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Senior Contributor

Re: Interesting Morgan Stanley statement on Fed policy

"The one glaring problem with this analysis, and I've pointed it out many times, is that how do you NOT explain the influence of grain inventories, and the parallels with prices at other times when then inventories were similar? The implication is that regardless of inventories the prices of grains would be the same because of the influence of the Fed."

 

Ok, let's show some parallels.  In 1985, corn ending stocks came in at 677 million bushels.  This is very comparable to where ending stocks are pegged this year.  In 1985, corn prices were around $2.20 a bushel.  In 1980, corn carryout was 1.6 billion bushels.  In 1980, corn prices were around $4.00.  In 1980, the U.S. dollar index was roughly 94.  In 1985, the U.S. dollar index was roughly 144. 

 

In 1980, corn prices were nearly double what they were in 1985 even though we had roughly 60% less supply. 

 

The 20 year low in inventories for crude oil and petroleum products occurred in 2003.  Crude oil in that time frame traded in the mid-20's to upper 30's.  The 20 year high in inventories for crude oil and petroleum products occurred in September 2010.  Crude oil in that time frame traded in the lower 80's.  In 2003, the U.S. dollar spent most of the time in the mid-90's to lower 100's.  In 2010, the U.S. dollar spent the majority of the time in the 70's.   

 

Now, let's take a couple of years of wheat and look at them.  In 2010, the carryout is in the upper 800's million range.  The most comparable carryout in the past 20 years to this was in 2000 when we also were in the upper 800's.  In Chicago wheat for 2000, we had a low of around $2.30 and a high around $2.85.  In 2010, Chicago wheat had a low around $4.25 and a high around $8.00.  In 2000, the U.S. dollar traded between 100 and 119 for the year.  In 2010, the U.S. dollar traded between 75 and 88. 

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Senior Advisor

Re: Interesting Morgan Stanley statement on Fed policy

IMO, when evaluating the effects on the market START with the physical fundamental picture and trends. Compare it to other times when similar physical trends were in place. THEN start looking at other factors.

 

Remember, the physical trends dominate until something changes them. You'd be hard pressed to come up with an argument at this moment that the major physical trends have changed. They may in the future, but that is SPECULATIVE until they begin emerging.

 

I.E. - The FED can do whatever it chooses. If corn gets planted very late it won't matter. Corn would shoot higher in price. As would soy, and probably some extent wheat. If the corn gets in and beneficial weather follows indicating a good crop then corn goes lower. In the large sense the Fed will be immaterial to those trends. Basing a marketing plan focusing on the Fed is insanity.

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Senior Contributor

Re: Interesting Morgan Stanley statement on Fed policy

Why is it then we always have a spike in prices regardless of the stocks then when the dollar index value goes down?  It is of no coincidence that grain prices were high in 95/96 considering we were making at that time a three decade low in the dollar.  Whenever the dollar plunges, our buying power goes down while other countries buying power goes higher.  When the dollar plunges, we export more grain plain and simple.  In the 95/96 marketing year, we exported 2.23 billion bushels of corn.  We didn't see similar exports of this magnitude until the 07/08 marketing year.  Coincidentally, the 07/08 marketing year was when we were taking out the all time lows of the U.S. dollar set back in the 95/96 marketing year.   

 

In 2008, we had a very similar start to the season as this year.  Week by week comparisons show we were only 9% planted on corn in 08' just like now.  We didn't exactly raise a stellar crop in 08'.  However, what we did see was prices go from near $8.00 a bushel to below $3.00 a bushel.  What we did see in 2008 was the U.S. dollar go from nearly 70 to nearly 90 in the same span that we went from near $8.00 to under $3.00 on corn price. 

 

I would agree about not basing a marketing plan focusing on the Fed.  However, I believe it is very prudent to base a marketing plan focused on the U.S. dollar.  Where the water gets murky in looking ahead is the fact that we just don't know what to expect with regards to the dollar.  If we implement Q3, the dollar goes lower and commodities go higher.  If we start to get our fiscal house in order, the dollar goes higher and the price of commodities goes lower.  You are right, there is more to it than just the Fed.      

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Senior Contributor

Re: Interesting Morgan Stanley statement on Fed policy

stk mkt plots with commodities.

 

as corps make $$ thye buy corn. ?

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