Outside markets impact agriculture
Oct 01, 2008
Like all of you, I’ve been reading and watching all the market comments regarding the financial markets. We are looking for clarity in this time period of great volatility and uncertainty.
First, the greed of a few is going to cause great harm to us all. Essentially, everybody that was betting on inflation to lift housing values and subsequently provide income to live on has now seen that play vanish. I would suggest significant belt tightening is now going to occur. To buy a house is going to take a good job and 20% down just to get consideration. This is going to drive a lot of people out of the high price houses and back to lower price houses. Bottom line: Everybody is going to learn that debt is dangerous.
What impacts do I see on agriculture? The immediate impact will be uncertainty about demand.
Will corn and bean exports shrink due to reduction in global demand or will China's desire for more pork production help off set the decline?
Will consumers stop eating out and start cooking at home more? Could this actually increase livestock demand rather than reduce which would be good for feed usage? The new ethanol plants are coming on board now and production is up. Will the government change direction in regards to ethanol support?
When I think about demand I have to say fear of the financial market is more than likely making the expectation of demand dropping worse than it will actually occur. The real new for me is the potential for expansion of demand in 2009 has been significant affected which is a significant departure from what we have been seen occur in corn demand over the last few years. While sideways demand is not really bad, we all feel like it’s a major let down. I would suggest it simply going to take some time before we get use to this new structure in demand.
With all the financial uncertainty, the other implication I see developing is banking flexibility is going to be significantly affected. I would envision bankers next year will not be as eager to lend to producers that may be on the edge. With all bank lines of credit reduced, one has to anticipate a significant impact on "crop mix" decisions. Producers will move in the direction of low input/low risk crops versus high input cost. The implication is cotton and corn acres will become more questionable if current prices exist while bean acres will increase.
End result: I believe November 2009 beans needs to be sold on rallies. If you are short at significantly higher prices, I would not be eager to take off hedges. If you are concerned with the high profits I would focus on getting a call strategy in place to protect future or cash sales. The winners will be December 2009 corn and December 2009 cotton due to reduced acres being planted. However before you get too bullish, I have to suggest that everybody’s upside expectation must be tempered for the spring of 2009 for corn and beans cause of the overall fear of the market of depth of the global recession.
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