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Palouser
Senior Advisor

Re: Help me understand.......

The idea the grain going into ethanol is 'extra capacity' and would serve as a reserve is impractical and unworkable in  the real world. As is the idea 'the market' can determine a reserve.

 

The 2007-8 fiasco proved the market can't DO that function. It's a lagging indicator. That's the whole point of why a designated reserve needs to be identified.  The market hadn't/didn't respond until after all production factors were set and planting done. I'm not saying 2007-8 is the worst case scenario. I'm saying it isn't. It can be a lot worse. Part of the issue is the sheer unknowable. But we can appreciate that at this point. It's a bit odd that a counter cyclical payment provision in the farm program seems to make sense to many because it only kicks in to make farmer's lives easier under specific conditions, but food for people in extreme circumstances is so threatening to some of you (yeah, I know, you don't like the farm program but you choose to participate - don't want to hear about it, sorry).

 

It's also quite paradoxical that some seem to see the heavy hand of government in a grain reserve and yet would advocate an arbitrary decision by it to shut down ethanol and damage a whole industry, jobs, investment? Really???? Hmmm, and still wouldn't involve wheat, the most global of human foods (There is an issue in that. Perhaps corn should not be part of a reserve). In any case it still would not be a workable plan. Grain would already be committed , contracted (as would ethanol, etc, would involve fuel companies scrambling to find octane substitutes, etc), and no grain could be identified at a very late moment in a crisis, not to mention businesses trying to figure out at the last minute iof they would be involved, spared, etc. First it would be too late with an undefined and arbitrary method of carrying out  extreme decisions. Frankly, I have trouble understanding how those who would consider themselves either financially or logistically sophisticated regarding grain would even consider this kind of scenario - unless it is mainly an ideological dodge rather than a serious consideration.

 

The idea that a former reserve didn't work very well. I think you are remembering the situation when grain was forfeited for loans, NOT the reserve (which probably wasn't nearly as likely to be used then as now - though there was the Russian deal). The Reserve was shut down by then and grain wasn't being accepted. The huge piles of grain owned by the government were not part of a reserve program. It was a result of a faulty farm program that forced the government to buy grain from farmers as an income support with a target price that was way too high. Had nothing to do with a reserve program. Still the government had to get rid of it.

 

But I think we've laid out the issues pretty well here.

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sw363535
Honored Advisor

Re: Help me understand.......

How lucky we are that the worlds third largest population has the production strength to not worry about reserve supply.

 

And how interesting,  no matter which side of the reserve idea we each take, it sounds like few of us are comfortable with USDA's involvement.  Many of us are still stinging from the way former reserves(and the overproduction needed to create them) became market depressing.

 

But the question has become more clear.  Will US consumption take president over world supply needs in a tight supply scenario? -----probably not.-

The fact that we are taking seriously such a difficult subject shows what interesting times we are in.

 

Maybe we will see a process where Agriculture gets a little more respect in our society without large scale failure involved.

 

 

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kraft-t
Senior Advisor

Re: Help me understand.......

Think of your family and you just spent your last dollar and the pantry and the fridge are empty. Perhaps we should have planned ahead. For you bible thumpers even egypt knew enough in ancient time to fill the grainery for hard times.

 

It seemslike a bountiful country that can spend enormous wealth prepare for a war that may never come can ignore the possibility of a future national or global famine. But then we aren't too concerned about regional famine are we?

 

 

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4wd
Senior Contributor

Re: Help me understand.......

There was famine in the world  when corn was priced at $2.00/bu, and was not  used for motor fuel.  Now it is $6.50+ and ethanol is produced from it,  there are still hungry folks in the world, and they are trying to blame ethanol??  I believe it doesn't make any difference what the world price of corn is. The determing factor in whether a population is well fed or not is dependent on the government running that country, not the price of corn.

 

No, CCC government grain reserve in the past years didn't work. Lets not go back to those days again. It is time for new thinking.  How about free market thinking?

 

Neb had it right, just bid the futures markets up if you want to purchase your grain reserve this fall. Someone will grow it and provide it if the price is right.

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idalivered
Advisor

Re: Help me understand.......

There will (one day) be an "unintended reserve". Let's say we have back to back good corn crops here, eastern europe, canada, australia all cilck aong with only minor wheat production problems, south africa and zimbabwe realize they can resurrect their failing ag sector to grow $7 corn, and argentina finally gets a break from the guy incharge of weather and we will be covered up with corn. Now I realize that good everywhere is as unlikely as bad weather everywhere, but farmer's do love to grow corn and wheat. As long as we are playing "what if", let's say our ethanol, chicken , dairy, and hog customers, decide that there is a li mit to what they can pay and even for a couple months cut back usage. Lastly, I'd say that it could be closer than we think. watch the first planting intention report. 96 million acres in the US anyone? Does anyone want to up the 14 billion? Maybe 14.2??? MT, how far do we have to drive to settle this steak supper bet?

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sw363535
Honored Advisor

Re: Help me understand.......

Meeting for dinner would be great, but lets find a better reason.  We certainly have a reason in these markets.

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