Ag dealer nonpayments
Nonpayment claims filed against ag product buyers doubled in the first six months of fiscal 2008–09, from 56 claims in each of the past four years to 115, reports Florida's Department of Agriculture and Consumer Services. "The rise in claims filed indicates that dealers are being impacted by the current economic conditions," says the state's Ag Commissioner Charles Bronson. —Linda H. Smith
Oil overflowing as demand drops
Demand has been rationed not just for ag commodities, but for energy as well. Global oil demand, which was supposed to grow unabated, has stalled, says Phil Flynn, vice president and energy analyst with Alaron Futures and Options.
"Supplies at Cushing, Okla., where the world benchmark price is set, are at an all-time high," he says. In fact, we're almost out of space to store it, he adds. "Because land storage cannot be found, they are now storing oil on ships. Right now, just floating around in the ocean somewhere, there are oil supertankers filled with about 80 million barrels of crude—oil that in many cases is having a hard time finding a port to unload. This is the most oil in floating storage in at least 20 years."
The seeds of the next boom are being planted right now. "Current lower prices mean half of current or planned production capacity is at risk," says Aaron Brady of Cambridge Energy Research Associates. "So there is upside price risk during 2010." His estimate is the $60/barrel range, "unless the economic slump lasts longer and oil enters a superslump." —Linda H. Smith
Herds on a downswing
For the first time since 1973, beef, pork and poultry production all are dropping, Shayle Shagam, USDA livestock economist, told USDA's Outlook Forum. Meat exports, now equal to almost 20% of production, will drop for the first time since 2004. "We'll see generally weaker prices for all the meats except broilers," he said.
The Jan. 1 beef cowherd was the smallest since 1963 and the beef calf crop the lowest since 1951, he reported.
A potential wild card is lack of moisture in the Southern Plains, says Steve Kay of Cattle Buyers Weekly. "Beef cow numbers have not been reduced in drought states," he says. "Texas had 25% of normal precipitation through winter, but cow numbers were not down at all. Neither were numbers in Kansas, and Oklahoma was down only marginally. Should the drought continue, there eventually could be a big liquidation." —Linda H. Smith
"We will harness the sun and the winds and the soil to fuel our cars and run our factories." President Barack Obama
"30 billion DOllars in crops WERE lost to drought in 2008." U.S. Ag Secretary Tom Vilsack
Hedges back in favor
Unlike last year, when futures hedges resulted in major deductions from market value for the advisers in our track records, several now have positive values.
"Last year, the influence of index funds made it difficult to make effective marketing decisions," says Scott Harms of Archer Financial. "Now, that influence seems to have been reduced and advisers should be able to make more confident decisions. They are performing well in this more normal environment and I expect that may continue."
Top Producer, Spring 2009