Posted by JD Seller on March 19, 2013 at 07:11:13 from (208.126.196.144):
In Reply to: $8 corn!! $8 corn!! posted by Dave from MN on March 19, 2013 at 06:20:02:
I sold a few loads for $8. I also sold a bunch for $7.80 just last month but I also sold a bunch three years ago for $4.50 that I had forward contracted. It was $3.50 when I planted.
This current high grain market started when Russia had a short black wheat crop. Then they announced that they where not going to have any wheat for export. That caused the markets to take off.
An old economic professor told me in the 1980s that there was only one constant in the economy. "Raw commodities will get cheaper over a long period of time". What he meant was that if you look at raw commodities over a long period of time and adjust for inflation the value will be lower. I have watched and he is correct. This corn high grain market is a short term thing. It will not last for much longer. Our production cost does not make any difference to what the grains will be worth.
Also the "real" value of the US dollar is 20% lower than it was in 2005. The Fed printing money does have an effect.
Also another thing a few Ag economists told me is this " There is nothing that a farmer can not produce into worthlessness". Think about that one. Any thing that goes up in price causes just about every farmer to jump into producing it until it is worth less than the cost of production and then many will drop out. Seen it happen time and time again in tobacco, hogs and cattle. It is corn this time around.
Corn is the current high prise thing they are doing this on. They are tearing out fences and old building sites. Plowing up any hay ground they can. What many are not noticing is that this is happening world wide. South American is harvesting their largest crop they have ever produced. I read where South Africa is exporting corn now. So the farmers world wide are gearing up to produce corn. An many of them will have a lower cost per bushel than the American mid-west does. They may only have a fifty bushel yield but their total cost per bushel easily could be less.
It is going to be very much like the early 1980s when this goes south. The land rents are double what they where just 4-5 years ago. Equipment prices are 50% higher than just 4-5 years ago. Double what they where 10 years ago. The only salvation maybe that interest rates are not currently sky high but that could change in a hurry. The Federal Reserve is artificially keeping interest rates down. The high government debt will eventually cause higher interest rates.
Also some one will eventually let the people of the USA use the new technologies to get the fuel reserves that are located inside the USA to market. When this happens and the price of oil goes down then ethanol production/price will go down too. So the demand for corn could easily go down and the supply go up. We all know what the price of corn will do when that happens.
I recommend that anyone producing grain keep their horns pulled in and be ready for a price drop. Many grain farmers will go out of business. I think many will be surprised too when no one will feel sorry for them like in the 1980s. There will not be many sweet heart buy downs this time around. The average citizen is tied of giving hand outs to farmers that make more than they do. There should not have been any type of Government payment the last few years. Those payments have soured many urban tax payers on helping the farmers. That will bite us hard when this market goes south. We very well could not get the votes in congress for a farm bill that would help in low markets. The current high cost of crop insurance is getting looked at real hard by the congress.
The good times will end shortly. We just do not know exactly when. You are going to have $7 input cost in a crop that you will sell for half that. Being a mega farmer will not be an advantage when this happens.
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