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Senior Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

I gave you specific examples of how stock prices rose for major companies after they increased prices. I also explained to you that the determinant factor of whether a stock will rise after a price increase is whether the demand for the item is elastic or inelastic. I then described how your purchase of fertilizer is inelastic demand because you absolutely must have it for your business every year, while other instruments of your business, like machinery, are what is considered elastic demand. The rise in price of the fertilizer would have a direct impact on the price of the stock of the company that makes it, while not necessarily so for the machinery company.

 

If you still don't agree, then you are passing wind compared to my blowing smoke.

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Senior Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

About the fertilizer companies I get what ur saying. And believe as you do that the right fertilizer companies would have great potiental with an increase in the price of fertilizer this happened in the last ag boom cycle.
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Senior Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

During the disinflationary era since the early 1980's, companies raise prices for two reasons only. First because increases in their input prices have decimated their profit margin for a specific product, and secondly because they know they can get away with it without suffering any significant decrease in sales volume for the product. Both situations affect the company's bottom line, especially so for a product that people have to have, which usually makes the price increase good for the stock price.

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Honored Advisor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

fertilizer demand is not constant......false assumption. Much of US stock investment is based on theory with no reality.....

 

Amazon raised prices on its production or services........... what products or sevices......primarily they sell convenience  ... and personal information -- it's illegal activity  .... did the price on personal information go up??  They are still operating at a loss  with the dream of a technical walmart with the help of the jetsons.

 

American stock investment hasn't been base on actual sales or production for decades.  It has been based on excess cash that needs a home and a steady stream of empty bandwagons.

 

 

Senior Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

Fertilizer demand is not constant, eh ? You don't use fertilizer and other chemicals and seeds to grow your crops ? One of the constant themes I hear from farmers is how the costs of input each growing season continues to crush their profit margins. Are they lying or does your farm defy the laws of plant biology ?

 

It does not matter what products or services Amazon provides, the point is that they have prices for whatever it is they do and when they raised those prices the price of Amazon stock rose directly thereafter. Once again proving that price increases can and do affect the price of a company's stock.

 

American stock investment and prices of company stock are based on a number of factors. But it is an undeniable fact that corporate earnings have moved up in lockstep with corporate stock prices. The Price to Earnings ratio of the S&P 500 stocks has stayed very constant over the last 20 years, indicating that rising stock prices have been supported by rising earnings. 

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Frequent Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

Fertilizer usage  is indeed elastic.

While not many might choose to not fertilize, The rate used could vary significantly based on expected economic rate of return.

If we are going to grow cheap corn, then the marginal rate of return for the next increment of fertilizer investment is less.

Therefore, cheap corn will result in less fertilizer applied.

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Senior Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

For those farmers who don't buy fertilizer on a yearly basis there are probably others that buy it more than once., So in the aggregate, it is an inelastic product. People in the industry have to have it regardless of price. And usually when a company raises the prices on one of its products, it raises prices on all or most of its products, so substitution of a cheaper fertilizer would not make a difference, the stock price still would be affected. 

 

If you don't want to consider fertilizer, then use seed instead. You can't grow crops without seeds, can you ? It seems to be a very inelastic product. 

 

The best way to find out if the plan works is to test it. Next time a company raises a farm input product, check to see where there stock price is. Check back a month later and then every month for the next three. If the price of the company's stock rises, then you know the strategy works and you can start using it,. If it doesn't work, nothing lost.

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Honored Advisor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

The problem with fertilizer is there isn`t many producers left and they shutdown a phosphate mine in Canada.  There`s only one or three suppliers left and the way it goes is the supplier calls and says "Randy, it`s 10:00 now and here is our price for this load, let us know by 2:00 cause if you don`t want it, India will take it"   And India will take it, there`s no Jewing around, they set the price and it is what it is. 

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Senior Contributor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

It was $3.10, not $3.00, and it traded in the Front month September contract on August 31, 2016. The price range for that day was $3.01 low, and $3.0725 high, settling at $3.015. The market has not been back to that level since.

 

I will remind you that corn traded in the $2-$3 range for most of the twenty year period from 1986 through 2006. So to trade down to $2.40 would simply return corn to its long term average price. Considering the improvements in farm technology since, its not unreasonable to think that the market will return to its long term price range, a regression to mean so to say. The real determining factor is demand. Demand since 2006 has risen to be sure, with Chinese consumption and ethanol being the two driving forces. But as the market shows from its bear price pattern since 2012, production has risen to meet and exceed demand on a consistent basis. 

 

I don't think that corn will return and stay in its former range, but I do think that in a global recession, which the world is due for after ten years of economic recovery and expansion, the reduction in demand combined with negative wealth effects will drop prices of agricultural commodities down below the lows registered while the economy was expanding. Which means that $3.01 gives out at some point and the mid $2's are well within reach.

 

If it happens, corn (like most other assets in a recession) would probably be a good buy. Let's get there first and then we'll see what the horizon looks like.

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Honored Advisor

Re: Excellent Article On Where US Economy & Asset Prices Are Heading

Must be the "Samsungization of agriculture"  tvs used to be a 3x3x4 block with a 27" screen and cost $1200.  Now on black Friday sale at Wallyworld a 60" flat screen is $395 and hangs on the wall.

 

For the life of me, I don`t understand why the rest of the world wants to raise their own food when 90% of the time the production end loses money.  

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