cut-output-as-coronavirus-...   

 

snip:

Oil refiners from Texas to Thailand are bracing for deeper output cuts, bruised by an unprecedented demand shock as more countries lock down and restrict travel to contain the spread of the coronavirus.

Global fuel demand is set to drop by as much as 15% to 20% in the second quarter as a result of the coronavirus pandemic, which has killed more than 22,000 people, shut most worldwide air travel and has numerous countries imposing lockdowns keeping people at home and out of their cars.

The sudden stoppage in activity, along with Saudi Arabia and Russia’s decisions to increase crude supply, is expected to overwhelm refiners, who have fewer options to sell product and dwindling storage capacity.

In Asia, home to over a third of the global refining capacity, India’s top refiner has slashed output by up to 25%-30% while operators in Japan, South Korea and Thailand - already running at reduced rates - are looking at more cuts even as they shut plants for maintenance.

Several U.S. refineries have also cut production, including plants in the Los Angeles area, a busy hub for air travel, and Exxon’s Baytown, Texas facility, its largest in the United States, which is shutting a gasoline-making unit.

13 Replies
Senior Advisor

Re: Difference in Oilmen and Farmers

I have a tiny fiddle.....

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Senior Advisor

Re: Difference in Oilmen and Farmers

Burn the entire complex to the ground and bury it under a stump.

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Honored Advisor

Re: Difference in Oilmen and Farmers

I`m not at all asking for sympathy, just pointing out when oil refineries lose money, they close the refinery.  When farmers lose money, we report to the USDA that we`re going to plant 95 million acres of corn and 85 million acres of beans...which one of those two different businesspeople rode the "short bus"? 

It`d be easier for us farmers to cut production because we have the Farm Bureau, all we have to do is tell them what we want and we get what we want.  But nooo, we say "Git the government out of farming!"  Yet out of the other side of our mouth we say "Don`t mess will our RFS!"  ...bipolar anyone?

I`m just having fun, but dog gone it, the oil industry isn`t going to get in a urinating contest between Russia and OPEC, "let `em grind each other into the ground and we`ll uncap our wells, fire up refineries when oil goes to $100 again".

Frequent Contributor

Re: Difference in Oilmen and Farmers

BA- I totally agree with you!

I have a friend that- when prices were low, used to say "lets not go to the fields this spring- instead, we all buy contracts for the same amounts of corn, soybeans, cattle and hogs equal to the amounts that we would normally raise, then wait 'til fall and sell on the bull market. The law of supply and demand will return us a profit". 

Senior Advisor

Re: Oil men and farmers, two different paradigms

While it may be inconvenient for the oil industry (massive layoffs, missed debt payments), the oil industry can respond to a slowdown simply by capping wells and waiting, the oil doesn't disappear. Furthermore, the oil industries' taxes (to the extent that they even pay taxes) are based on "separation" aka. production. When they aren't producing, the taxes are minimal. 

Farmers, on the other hand, by not planting, lose the whole year's production while the property taxes and rents are stilled owed.  As long as prices are breakeven, it's to the farmers' advantage to plant.  Now I know many Midwestern farmers are complaining that current and prospective prices are below their breakeven but that's not necessarily the case out on the fringe where land costs are lower and the older used machinery is paid for.

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Honored Advisor

Re: Oil men and farmers, two different paradigms

Rick, we are in a better position to cut than the oil companies, because with them the deeper pockets outlast and the wildcatters go bust.  With farming we could have 3 different choices of "socialism": (these are just numbers to illustrate, not necessarily to scale).   If you set-a-side 20% of your corn base you are guaranteed  $4.75 for your corn, if you set a side 10% $4.25   5% $4.00 corn or if you`re "Mr Independent" never took a nickel from the government then don`t sign up and take your chances in the CME casino. 

As farmers we`ve already shaken hands many times with the government on conservation plans and counter cyclical payments, MFP, LDP ect...we`ve already determined what we are, now we`re only negotiating price   Smiley Happy

If we choose "Mr Independent" route that`s fine, however those with deep pockets and the capital to turn their marketing over to Jerry Gulke will survive.  Those of us who`s marketing consists on the whims of the weekly guest on Market to Market probably won`t cut it.  To qualify for a lot of this marketing hedging you have to have the volume and the internal  intestines to make margin calls (re-watch The Big Short while in quarantine).  

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Senior Advisor

Re: Oil men and farmers, two different paradigms

Been hearin' the "let's just not plant" thing for 50 years. Although I guess if we got down to 10 farmers they could collude like the genetics, chem and fertilizer oligopolies do.

But I think Time's suggestion that some sort of quick set aside be enacted was a good one. But that was two weeks ago and the clock is running short.

C'mon Sonny.

I'd say just offer PP payments on up to say, 30% of acres, would be a place to start discussion. Although if it is voluntary and you'd be back in the same old place. Your "neighbor" is gonna be thinking, "well gee, if he's not planting, maybe......"

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Honored Advisor

Re: Oil men and farmers, two different paradigms

Nothing will happen before planting season.  The USDA will want fence row to fence row planting to insure that plentiful and inexpensive food supply.  Help will only come to the farmers after the fact.......you know, just a few morsels to keep farmers in business.

All bets are off with the oil industry........anything can happen on that front.

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Honored Advisor

Re: Oil men and farmers, two different paradigms

There`s too many of us still by 2 million to have any clout in what would be deemed a "food price rigging scheme" by the other 330 million Americans.  "president AOC" would nationalize land ownership first sign of farming getting profitable.

Government would have to be the administrator of any supply management program.  I would say a program of only carrots and no "whips", give price support for solving the problem of too many acres...and if Brazil wants to pick up the slack raising $6 beans, let `em just like the oil companies that need $50 oil are letting the Russians and Saudis see how close they can get to the ground before pulling the ripcord with their $20 oil.

And Ethanol, forget about it, $20 oil, even $40 oil makes that a tough row to hoe, I`m sorry, but that hand wringing about "RiN waivers" is all ancient history now. 

I got a card in the mail from FSA about a CRP signup this summer.  Well that`s something that can be expanded to help the 2021 crop and perhaps pull up the 2020 crop and make Greta Thrundberg happy, if she`s capable of being happy.

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