commmodity valuations

[sonoma72]

heard last night that the CBO says we will have a nice 1.5 trillion dollar deficit this year, the entire debt was 1 trillion when reagan came in?  well, that will take us one step closer to wherever we are headed.   Nice to see that nothing ever changes, but then again , i don't like change 🙂  no wonder obamas hair is turning white.  It would be mighty hilarious, if it wasn't so sad.

[smokeyjay]

You forget we had a budget surplus before Bush II came into office.  No thanks to Clinton, per se, but merely stating a fact that when Clinton came in, the stage was set for an economic rebound.  Sadly, nobody thought of paying down the debt at the time, which was a viable option at the time.  If a Republican were in office today, very little would have changed.  This economy and the years of prior bad decisions have created this mess, including the two wars currently going on. 

[hardnox604008]

I'm really not that interested in the various fundamental stories- a bull market always has a fundamental story(s) and they often top when the fundamental story is merely priced, or overpriced, into it.

I'll continue to say that this is an echo bubble off the 2008 bubble- when BHP came in with a bid for POT in early August yuo could visually see the greed building for people dying to replay the 2006-8 run- which they mostly missed.

Grains may in fact go to higher highs but it will take even stronger fundamentals to get them there- last time it could climb the wall of disbelief and now everyone believes.

[GoredHusker]

The big story with the grains is that most believe we go higher and eventually push or take out the all time highs set back in 2008.  In the past week, I've seen where many analysts are now looking to re-own prior sales on dips.  Really?  If a guy sold at 4 bucks, you're really going to advise re-owning some 2.5 bucks later?  There's an awful lot of people standing on one side of the boat right now. 

There's a lot of subplots happening now as well.  In 2008 when these prices were realized on corn, crude was trading in the $130's.  Today, crude is trading in the mid-$80's.  In the last two weeks, ethanol stocks have climbed nearly 2 million barrels.  If we see as big of gain next week as we saw last week in ethanol inventory, we'll take out the all time high inventory set back in July.  It's not just ethanol either.  Gasoline inventory in the past decade has only been higher twice than it is today.  Diesel or distillate inventory has only been higher three times since 1980.  It's becoming more and more obvious that 3 buck gasoline is wreaking the same havoc that 4+ gasoline did back in 2008.  The shocker today was the unemployment filers for the week.  I'm not quite so sure why it was a shocker considering the December numbers showed 35 states had wage decreases while 20 states had higher unemployment. 

My only hope is this market can hang together long enough to get the December 2012, 2013, and 2014 up to $5.50.  So far, I've been pretty patient with it.  However, my finger is getting awful itchy.   

[hardnox604008]

Hi Gored,

What instruments are you planning to use for hedges 2012 and forward?

One thing a prudent person has to admit, whether he's a true believer or not, is that it takes a monster hedge line to do anyhing big here.

Best, h

[GoredHusker]

After much searching, I found a large national firm willing to take on forward contracts for all trading months.  While the basis they're offering isn't great, it is roughly 30 cents better than what this year's harvest basis was.  I'll move 60-70% out in this manner and hedge the rest.  The theory here is that it shouldn't cost me more than $1000 an acre to produce a crop in any of those years especially considering my equipment and land is paid for.  I know all about monster hedge lines as 2008 was a bit painful for about 5-6 months.  The problem back was that everyone pulled bids for anything that wasn't current.  I had all of the burden of margin rather than just 30-40% of it.   

[hardnox604008]

Agreed.

I'm well known for worrying about everything but one distant concern I have is that should we have something fierce of a fundamental nature- say an '88 style drought- I'm not sure if anyone is left standing as a counterparty.

That with the exception of the CBOT and I'd need a $10 million hedge line to hold on with 3 years sold under that kind of scenario.

The OTC guys actually ought to work if they're essentially matching buy side cash counterparties with the OTC short sales.

For instance in Wells Fargo's internal hedge program, I assume they try to lay off the producer sales against buys from their buy side clients such as ETOH plants, feeders etc.

I guess the hole in that is if the buy sider goes belly up with $12 corn then there's no counterparty but at least in the case of WF I assume they'd stand behind it.

fwiw, h

[hardnox604008]

Correction- unlikely to need $10 million, can't back that up. But a whole bunch.

[GoredHusker]

For the most part, the enduser is still pretty beat up and battered from 2008.  It's highly unlikely their lenders are giving them much rope.  Even 8 buck corn would bring things to a standing halt.  Plus, these are deferred contracts.  In 2008, the Dec. 09 contract was over a buck lower than the front.  It would take over 8 in the March, May, or July just to maybe budge the Dec. 12, 13, and 14 over 6 bucks. 

[jec22]

Hardnox, even though you know my thoughts on Zero Hedge.  Here is a new posting that goes along well with your need for a large hedge account.

http://www.zerohedge.com/article/global-revolution-accelerating-mike-krieger-explains

Jr needs to send some of his milk to India, since I read they are watering the milk down there to make it go farther...and to line some pockets with the food shortages there.  Taco bell is using less that 35% beef in its 'beef' tacos.  

Saw a story on Ag Today about a guy that was up for Top Producer.  Seemed like a great, really smart guy, Clark Farms, 32 years old, 10,000 acres in MI and a bunch of other ag businesses to go along with the farming.  I must be showing my age, but all I was thinking of was "gosh, I wouldn't trade places with him for anything"  seems like a lot of stress to just provide for a family.  Wonder what kind of hedge account margin money he will need.