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Advisor

New Plateau coming in the farm markets?

I know that this is one of those things that gets talked about, and ridiculed, but hear me out on this one. 

First, the corn and soybean trade made a major leap following the US debt created during the SUV middle east wars....you know the conflicts supported by both political parties to keep the flow of oil coming and the oil sold in US dollars....not sure which was more important to our leaders. That leap made the range for corn $3 on the low, and about $4.50 for a normal high. Previously we traded from $2 or so to $3 and that has been a major new trading range.....basically showing the inflation and devaluation of the us buck.

Now with trillions of new US money, what is going to happen? are we going to have $4 or $5 as the new low, and $8 or so as the new high on corn? Probably don't want to be in a hurry to clean out the grain bins going forward....have you checked the price of fertilizer lately? seen what equipment has been doing?

Lock in what you can and hang on for the ride. 

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9 Replies
Honored Advisor

Re: New Plateau coming in the farm markets?

Red, there`s strong demand for land and machinery, land selling $120-$140 per CSR point, hard to buy machinery unless you expect to bid 20% more than what you were prepared for.    Land is still off it`s all time 2013 highs by 13% ...but off 20% those highs in INFLATION ADJUSTED dollars.  Farm productivity has kept our prospect off because 200 bu corn 50 bu beans land in 2010 are now 250 bu corn and 70 bu beans in 2020 *on farms that caught timely rain and no derecho.  

Land prices dropped 15% where corn and beans about dropped in half from 2013.  Headlines abound in 2019 and early 2020 about "rash of farm bankruptcies coming!!!" never came to fruition (thankfully). 

I think we`ll go to a plateau of $5 corn, however being profitable will guaranteed to be at least as much of a challenge.  I notice around hog barns there would be a 40 foot grass strip, now it`s plowed up right to the pit pumpouts in many cases "gotta git that extra 16 rows of $4 corn!"  Smiley Very Happy

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Honored Advisor

Re: New Plateau coming in the farm markets?

Negative carry in the corn side of things here. Cash now is the high bid.

Beans do have +9 to +12 cents in May to July but is gone in Aug bids.

Prices are trying to crawl back to their highs of last month. Still early in the game.

Maybe we need Josh Allen or Patrick Mahomes to quarterback this thing instead of Al Klueless?

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Honored Advisor

Re: New Plateau coming in the farm markets?

They (endusers) are using every trick to slow the bidding, however price rationing lie ahead.

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Honored Advisor

Re: New Plateau coming in the farm markets?

3 pennies short of printing a 12 in beans few minutes ago.

Our best basis bid is at -26

Wichita, Ks  Cargill bean crush is showing $12.035 Mar +8 basis

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Re: New Plateau coming in the farm markets?

I'm not so sure we can expect a nice orderly inflation to get us to the next plateau. Government debt levels ($27 Trillion) are now to the point that the Federal Reserve cannot increase interest rates. In 2019 (the most recent "normal" year), the US government took in $3,5 trillion in revenues, but spent $4.4 Trillion. About $400 Billion of that went to interest payments on that debt. 400 Billion into $27 Trillion is about a 1.5% interest rate average on US Debt.

When Congress decided not to raise taxes to pay for the Viet Nam war, but rather print the money instead, that lead to 13% inflation rates in the late 70's and early 80's. But, there was still room for Paul Volker to raise interest rates to  19% to stamp out the inflation. Farmers who require debt financing for crop inputs and machinery paid a heavy price back then for Congress' irresponsibility. But that is nothing compared to what Congress has done the last 20 years. When inflation shows up as a consequence of this reckless money printing, and it will eventually, there will be no tools in the drawer to fight it. There is no political will to cut spending, and only a little will to raise taxes (on the "rich"). If the Fed raises interest rates to 5% (what we used to call "normal" rates), Bond prices will drop substantially and the interest payments on the US debt will start to go up, eventually tripling once the debt all rolls over. In order to pay that extra interest, they would need to raise taxes or cut spending elsewhere. (See above). Instead, they will print more money, compounding the problem. 

The "trick" they've been using since Bernanke was Fed Chair is that the US Treasury issues debt, and the Federal Reserve deposits an IOU on it's "balance sheet", and then spends the money to bid up the US Treasury debt prices, keeping interest rates artificially low. Our country is now the equivalent of a consumer with a $35,000 income and $270,000 in credit card debt, and is currently spending $44,000 per year (when there isn't a pandemic going on).

There is a reckoning coming, but I don't know if it will be in a month or in a decade. But when it happens, you will want to be caught with land and hard assets, not cash in the bank. How do I know it's coming?  Here is a list of all the countries in history who have printed their way to prosperity:.

 

Honored Advisor

Re: New Plateau coming in the farm markets?

What concerns me is the government plays by a different set of rules than the public.  In 2008 you could see the stitches on the low hanging curveball that inflation was imminent ....but it wasn`t.  Inflation did not hit mainstreet, the Fed contained it.  I`m old enough to recall farmers in the late 70`s talk about borrowing and "payback with cheap dollars" well interest rates went to 20% and the rest is history.   

What is to say that T-bills the 10yr will have new norm of  1% return, BUT your mainstreet ag banker will say "I can borrow you the money, I need a mortgage on your last farm and the rate`ll be 20% variable"? .   Government has a different set of rules.

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Honored Advisor

Re: New Plateau coming in the farm markets?

Today's trivia...

Do you know where the word SH-IT come from ? I was told by a learned man that in yrs of yore they transported dried manure in boats for fert,some of those boats were leaky and the manure got wet and caused fires so the crates were stamped S-H-I-T, acronym for store high in transit. And that my friends is the rest of the story.

 

Now back to your regularly scheduled program...

Senior Advisor

Re: New Plateau coming in the farm markets?

One thing in our favor (USA) ,   the list of following your last sentence, so foreign money has few alternatives - - -

   File a  Chapter 2020 ,  instead of  7, 11, 12 , could - might be the new Volker Rule charade    

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Veteran Advisor

Re: New Plateau coming in the farm markets?

Good Post. 

New price plateaus are definitely overdue now. 

Thank God and Greyhound there's a change to Demo policy. 

It helps Agri a Bunch. 

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