HEADS UP: Watch Grain Prices Next 8 Weeks

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Nichoman's picture
Nichoman
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HEADS UP: Watch Grain Prices Next 8 Weeks

Many may have noticed the rising prices of grains due to demand and supply issues past 3 to 5 weeks.

Our family continues to sell corn and soybeans at roughly 5 to 15 cent intervals of upward price.   The price contagion in many areas...plus continued rises do suggest a supply and demand issue.  Example...many of our farming neighbors also are selling old corn and soybeans with little or no impact on price.   This, if it continues the next few weeks, should confirm the magnitude of the supplies vs demand question.

FWIW...were down to a small percentage of selling last years crop.  Many/most I know are in a similar position here in Iowa.

FYI...Signficant soybeans from this years crop will start arriving on the markets the last 10 days or so of September.    Corn normally 3 to 5 weeks later. 

I had a nice conversation about this with many farmers this past weekend.

The veteran, successful farmers have their antennae up.

FYI...I've given my take on where were headed in this area the past year and half in previous posts.   Also in a "Two Beers With Steve" interview last summer.

Bottom Line:  Any shortages could have major impacts on our economic situation.  Plus would be a major data point of what possibly will happen in 2011.

Actions taken to prepare for the future.  In-laws have added 600 acres of corn and soybeans this year...now at 3400 acres.  

Welcome others insights and thoughts.    

Nichoman 

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Nico,

I'm not getting what you're saying here.  At least not without some guesswork.  Could you elaborate what you're trying to get at, as well as use full sentences/paragraphs?  It's like I'm reading someone else's notes without knowing what class or meeting they were attending.

Thanks!

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

LR...

If things don't change (i.e. prices continue to rise at the same rate past few weeks)...it should confirm from past events we've seen over the past 30 to 50 years of farming...that spotty shortages of some grains (i.e soybeans/corn) are possible.   Add the magnitude of demand were seeing in corn/soybeans markets when our family sells...if it continues several more weeks...we can reasonably extrapolate from past cases the potential magnitude of the imbalance.  

Again...if this continues...past experiences suggest we could see price spikes in grain prices that could be substantial...possibly rivaling any in many decades. 

Using past cases...risk of further price rises of an additional 20 up to possibly 50 percent...seem plausable.   My sense, and some successful farmers I know and trust, suggest this should be clarified next 2 to 4 weeks.   If this occurs, the subsequent next 4 weeks in late August to late September would be interesting for prices and their volatility.

FYI...Iowa is the number one corn and soybean producer in the US.   Also highest yields normally in the world.  

So, if our area farmers have little left to sell...possible there is little supply left anywhere.  This obviously supports risks of supply and demand squeezes...or even delivery shortages next several weeks. 

No one I've talked to knows of anyone with large supplies left of corn and soybeans to sell...to meet the strong demand(s) (e.g. China, et al) that continues to outpace supplies being sold. Since no new supplies of signficance will be available until late September.   The inventories I have direct access to confirm they are quite low.    The supply/demand rates ATTM do suggest there may not be enough to meet all the demand before the end September.

The problem...quality of data (USDA?)...just like were seeing in the economy.   Area farmers I talk to increasingly question USDA data/forecasts.

Why is this event and risk important?  It would confirm my forecast the past few years of saying this risk would occur this late summer and fall.

Then...data points (trends) from the past several years in corn/sobeans would suggest supply-demand inbalances/shortfalls to be worse in 2011 onward...hence higher prices and risk of more and greater shortages.

The weight of this event of major price spikes...easily could have major ramifications. It would also confirm my analysis of where we headed in the agricuture/food arena.    Since food is essential...the economic impacts can't be overstated.   This again, are some views and thoughts from my small, but direct experiences and perspective in the farming arena.

If this happens...then expect an explosion in the media on this event...by many people and folks...again after it occurs by many so called "experts" who have missed this price rise the past several weeks.  Sound familiar (i.e. the past few years in financial markets).

