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BA Deere
Honored Advisor

Re: Obviously lows are in grains.

I`m not an expert, but seems that oil is going to stay below $100 for "the rest of Dennis Gartman`s lifetime" if that is the case the only way corn gets to $5 again is a black swan like the hedge-to-arrive fiasco, a drought would get us to $5 maybe, but it seems droughts are a thing of the past with AquaMax seed and the Dakota Badlands is the new cornbelt…..who knew you could grow 250 bu corn in the parking lot of Mt Rushmore?   🙂

 

So we better temper our expectations on price and if the Federal Reserve bails us out with inflation at some point, well that would be a pleasant surprise.   It just always seems when the city economy does well, the farm economy is in the toilet and vicey-versa.  

 

Much of our $7 corn prosperity came from the expectations that we`d have inflation during the previous administration and all that investor money went into commodities.  Now that money is going into the Dow.

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

For several years now I have felt that the move to $7 and $8 corn several years ago was the worst thing that could have happened to corn farmers, as it sowed the seeds for the mistaken belief that corn prices would stay there for years to come. Similar to how Mexican government invested heavily in oil drilling when oil peaked in the early '80s, only to be bankrupted by the subsequent crash in oil prices in the late '80s.

 

Extreme moves in the price of commodities lead to mal-investment. Too much capital invests in the commodity when prices surge beyond all expectations, and too little when prices decline beyond reason. The US housing market is experiencing that effect now. Home building was cut by over 60% when the financial crisis hit in 2008, and now prices are surging as there are not enough houses for the number of people looking to buy them. On the flip side, with corn over $6, many farmers over-invested in their allocation of land to corn, and now there is more corn than the world can consume, leading to continued pressure on corn prices. The boom and bust cycle mentality is a staple of economics, a derivation of human nature perhaps. Its always darkest before the dawn, and no one thinks of going home during the height of a party. Perhaps the best way to run a commodity business, be it as a farmer or an investor, is to oppose the extremes.

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sw363535
Honored Advisor

Re: Obviously lows are in grains.

hogwash

 

Another blame the victom four his wounds account.

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

So I guess it is martians who are planting more acres of corn than can be consumed, and the farmer who works the farm simply farms no matter how much corn is in the field.

 

Not for nothing, but if you see the price of your product continually spiral down over a period of several years, aren't you supposed to think about devoting some of your fields to different products ?

 

Its not a matter of blame, its an explanation for why it is that corn prices have not risen in tandem with a strong economy. There is but one explanation, there is too much corn to satisfy aggregate demand for it.

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roarintiger1
Honored Advisor

Re: Obviously lows are in grains.

The move to $7-8 corn was the best thing to happen to my farm operation.  It's not my fault others couldn't handle their own spending.

BA Deere
Honored Advisor

Re: Obviously lows are in grains.

"It`s better to have had $8 corn and lost it than to`ve never had $8 corn at all"  🙂   Back in `96 with the hedge to arrive fiasco, corn hit $5, none of us had more than a pickup box to sell, but it carried into the fall around $3, gurus went around saying that "$5 corn was the worst thing that could`ve happened to the farmer" because feeders started using glutton and other substitutes and farmers quickly got bulled up bidding their profitability away for the next year.  I fed all the corn I raised at the time and for whatever reason I could see corn was going to be high that summer, so I planted some succotash (oats,wheat,barley)  which I harvested in July and substituted it pound for pound in place of corn, so I didn`t have to buy $5 corn.

 

But that 5 year period 2008-2013ish was a good breather if you didn`t go crazy with the windfall (which I did kinda).   I`m amazed at how farmers went from treading water until 2008 to all becoming Daddy Warbucks in just that 5 years of prosperity, new paint and land prices went much higher than economically justified, I guess that was our "Tulip mania" and I`m just getting over the fever now.   It sucks, we`ll never see it again.....but is this what it sounds like when we`ve reached the bottom???

 

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

You'll know you have a bottom when everytime you go to sell at a quoted price, the price is not there and has backed up a few cents. That's usually the way it goes, when fear grips the market and bids get thin, that's a bottom. Conversely when greed grabs hold and no one wants to sell, that's the best time to let them have it. 

 

Yes, $8 corn was like winning the lottery, but now everyone is paying for it because too many thought it was a new paradigm for corn prices, and allocated farm space according to that misconception. Regrettably it wasn't. 

 

The big problem as I see it for prices going forward is technology. Its becoming progressively cheaper to farm for those who have the capital to invest in the latest farming technology, and as such yields increase and prices suffer. Eventually today's new technology becomes cheap enough that everyone can afford it, and that's when profit margins rise, which in the final analysis is the more important outcome. Have we even priced in to grain markets the effect that driverless machinery will have on profitability and price levels ? 

 

The only answer is that farmers have to focus upon how to squeeze more profits out of the prices received rather than worrying about absolute price levels. Easier said than done, especially in a world where some have a lot more capital than others to invest in tech.

 

 

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Hobbyfarmer
Honored Advisor

Re: Obviously lows are in grains.

Sorry there dude, some very profitable very low tech farming entities out here.

 

But carry on drinking that koolade...

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rayfcom
Senior Contributor

Re: Obviously lows are in grains.

There are exceptions for every rule, but the trend is what produces long lasting wealth, not the anecdote. 

 

I don't know of any industry that has been able to maintain (nevermind grow) profit margins by failing to embrace new technologies that reduce the input costs of production. In all of those industries, those who did not adapt to the changing methods of work were -pardon the pun - plowed under by them. Just look at what computers have done to lower costs of production - I can write a spreadsheet today to perform tasks today in minutes that used to take me hours to calculate prior to the advent of personal computers.

 

In farming, the incessant gobbling up of the small family-owned farms by the huge farming concerns is in large part a result of those large firms having the capital to invest in technologies that reduce input costs faster than concomitant declines in global corn prices. The resultant increases in profit margins and overall profitability allow the larger and better capitalized firms to afford the cost of buying out their competition, or taking market share away from those who refuse to either engage the new technologies or sell to those that have.

 

History is littered with the bankrupted remnants of those who thought they could compete with new technologies by continuing their old school ways. Its an inevitable cycle of business. I may be drinking Kool Aid, but its spiked with Dom Perignon.

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BA Deere
Honored Advisor

Can you afford to plant $2 corn "straight"?

What I mean "planting straight" is the technology EZ-Steer will that and variable rate, variable population, Field View ect be affordable with $2 corn?  If you rethink plowdown fertilizer to begin with, variable rate would really be unaffordable ..variable rate of 0 is 0  🙂  so why pay for the bells & whistles?   If you`re buying plain Jane $80/bag seed ...who cares if you`re planting 26,000 or 36,000?  

 

Can a $600,000 combine harvest enough $2 corn to ever pay for it....or go back to a 7720 and a couple tubes of Liquid Nails and pop rivets?   

 

And forget about the technology of irrigating $2 corn.

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