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Senior Advisor

Re: OptionEye.....Jan 10th

all of these excellent points bring up some interesting things to ponder.......

 

first, is demand dictating supply or is supply dictating demand............not talking price, talking hard numbers........

 

second, we will never know for sure what stocks look like unless things are zeroed out........last year certain areas heard air in the pipeline but we never did see a "shock"........thus complacency on both sides of the ball.........

 

third, ethanol is its own animal with mandates and now a global market.........so this begs the question, does ethanol go away or does this flex system Ray speaks of come into play........(incadently, either way it tanks the market, either directly by loss of demand or the idea that DC will flip switches as it sees fit)......

 

fourth, is ethanol actually curbing world demand some and is that good thing??.....with emerging markets and an upswing in consumption over time coupled with $2 and $3 corn would demand reach ethanol's consumption at a much faster pace????......this is interesting because IMO ethanol will slowly fade as world consumption increases, in essence it has pushed us ahead of schedule to understand how we can increase global production before the advertised 9B people are here........

 

fifth, cost of production, this one is interesting............we may allocate our production to different consumptive sources, but total production will still need to increase over time...........we know that inputs have the ability to creep up over time because they are more closing tied to business and inflation.........however grain, up until recently, has been in a deflationary pattern as compared to outside inflation...........with all that being said, do we see a system that subsizes $2 corn or $6 corn COP.........

 

sixth, the US will likely always be a net producer of grain, our population growth has slowed and our production capacity is huge.......domestically we could take a pretty major crop failure and still feed ourselves and ethanol.........remember, we have some slack in the system, via exports.........and saying it would destroy our markets is kind of ironic given other countries drop us like a bad habit when they can.........so does this become a US view or world view...........either way actions taken domestically to ensure ample food supply would drop our domestic prices........but IMO its a different market dynamic depending on the focus of the intervention.........

 

just some food for thought over the noon hour.........

 

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Highlighted
Contributor

Re: OptionEye.....Jan 10th

Here is an example of where the supply and demand don't work as Ray spoke of above.  http://www.nytimes.com/2012/01/10/business/energy-environment/companies-face-fines-for-not-using-una...

Oil companies being fined for not blending cellulosic ethanol when there is none to be blended.

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Re: OptionEye.....Jan 10th

The 2nd gen biofuel thing is really a hilarious example of the folly of the whole thing, as written.

 

But once the story is in place we just move on down the road.

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Senior Advisor

Re: OptionEye.....Jan 10th

Have to hand it to Nox, it is a snappy saying. However, declining prices would lead to lower input costs as acres are reduced. Fertilizer - and then rents would eventually balance out.

 

I once did a line chart of the USDA fertilizer price index and grain prices from the 50's on to the 90's (the point the numbers had been compiled to). They didn't come 'close'. One overlayed the other exactly. I believe there was the beginnings of a departure @ '94 if I remember correctly. My point being that many industries adjust, and a precious few apparently have a 'formula' - or something. But it seems input decreases trail prices just enough to make it painful going down.

 

It's true that globalization has probably changed the situation. A real drop in soy and corn prices would devastate Argentina, and make the situation in Brazilian ag very painful..

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Honored Advisor

Re: OptionEye.....Jan 10th

Iam afraid the the 1994--1 yr adjustment in input costs might take 3 yrs now. Otherwise u r. Right. Costs will adjust, if the individual can survive. It's a young / small farmer nightmare.
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Veteran Advisor

Re: OptionEye.....Jan 10th

The question my wife keeps asking is when do you cry uncle? For some it will be very soon. THis is really startin to suck!

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Senior Advisor

JR........

corn had a $4 and $5 in front of it not too long ago.........

 

this idea that the world deserves cheap grain is getting old..........

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Veteran Advisor

Re: JR........

YEp and corn isn't the only thing I buy. BUt guess what when corn had a 5 in front of it milk was north of 20. Today it is barely over 17!  Breakeven on my farm is 18. Been ridin that line for one heck of a long time. ANd BTW that is with my own corn  and all other feed stuffs.  Don't need to lock it up cause it is in the silo.

 

Talked to one guy who is putting together budgets and finding that the price to raise corn next year brings his breakeven to over 19/cwt. All in all there is gonna be some definate demand destruction very soon. HE said next year his cost to spread fertilizer will be nearly 1.50/cwt of milk sold!

 


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Veteran Advisor

Re: JR........

BTW milkis only 50% more than it was in 2006! COrn is 300% more. I hope the world start wantin expensive milk to!

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