Time will tell...but this risk...as of today...seems possible.   Hence why I call this a "Heads Up" to watch and see what happens.

Hope this helps,

Nichoman

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Re: HEADS UP: Uh Oh!

Interesting.  Just informed about this post at Market Skeptics.

In the past...found his forecasts and take too aggressive...but he does raise similar points.  He probably has better and more comprehensive information and resources to access. 

If we both notice this...and if it continues...the next couple of months will be revealing.

Nichoman

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Thanks Nicho!

What is your take on why this is happening?  Is it due to lack of growers or crops being used for fuel?  Demand from overseas is much higher than expected?  Are most of these crops heading offshore or do they stay in the states?  Can it be overcome in the short term / long term by increasing acreage of plantings?  As to your projections, what is the % increase that you've seen over the past 2-4 years?  What is the trend telling you in exact #'s?  Why is this not being seen by tptb or do you feel it is, and is being hidden?  What do you see as the exact ramifications over the next 2-4 years?

Lots to answer....sorry.  It's very interesting to see what's happening from the people in the trenches (farms) and not from the media.

Thank you very much!!!!

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Nichoman , thanks for the heads up !     Our yields are way up  on everything !  I was afraid prices would bottom out .    Corn is looking good  at 12 ft high and not irrigated at all  ! .    Might be a good year to get a few more head of cattle ... do you think  ?   The hay yeild was 1/3 more than in the passed .

FM ,

Back to the kitchen ... a bushel of tomatoes a day has me swamped and the Plums  Wow !  Harvest is plentiful and we know  who to give the glory  and thanks to .   Farming and gardening keeps ya  on your knees and looking at the sky .

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Surge in wheat prices continues in August

Wheat prices rally continues in August after huge July run-up as Russian weather worsens.

Tali Arbel, AP Business Writer, On Monday August 2, 2010, 4:06 pm EDT

NEW YORK (AP) -- Wheat prices opened August with another big jump, hitting a 2-year high Monday as worsening weather conditions ravaged Russia's grain crops.

Wheat prices soared 42 percent in July, the biggest monthly gain in at least 51 years, as a severe Russian drought destroyed one-fifth of Russia's wheat crop. Fires are now raging in the fields of the world's No. 3 wheat exporter, hurting more crops and increasing expectations that Russia will have to curb or even stop its exports.

Estimates from Russian grain growers' unions and economists range from a 30 percent to 44 percent drop in exports this year from 2009.

Canada, another major exporter of wheat, expects the lowest wheat yields since 2002 because of crops that were destroyed by heavy rains or left unplanted.

That is great news for American farmers, who expect a strong yield from U.S. wheat crops. They will likely sell more of their wheat for higher prices to meet the shortfall from abroad.

"This is a rare opportunity when they can enjoy rising prices for a good crop," said Dan Manternach, wheat analyst with agricultural consultancy Doane Advisory Services. "I expect prices to continue rising until the extent of drought losses in (Russia's) Black Sea region are known. This is classic panic buying for fear of the unknown."

The rising cost of wheat also makes it likelier that U.S. shoppers will pay more for bread, crackers and pasta at the grocery store come fall, however.

That could change. If the huge rally in market prices continues in August, U.S. shoppers could pay 5 to 10 percent more for products made of wheat at the grocery store starting in fall, said Ephraim Leibtag, an economist with the USDA's economic research service.

For bread alone, wheat costs make up about 30 percent of its retail price at the grocery store, said Jonathan Feeney, food and beverage analyst for Janney Capital Markets. If retailers can pass on higher costs to consumers, grocery chains such as Kroger Co. and cereal makers like Kellogg Co. could also benefit, Feeney said.

Expectations for an increasingly smaller world stockpiles of wheat helped push prices for September delivery up 31.75 cents, or 4.8 percent, to settle at $6.9325 Monday. It's the highest wheat close since September 2008.

Prices earlier Monday touched above $7 a bushel for the first time since September 2008, which was the tail end of a record-busting run-up in commodity prices that began in spring of 2007. Wheat prices topped out at an all-time high above $13 a bushel in February 2008.

