Destructural

It’s hard to believe that just two short years ago we were in a demand destruction mode in grains. The price, while only two thirds of the parity price, was supposedly too high for the market to bear. Never mind the fact that it takes parity prices to enjoy full employment. Never mind the fact that full employment supports the parity price. Full employment in modern times is trying to be equated to destruction of the environment. As they try to prove anything a human does destroys the environment. Ever since old Malthus we’ve been led to believe we have to kill off the majority of the population  to save the population. Volunteers to take “early retirement” are always being actively sought. The other side of demand destruction.

Today we are embroiled in the market’s attempt at supply destruction. Having achieved a supply increase due to the prior demand destruction’s “all time high prices” causing world wide acreage shifts into the Cinderella crop (corn for fuel) we now have to route out the inefficient high cost producers. In this country they happen to be surrounded by farms that allowed oil wells to be drilled up in the Bakken oil fields. The basis in that area has been sky high due to no trains available to haul grain because oil pays much more to haul. Pipeline politics aside they have been $1.00 to $1.50 under the corn price received elsewhere. Which is fine if you’re also cashing an oil lease check alongside your corn check. Maybe it’s time for the cattle feeding industry to move north.

We’ve had our demand destruction. The EPA mandate was tweaked achieving it overnight. Much like a lot of business gets done in DC, at night under the cover of darkness. Eliminating the inefficient users of corn has been co-opted by eliminating the inefficient growers of corn. Now we’re having our supply destruction. Hot money in, hot money out. Kinda cool how they do it. Don’t let them fool you. The market is there for more than taking the profits. The market’s job is destruction. The ups and downs of a sledge hammer. Destroy demand and destroy supply. The losing hand kisses it goodby.  The store man is paid to help mitigate the market’s detruction. The grain bin’s job is stability. Steel is getting cheaper. Energy to keep the grain in condition is getting cheaper.

I heard on AgDay TV that Argentina is considering passing a law to force it’s farmers to sell grain.

Cc

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Nunquam

Never Summer. It’s the name the indigenous peoples gave to the mountain range in Colorado that the snow never melts on in the summer. We visited the mountains four or five years ago during the first week of June (Nearly Summer) and the Rocky Mountain National Park was closed due to many feet of fresh snow.  I asked them when didn’t it snow up there and the locals simply said August. One month of spring / autumn and eleven months of winter. It’s never summer up there. Every year. You have to admire the native Americans, they didn’t waste words. There reaction to the European plow, ” Grass no good upside down.” The same can be said of commodity markets. We’ve under paid producers of raw materials over the years to the tune of sixteen trillion US dollars and counting.

When the cost to produce and or extract raw materials is not recovered in the market the difference has to be loaned into the economy to make up the difference.  If raw materials aren’t paid for they won’t exist. A bankrupt producer can’t produce raw materials. If raw materials don’t exist the jobs created to process raw materials no longer exist. As with the jobs that use raw materials to manufacture products. You have to pay the first dollar first. The term to express this fair price is called it’s parity price. That parity price is enshrined in the 1948 permanent law for agriculture. That’s why the farm bill always has to be renewed or the program will divert back to permanent law if not kept updated. The parity (fair) prices as of November 2112 according to the government’s own data are

Corn parity price   ………..  $12.00 per bushel ……. current (unfair) price ……. $3.63 per bushel

Soybeans parity price …….  $28.90 per bushel …….  current (unfair) price ……. $10.83 per bushel

Wheat parity price  ………..   $18.30 per bushel …….  current (unfair) price ……. $5.38 per bushel

Beef Cattle parity price  ……. $292.00 per cwt. …….  current (unfair) price ……. $159.80 per cwt

Hogs parity price  ………..  $160.00 per cwt.  …….  current (unfair) price ……. $123.62 per cwt

Milk  parity price   ……….. $52.10 per cwt.   …….  current (unfair) price …….  $23.30 per cwt

Now you know why America is at least sixteen plus trillion dollars in debt. Don’t blame social programs, blame Chicago. That’s why Congress shut them down during WWII. It takes honest prices to win a world war. Producers need paid the fair price. When Chicago says they’re taking profits that’s exactly what they’re doing. These commodities are never paid for with debt free money. The nations accounts will be never balanced. The USA will be never prosperous.

Never summer. The July that wasn’t. Cool, some would say cold nights. Cool days if your not working too hard. The forecast for August is more of the same. Never Summer. The grain traders are calling for record grain production due to the perfect pollination weather.  I wonder if they have ever heard of growing degree days. Gdd’s are the accumulated number of days at a certain temperature or above. A plant needs so many days at such and such temperatures to accumulate enough energy in itself  to produce it’s seeds. Those seeds are our crop to sell into the marketplace. I’ve heard a lot of weather references comparing this year with 1994. 1994 was the first never summer I lived through. And farmed through. I never saw it coming.

Neither did the boys in Chi Town. They didn’t know we were short on corn that year until January 1995.  They were surprised that rain didn’t make grain like their little saying says. They had no idea that you needed the sun too. Test weights were way off. A ten pound change in the test weight of a bushel of corn spread over 14,000,000,000 bushels can really add up.  It can amount to between 16% and 20% of the total amount depending on which direction you’re figuring from. I don’t think there’s too many of the ol boys left in the trading pits to remember 1994. So it might be January 2015 before the realization that never summer means never bumper crops. But we’ll have fun watching the entertainment that is Chicago until then. I’ll admit that I got burned on a couple of bins of corn this never summer. In my defense I thought everyone remembered ’94. But when rumors of corn going bad in the bins came around I emptied them all. Barely in time. Racing the market down. No dock but with prices as depressed as they are, what’s the difference.

Cc

 

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