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hardnox
Advisor

highs probably won't come out for a long time

Here's my view, if I'm wrong I'm wrong.

 

As we drag along the bottom of the 30 year commodity cycle for 15 years or so, I'm guessing we'll not see the 2008-12 highs taken out. There will be rallies along the way but I doubt they'll be able to muster the anmimal spiritis from the cycle blowoff.

 

A monster drought, other factors could certainly produce a spike through but I'd be betting against it. If we approach those levels I'd plan to be out of old crop, as sold in new crop as I dare and getting some on for the next year and a dab for the following. All of that to the extent that I have my ducks in a row for margin or HTA type relationships.

 

Point being, I saw plenty of folks benchmark the 1973-4 highs in the 80s and 90s and until '95 we always fell short.  Took another decade or so in beans.

10 Replies
BA Deere
Honored Advisor

Re: highs probably won't come out for a long time

Hey Nox, what do you mean, it will be 15 yrs until corn hits $8 again?  or do you mean we`ll bounce around $3 with an occassional rally in a bear market of say $5 corn?

 

How will a +8 billion world pop play into this?   How will lower producing acres not being profitable play into this?

 

 

Thanks and I`ll hang up and listen for your answer   🙂

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hardnox
Advisor

Re: highs probably won't come out for a long time

I've been hearing that long term stuff all my life and pretty much go with same 'ol.

 

The confluence of conditions that leads to cycle blowoffs takes a long time to build and when its over its over.  As I said, there will be some fierce rallies along the way but they'll probably flame out short of the old highs.

 

Of course there could be circumstances to get you there- an historic crop failure or series of them, massive geopolitical matters (could be good or bad) and such. But I'lll go with same 'ol and keep my eyes open.

 

You younger guys will be around to play another cycle, though. The game has generally been to survie the first ten years or so of the down cycle then start positioning for the next boom.

 

The guys who make out like bandits in the booms are the ones pre-positioned for it.

 

I have mixed feelings about this but the other day somebody said to me that "the greater the boom, the bigger the bust." We just finished the biggest boom since 1914-20, arguably bigger, or at least longer and that one was followed by a very deep trough.

 

A major difference is that (the durn) gubmint is actually acting fairly rationally at the moment- modest countercyclical support, letting the ethanol mandate creep up a bit etc.and perhaps letting a bit of air out of the bubble rather than letting it collapse.

 

I'm sure I'll get lynched for suggesting that.

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hardnox
Advisor

Re: highs probably won't come out for a long time

Global stocks to use ratio for corn/wheat is back to similar levels with the 1988 (even more massive before that) through 2002 period.

 

There are differences, among them there isn't a bunch of US land to be brought into production like pre-1995. I'm also assuming that most of the land that's going to be brought in to production worldwide is done for a good number of years.

 

Still a fair overhang and the potential to put more on until there's some major production shortfall somewhere.

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BA Deere
Honored Advisor

Re: highs probably won't come out for a long time

Bloomberg is saying Brazil`s in a depression

http://www.bloomberg.com/news/articles/2015-12-01/brazil-gdp-falls-more-than-analysts-expected-as-de...

 

 

So far with currency manipulation the Brazilian farmer has be the bright spot, but nothing lasts forever.  If the only ways these countries stayed afloat was to subsidize their farmers, to essentially pay farmers to sell grain on the world market below their true cost of production.  Sooner or later that will catch up with them, the laws of economics haven`t been suspended....permanently, have they?

 

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hardnox
Advisor

Re: highs probably won't come out for a long time

Generally speaking once land is brought into production it stays until the price falls below the variable cost- $1 return to land is better than 0.

 

Actually assuming financing and capacity are available, here in the US it probably is worse than that. Somebody'll give it a go until they run out of money.

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elcheapo
Veteran Advisor

Re: highs probably won't come out for a long time

To barrow a line from my learned friends

"Prices are driven lower than needed and higher than needed"

I think we're on the lower side
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BA Deere
Honored Advisor

Re: highs probably won't come out for a long time

At the risk of saying "this time might be different" mightn`t this time really be different?   Because, the high expense of putting in a crop these days, everything is off the charts expensive.  Even 25 years ago seedcorn was $60 bag and such.  It won`t take as much pain today in order to get farmers to scream "Uncle!"  There may be farms in South America that they will just abandon and walk away and in 5 years the jungle will take back.

 

There are areas that corn could go to $1.50 and it would be perpetually raised and then there are areas that can`t be farmed for less than $4 corn unless Bill Gates bought it to use as a hobby.

 

just for the fun of it, I used this inflation calculator I plugged in $2 corn in 1980 ...in today`s dollars we should have $5.77 today.  Well, there`s "productivity" increases and such you put in the equasion, but the pain of $3.50 corn today is like if corn was "$1.21" back in 1980 dollars.  From what I remember corn was $2.30 in the 80`s and farmers really complained about it.  I`d hate to have heard what they would`ve said if it was "$1.20"  like it is today  Smiley Surprised

 

http://www.usinflationcalculator.com/

 

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roarintiger1
Honored Advisor

Re: highs probably won't come out for a long time

Hardnox,     Just clearing up the meaning of the word "probably" in the title...........Is this a prediction or a projection?  Smiley Wink

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ihtractortherap
Senior Contributor

Re: highs probably won't come out for a long time

So Nox ,l prolly shouldn't buy that overpriced 80 next door???
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