Other grains prices were mixed Monday. September corn contracts slipped 2.25 cents to settle at $3.905 a bushel, while September oats jumped 5.5 cents to $2.765 a bushel and November soybeans added 5 cents to $10.10 a bushel.

Metals and energy prices also mostly rose Monday after a better-than-expected report on manufacturing. More production will likely require the use of more commodities in factories and transportation.

October platinum rose $25.40 to settle at $1,602.20 an ounce, September palladium added $15.85 to $515.85, copper gained 7.8 cents to $3.3895 a pound and silver settled up 41.6 cents at $18.419 an ounce.

Gold for December delivery, which is considered a safe haven investment and is more popular when investors become nervous about the strength of the recovery, inched up $1.50 to settle at $1,185.40 an ounce.

Benchmark crude for September delivery jumped $2.39, or 3 percent, to settle at $81.34 a barrel on the New York Mercantile Exchange.

In other Nymex contracts, natural gas for September delivery slipped 22.2 cents to settle at $4.791 per 1,000 cubic feet. September heating oil rose 6.57 cents to settle at $2.1538 a gallon, and .....

http://finance.yahoo.com/news/Surge-in-wheat-prices-apf-382062822.html?x=0

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

To place the grain action into a wider context, the Continuous Commodity Index (the former CRB index, which includes a healthy weighting of grains, meats and soft commodities such as sugar, coffee and cocoa) reached a record high in July 2008. Then it suffered a devastating crash into Dec. 2008, losing nearly half its value.

To date, the CCI's post-crash high occurred in January of this year. But thanks to strong gains during the past three trading days, the CCI closed today just a fractional percent below a new high for the year. Chart link:

http://futuresource.quote.com/charts/charts.jsp?s=CI%20A0&o=&a=W&z=650x450&d=medium&b=bar&st=

While deflation and economic double-dip concerns remain prominent, commodity prices are quietly gathering strength. There's nothing particularly contradictory about this -- grain prices had one of their best years ever in 1973, even as the US economy was sliding into a deep recession. Economic weakness and commodity price strength can coexist, when the dollar is weak and the currency is being devalued. 

Both the Federal Reserve and most economists believe that the doubling of the Fed's balance sheet during the financial crisis can be offset or withdrawn before inflation flares up. Commodity prices seem poised to offer a test of this thesis. If the economy is punk, but prices are soaring, what's a central planner to do?

I have a helpful suggestion: RESIGN! Laughing

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

LR...

Will try to answer...

The challenge is the reliability of the data (hint...questionable).  Remember, were talking about very large number of transactions across the globe (farmers and lots of intermediaries).

I rely on experienced farmers who show a clear track record of success with tons of common sense.  We agree on two things:  

1.)   Demand seems, in some cases, being masked overseas (its higher).

2,)   This factor above...and possibly misleading USDA data (some private data also) shows inventories may be overstated.

Despite the limited reliability of data...there is enough to show a clear trend of...

Demand seems to be increasingly outstripping supply the past few years for many food staples.   

Farmers sell crops...but where it goes...gets complex from my conversations.   Farmers just want the best price.  The amount going overseas is increasing but traders and intermediaries know the amount(s) better.

For us...

Corn.  We sell all of it to a nearby Ethanol plant which pays a taxpayer subsidized premium above market of .15 cents a bushel.  See this prior post if you want a small taste of where our taxpayer money goes.    The data I've seen suggest 10 up to 25 percent of corn crop goes to Ethanol.

Soybeans.  We sell to best price.  We get a stipend on our past quality of delivery (WOW!  Performance?).  Which goes to traders and so on.  Again, as a farmer were just looking for best price.  The traders then sell to others which the farmer know little about.

Inventory Trends (questionable data)...falling at a rate that shows...per semi-objective analysis which has changed little in the past 2 years in what we sell which is soybeans and corn.   This is a best guess...so take it for its worth.  Many farmers converse with consider it "reasonable scenario".

