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kraft-t
Senior Advisor

Re:Machinery sales nt

nt

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GoredHusker
Senior Contributor

Re: Question on demand destruction

Why does anyone have to go without?  Rumor has it that Brazilian corn is considerably cheaper than our corn.  We just need to import it, and I'll bet this ends up much like it did back in I believe 03' with the soybeans.  Here's how I think things are setting up right now.  A lot of cows got relocated last year when TX, OU, NM, etc. was hit hard with the drought.  This year, those cows will be slaughtered.  A lot of us cow/calf guys will wean in the next 30 days.  Cow herds will be culled drastically because we're short hay and we're short grass and hamburger prices are still very attractive.  Exports are going to be very slow until SA runs out of corn to sell.  Ethanol plants will more than likely slow grind, but I don't see a lot of them just stopping production.  I've already got the call that the ones I buy distillers from have slowed grind, but this was inevitable considering the stocks of ethanol and the weak gasoline demand. 

 

With the fundamentals at play, demand rationing on corn starts at a much different price than it has the past three to four years.  The dollar is over ten percent higher now than it was last year when corn was hitting its highs.  There's more global competition with regards to exportable corn.  I don't think any industry goes without corn.  They'll all just take a cut in useage. 

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kraft-t
Senior Advisor

Re: I think people forget the fixed cost on ethanol plants

They have so many fixed costs that it might be better to operate at a loss than not to operate at all. Why? because the loss may be less.

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GoredHusker
Senior Contributor

Re: I think people forget the fixed cost on ethanol plants

This is correct.  I read where one of the NE plants that shut down is still going to pay their employees as if they were grinding rather than putting them on unemployment.  Obviously, they got to the point where losses or opportunity gains from selling contracted corn was higher than the fixed costs.  However, all plants are different with regards to fixed costs and such.  Those plants that aggressively bought corn a buck ago are the ones that may have the luxury of taking a break for a few months and reselling corn.  Less aggressive plants will more than likely have to continue to grind. 

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Palouser
Senior Advisor

Re: Question on demand destruction

The infrastructure that is a problem for shipping beans from the interior of Brazil is worse for corn beecause it is worth less per truckload than beans. Making it less efficient and lower margin. There will be no cascade of corn from Brazil.

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Farmerjoe79
Senior Contributor

Re: Question on demand destruction

Hold on to your caps cause there could blow off top in this market. These funds might be coming back in to these grains again if it stays dryer much longer.
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kraft-t
Senior Advisor

Re: I think people forget the fixed cost on ethanol plants

 

It deend on how much initial capital they raised and how much they borrowed. It they have alot debt to service that can be problematic. If it is mostly invsted capital their costs aren't so great but the dividends to stockholders will suffer. Interest cost are not avoidable while dividends can be postponed or eliminated.

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jrsiajdranch
Veteran Advisor

Re: Question on demand destruction

JEC, couldn't agree more. THe point I guess i failed to make is that this is gonna be a political decision. SOmebody is gonna get cut off at the knees if it is as bad as everyone says it is. (here yesterday with 98 degrees I did not see one field of curled corn from Luverne up to Swea City and back home.)

THe point is that when everybody talks demand destruction it is just some word. When you get down to how it actually affects a particular segment you start to have to make real hard choices. The market can do it best. However much of what has lead us to this hasn't been free market. therefore who has the hand deepest into the tax payers back pocket may very well be the industry that gets it full share.

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hardnox604008
Advisor

Re: Question on demand destruction

If we end up that tight the obvious thing to do would be to put a partial temporary waiver on the ETOH mandate. Cut to 8% blend or some such.

 

However it isn't likely to happen until after the election as Iowa is a swing state and it would be viewed as akin to the "Carter embargo."  When you spoil children they tend to get demanding.

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