We do not deny that world population is growing. We question if there will be enough income to pay for it! We know many people think it is wrong to not want to feed those who are under fed throughout the world.
We also ask if it is really fair to them to feed them, making them solely dependent upon others. Why not work on keeping population levels consistent with what a region can produce? The sooner we accept the fact that the world’s resources are finite, the better [long-term] we will be as a world community.
As for the immediate price implications, it’s been a costly journey for the bulls since August of 2012. We believe bull markets sow the seeds of their own destruction and bear markets sow the seeds of bull markets. We call this the primal agriculture cycle. Granted, the magnitude of the price cycle can be influenced by government policy, weather events, technological advancements and other unknown events. The eventual highs and lows are about basic economic relationships.
When prices move too high and destroy demand, giving major incentive to producers to increase supply. It takes a lot of time to complete this cycle. The current low prices are sowing the seeds for an eventual bull market. The only question is how long we have to say down here. This is the big issue many will debate in 2014.
How fast will demand rebound and will supply be cut back by the lower prices? Eventually, when the supply comes online, prices must fall to levels where demand is ignited and production is curtailed. We suggest such big macro supply and demand events cannot take place until negative returns develop.
How low and how long do prices have to go in order to reignite demand and curtail future production? We can ask the questions, but it’s difficult to give the answer because of all the variables of the equation. We believe this cycle will not be completed until the fall of 2015.
This is why active risk management in regard to each farm’s profit and loss is so critical now and in the future. To this end I’m working with producers to develop an integrated risk management plan that combines crop insurance, cash, options and futures contracts sales as well as other critical marketing decisions. If anyone feels they need to put structure into their risk management program, call us at 1-800-832-1488.
If anyone has questions and would like to discuss marketing strategies, call Bob or Laura (1-800-832-1488). We will also try to answer questions in upcoming blogs and we welcome emails to [email protected] or [email protected].
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