Fall 2010:  Significant (low end to scattered pockets of moderate shortfalls) in certain areas in soybeans and lesser extent...corn of supply disruptions.  Risk of major price spikes.

Fall 2011:  High-end moderate soybean-corm shortfalls likely.  Risk of major shortfalls if economy and credit deteriorate.  Record price spikes possible.

Fall 2012-14:  Major supply shortfalls likely.  Rationing?  The key is what happens with economy, available resources and energy.   Unprecedented price spikes possible.

Prices:  Were talking about non-linear event(s).   My expectation is food prices will rise much faster than inflation within a year or two.  May be double or more in today/s dollars within a few years.  

Is it hidden what is happening?  Who knows?  Probably not from what I see.  Just the cusp of a different trajectory (to borrow from CM) that few see coming.  

Here's a few things what were talking about doing...

1.)  Purchase next years seed, fertilizer, herbicide ASAP (lock-in).

2.)  Sell enough of this falls crop to pay essentials depending on price with a decent buffer.  

3.)  Sell much more than normal next years crop in late Summer (if trends are confirmed this fall).  Many/most farmers may not have flexibility to do this.

Its all about adaptability and cash flow.

Nichoman 

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

We've sold, as have most of my neighbors,corn. Nothing is in the bin. We might have 14,000 bushels this year.(a small farmer)

robie,husband,father,farmer,grazier,optometrist

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

FM...

The height of corn is only one factor...ours are averaging 10 to 12+ feet.

Temps and moisture the next 30 days are very important to yields.

For us...max temps of 78 to 84 and mins of 58 to 64 with weekly rainfall average of .75 to 1 inch a week to maximize yields.  

If we get this...per today's state of the crop...

  • Corn...we should average 215 to 225 bushels per acre.  
  • Soybeans...(soybeans usually are more susceptible to "wet feet" or too moist soils) could get average of 65 to 75+ bushels an acre. 

Cattle.  My brother-in-law sold all his.  Why...too low prices.  Lots of hogs tho...(we use the manure in late fall and spring to recharge and prepare soil) and are considering increasing number of chickens.

Nichoman

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Re: HEADS UP: Deflation Trade Dead Ahead

With all this inflation hysteria in the blogosphere, I am concerned that the smart money is entering the deflation trade. Its time to ease into the long dollar trade again.  Good luck with the herd-trade on this one.

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Thanks guys/gals!

If you're selling all reserves and have no reserves for next year, if consumption outstrips production, prices and shortages are probable.  

One thing I'm worried is happening, is that the brokerage houses have control of the pricing at this time, and are ratcheting them upward for profit purposes (amongst other things).  Sort of like when GSachs took oil to the moon in 2008 for no apparent reason.  Seems to be happening more and more the past couple years, and the ramifications to the economy are extremely negative.

Again, thanks for taking the time!  It's again, why I love this site! 

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Hey Nichoman, thanks for the heads-up on what you are seeing!

As soon as I read your post, it made me think of the articles Eric deCarbonnel has been posting at MarketSkeptics.com. But then I saw someone else already sent it to you.  Something interesting for others following this; Eric is so convinced this is a big problem that (I believe) he moved to Russia and is selling Russian farmland as an investment opportunity.  I haven't kept up on what he's up to in that regard, but figured I'd pass that on in case anyone was interested in checking it out. That said, I have been seeiing recent articles in RT.com (Russia Times) that Russia is experiencing a drought, so not sure how well that is working out for him.

Thanks again Nichoman, Robie, FM and others.  I'm with LogansRun; it is great to have farmers on the "front lines" sharing their insights with us! 

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Re: HEADS UP: Deflation Trade Dead Ahead

JAG wrote:

With all this inflation hysteria in the blogosphere, I am concerned that the smart money is entering the deflation trade. Its time to ease into the long dollar trade again.  Good luck with the herd-trade on this one.

