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.