JAG, you're my favorite contrarian, with some great precious metals fades under your belt.

But am I really so late, piling on to the 'inflation hysteria in the blogosphere' riff? Seems like only yesterday, we were all fresh-faced young double-dippers in short pants, waiting for the deflationary hard rain.

Oh, well -- it's pretty cozy living under this rock, as long as thundering herd-trade doesn't trample it into the mud. Innocent

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Re: HEADS UP: Deflation Trade Dead Ahead

Good Golly, is that MH living under a rock waiting for the deflationary hard rain?  Surprised

Can't be.  Somebody must have slipped something in my coffee.  Laughing

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

I think this image posted in the Insider area yesterday needs to be explained away as my hysteria over it has been slow burning for 8 years now.

:)

Discuss.

If that annualized 12.5% growth in commodities (2002 to current) doesn't qualify as 'inflation' I need to know what I should call it.  Shirley?  Spilled milk?  I need a name!

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

The 2010 Food Crisis IS HERE!

A) Prices will rise driven by growing shortages.
B) The fear of price collapse in soybeans will fade away and doubts about the USDA will grow (ie: “if the USDA’s numbers are right, why are prices still going up?”). As end-users try to get out of their underbought and oversold positions, the price rises will accelerate.

C) Panic explodes as faith in USDA numbers collapse. Everyone becomes a spot buyer.

http://www.24hgold.com/english/news-gold-silver-the-2010-food-crisis-is-here-.aspx?article=3044699326G10020&redirect=false&contributor=Eric+de+Carbonnel

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Re: HEADS UP: Deflation Trade Dead Ahead

machinehead wrote:

But am I really so late, piling on to the 'inflation hysteria in the blogosphere' riff? Seems like only yesterday, we were all fresh-faced young double-dippers in short pants, waiting for the deflationary hard rain.

lol MH,

Did all that deflation hysteria that you so eloquently referenced lead to any significant measure of the deflation trade? Nope, it just set up a nice entry for the inflation trade that we are seeing come into play right now. The smart money market sentiment indicators have been neutral for quite some time, so its only logical that the big boys aren't going to make any money by joining the dumb-money in the bearish (read: deflationary trade) camp. So they "get long and get loud" until the herd is holding the ever-inflating bag, while they slowly exit their position and take up residence under the rock of US Treasuries. Thus, the first warning sign of an impending deflation trade, would be a "manufactured" inflation scare in this situation. 

I don't think your late to the inflation scare party, but if the party starts to get crowded, don't waste any time grabbing a bottle of Patron and joining me under my rock, lol.

Best....Jeff

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

cmartenson wrote:

I think this image posted in the Insider area yesterday needs to be explained away as my hysteria over it has been slow burning for 8 years now.

:)

Discuss.

If that annualized 12.5% growth in commodities (2002 to current) doesn't qualify as 'inflation' I need to know what I should call it.  Shirley?  Spilled milk?  I need a name!

Ponzi?

A Bull Market?

Doc,

For somebody who coined the term " the next twenty years will be unlike the last twenty years" you sure do extrapolate the past into the future quite often. I realize that you strive to be as objective as you can, but there is a significant amount of inherit subjectivity in the interpretation of data (and charts in particular). I happen to agree with your statement that the following decade will be different from the past decade, but to me that means that the expected changes coming in our lifestyle will be correlated with changes in the markets.

The past decade has been dominated by one trade: the short USD trade, and all its ramifications in the markets. Therefore the only non-correlated trade available is the long USD trade. When the next market shift (aka crisis) comes, do I really want my portfolio to be correlated with the markets? I know that you believe gold will provide a safe haven from the markets in the future and you might be right. But given the performance of gold during the last decade, the only legitimate non-correlated trade in my eyes is the long USD trade.

I'm sure you probably think I'm crazy, and I do not intend any disrespect in my opposing viewpoint. But in the end, I have to take responsibility for myself and follow another of your coined terms: trust yourself.

Best....Jeff

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Wheat Soars; Rogers Sees 'Much Higher' Food Prices

http://www.cnbc.com/id/38533807

The July rise in wheat prices, the fastest in 51 years, indicates that shortages in agriculture are coming, Jim Rogers, chairman of Rogers Holdings, told CNBC.com Tuesday.

Wheat prices in Europe hit their highest level in two years, rising almost 50 percent since late June as Russia's wheat crop was affected by drought.

"That's the straw that broke the camel's back," Rogers, who has been warning about shortages coming in the agriculture sector for a while, said in a telephone interview.

"We're going to have much, much higher prices over the next few years," Rogers, a hedge-fund pioneer who started the Quantum Fund with George Soros in the 1970s, added.

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

JAG wrote:

Ponzi?

A Bull Market?

Doc,

For somebody who coined the term " the next twenty years will be unlike the last twenty years" you sure do extrapolate the past into the future quite often.

Best....Jeff

Jag, Are you not also extrapolating from the past into the future, particularly from the deflationary times of  the Great Depression? Most deflationists seem to fixate on that era.  Do you envision price drops across the board? I just wonder how you see deflation playing out.

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Re: HEADS UP: Deflation Trade Dead Ahead

JAG wrote:

lol MH,

I don't think your late to the inflation scare party, but if the party starts to get crowded, don't waste any time grabbing a bottle of Patron and joining me under my rock, lol.

Jeff, I'm afraid the 'wheat scare' train has left the station without me:

Aug. 5 (Bloomberg) -- Wheat extended a rally to the highest price in 23 months as Russia, the world’s third-biggest grower, said it would ban grain exports from Aug. 15 because of the country’s worst drought in at least a half century.

A ban would be “appropriate” to stop domestic prices rising, Russian Prime Minister Vladimir Putin told a government meeting in Moscow today. Putin’s spokesman Dmitry Peskov later said a temporary ban would start Aug. 15.

Wheat for December delivery, the contract with the largest open interest, advanced as much as 7.9 percent to $8.155 a bushel in Chicago today, the highest level since August 2008. The contract was 7.8 percent higher at $8.1425 as of 6:46 a.m. local time. Wheat surged 91 percent since trading as low as $4.255 on June 9.

A heat wave in Russia, dry weather in Kazakhstan, Ukraine and the European Union and excess rain in Canada are draining wheat stockpiles and dragging up prices of rice, soybeans and corn. Wheat has jumped faster than in the first two months of 2008 when a 41 percent gain to a record $13.495 spurred concern over a global food crisis and sparked riots from Haiti to Egypt.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=ag1ZBUXT56Ec&pos=4

Dude, can you spare some biscotti? This peanut butter diet is getting monotonous. And my rock has turned into a sweltering solar collector. Frown

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Since we're all contrarians now, should we fade the MSM when even Super Bear Ambrose Evans-Pritchard assures us that if bread supplies fail, we can turn to cake [or is that a misspelling of 'coke'? ;-) ]:

Drought and scorching heat across the Eurasian Steppes have lifted wheat futures by 50pc in a month and ensures a nasty shock for bread lovers, but this is a very different story from the global food crisis two years ago.

Although Russia is suffering the worst heatwave in a century, much of its crop loss will be offset by bumper harvests in the US. Yields are rising in Australia and India as El Nino's winds bring better rains. Shortages are likely to subside as stocks are released from bursting grain-barns.

The US Department of Agriculture says global wheat stocks are 187m tonnes, or 15.4 weeks' consumption. They fell to 124m tonnes in 2008, or 10.5 weeks' cover. Wheat futures have reached a 22-month high of $7.18 a bushel, but this is nowhere near the crisis peak of $13 two years ago. The contexts are radically different.

[2008] was a broader crisis across the farm complex. The United Nations blamed grain shortages on biofuels used as ethnanol in cars, warning that 100m people in poor countries risked famine. Others blamed investor flows into commodity funds.

The wheat storm is hitting a single niche. Most "ags" are well-behaved. Corn has risen modestly. The Philippines said it is "swimming" in rice.

Mr Lewis said data from the Commodity Futures Trading Commission shows that "long" positions by traders are small. If speculators are to blame, they have hidden it well.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7927138/Wheat-storm-will-soon-blow-itself-out.html

Michael Lewis is suggesting that the 'dumb money' has hardly started piling into the wheat trade [not to mention the 'dumb farmers']. 

Maybe they're heading for the supermarkets instead of to their commodity brokers. Surprised

LaughingGOT TORTILLAS? Laughing

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

December wheat made a limit (60c) move earlier today but its since fallen a little.

Manitoba crops that are reduced due to rain include malting barley (so expect beer prices to rise). There is also a possibility that increased prices for pig feed might lead to increased slaughter and lower pork prices this fall.

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

OK clearly the data we peons can access is ,  shall we say, flawed?

Last year we said there would be a grain and wheat shortage.  I stocked up, and after I did,  prices went down.   There were blips on the radar of shelves lacking supplies,  but nothing serious.  Most people never even noticed.

Same thing now??

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Full Moon
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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Fact that   you and  I  do not control the sun , rain , price of fuel , or the grain market   is enough to make the prepper get busy !    I do not even like to think about the what ifs that could happen because the possibilities are many .  If  you think that someone else has your best interest  at heart....  think again .

FM .

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Johnny Oxygen
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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Jag, Are you not also extrapolating from the past into the future, particularly from the deflationary times of  the Great Depression? Most deflationists seem to fixate on that era.  Do you envision price drops across the board? I just wonder how you see deflation playing out.

+1

I've asked JAG this many times. Maybe I missed his response.

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DrKrbyLuv
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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

There is evidence of both inflationary and deflationary forces in the economy and in addition, we have high unemployment.  I think we are seeing what may be more accurately termed as *Stagflation.

* Stagflation - wiki definition; situation when both the inflation rate and the unemployment rate are high. It is a difficult economic condition for a country, as both inflation and economic stagnation occur simultaneously and no macroeconomic policy can address both of these problems at the same time.

Stagflation can be measured by using the **Misery Index that was very politically charged through the 70's and early 80's as it greatly affected presidential races.

**Misery Index - wiki definition; derived by the simple addition of the inflation rate to the unemployment rate.

In 1980, under Jimmy Carter, the Misery Index reached a high point of around 21 (6% unemployment + 15% inflation).  Today, officially, the Misery Index is around 10 (9% unemployment + 1% Inflation).  If you look at the Misery Index charts from 1948 through today, 10 is not really alarming nor even a concern.

At first glance, stagflation is not a concern, at least by the method and history described above.  The problem is that the method for determining inflation (CPI) and unemployment (U3) has been greatly altered since 1980.  For example, John Williams (Shadow Stats) states "In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living."

Shadow Stats provides CPI and Unemployment numbers based on the present method and in addition, he calculates an alternative set of stats based on the old methods for comparison.  This enables us to more realistically compare the charts with the past.  Let's use the "alternative" charts and recalculate the Misery Index:

Chart 1 

"Alternate" inflation is close to 8%

Chart 2 

"Alternate" unemployment is close to 22%

The Misery Index, compared with the past, is a whopping 30! (22% unemployment + 8% inflation).  If the Misery Index is indeed a measure of stagflation, then we sure seem to have a lot of it.

If we compare today with the Great Depression of the 1930's, at it's worst point in 1933, the Misery Index was at 34.5 (22% unemployment + 12.5% inflation - see charts below).

Chart 3 

Note that while the rate of inflation was dropping (negative), the CPI was still positive.  The deflationary spiral was stopped on March 4, 1933 when the crooked FDR declared an arbitrary "national emergency" and took the unnecessary step of declaring a national bankruptcy and the U.S. was removed from the domestic gold standard.  The price of gold was increased, reducing the value of the dollar - one way to increase inflation, is reduce the value of the currency.  

 Chart 4

Note that the unemployment rate was "estimated" during the depression, hard to say if this is accurate

Conclusion: 

We are in a period of stagflation according to the Misery Index.  But is CPI really the best way to measure inflation? The Bureau of Labor Statistics suggests:

"The “best” measure of inflation for a given application depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today’s prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. The CPI also is the best measure to use to translate retail sales and hourly or weekly earnings into real or inflation-free dollars."

Under stagflation, it is possible to have hyperinflation and some are suggesting we are headed that way as we see the value of the dollar dropping.  I think a key will be to watch the money supply (M3) which has been dropping (between 1930 and 1933, the U.S. money supply fell by 1/3).  If it continues to drop, inflation should also decrease.

Chart 5 

The money supply, M3 (SGS) has been dropping as can be seen above.

The Bank Reserve "Wild Card":

Bank reserves (held at the Fed) have never been higher as can be seen below:

Chart 6 

Reserves held at the Fed are called 'high powered money" because unlike reserves held in demand deposits, they may be expanded via a money multiplier.  If the money multiplier were 10:1, the $1.1 trillion in Fed reserves could be theoretically expanded to $11 trillion in loans.  We can see that the potential for growing the money supply is huge today.

The question of course, is how many willing and worthy borrowers are left in the private sector?  I suspect we have hit, or are close to "peak debt" which would indicate most of the reserves will not be used for new loans.

Caveat:

Increasing prices may be caused by shortages, a decrease the in the value of money or an increase in the volume of money.  These different forces may be over-simplified as inflation.

Larry

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Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Johnny Oxygen wrote:

Jag, Are you not also extrapolating from the past into the future, particularly from the deflationary times of  the Great Depression? Most deflationists seem to fixate on that era.  Do you envision price drops across the board? I just wonder how you see deflation playing out.

+1

I've asked JAG this many times. Maybe I missed his response.

What does deflation (within an economic context, not the "deflation trade") mean to me? Simple....No Money

Take your income and available credit, and cut it in half. Now do the same for everyone that you know.

What does that do for aggregate demand in the economy? It cuts it in half. 

What does that do to the prices of everything but the bare essentials? Again, half. 

Does that make things more affordable to all but the very richest? Absolutely not. And when the supply crunch that follows the demand crunch comes to pass, the essentials will become even less affordable.

Prop and JO,

Where do you stand on inflation? Do you believe that things become less affordable with inflation? If yes, then why are we having this argument for the umpteen time? I'll tell you why, because you think gold will save you and I'm not so sure, at least not in the short term. 

Best...Jeff

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Johnny Oxygen
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Posts: 1441
Re: HEADS UP: Watch Grain Prices Next 8 Weeks

Whoa.

Slow down tiger.

How does deflation correspond to "No money"? No money at all or a decrease in the money supply or a smaller paycheck? Its kind of a sweeping statement.

I assuming you are just using the term "in half" to illustrate a point. Or do you mean that literally? You start off by saying:

"Take your income and available credit, and cut it in half. Now do the same for everyone that you know." Why? what are you saying? OK so credit drys up and jobs become scarce but that doesn't stop the US government, the EU or the IMF from increasing 'quantitive easing'.

"And when the supply crunch that follows the demand crunch comes to pass, the essentials will become even less affordable."

You are still not making your point clear. If deflation is a decrease in the general price level of goods and services then presumably there is too much supply which has driven prices down. So you are saying that as prices are driven down because of the lack of demand that things actually become less affordable because credit and jobs are shrinking?

This still doesn't account for quantitve easing, unfunded liabilities, housing prices dropping and $700 trillion dollars of OCD's that are out there waiting to go off.

Deflation, in the end, says your dollar will buy you more. What you are proposing is actually inflation "a rise in the general level of prices of goods and services in an economy over a period of time".

IMO You still haven't made your point clearly.

I believe investing in something tangible is better than investing in something that is prone to obfuscation. Yes paper gold and silver fall into this catagory but bullion, not so much. Its simply safe-er.

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