Troubled Grain Markets

Originally Published 3-28-2008

The finance experts are baffled again. That of course is not a big surprise to most of us. What is baffling to the rest of us is exactly why they are baffled. The problem seems to be that grain price derivatives are higher than cash prices of various grains, primarily corn. Please remember the community of financial speculators are looking for the next “investment” opportunity – they seriously need to escape a certain oil bubble they have created bailing from the sub prime crisis, or they will loose a significant chunk, and maybe all of their wealth.

A certain dictator in Havana has suggested the “ethanol” economy would drive the price of food grains high enough to cause food shortages. What exactly does this old guy isolated in Havana known about grain prices in the USA? I suppose he could listen to WOWO radio farm reports when he gets bored with his his own propaganda. Of course the experts know that old guys in Havana could not possibly understand how this asynchronous multi-matrix-inter-spatial monstrosity we call a market system works. But what if he does, and what if he was/is correct. I just couldn’t say “right” since he is just too far left.

What if the futures speculators, betting prices are going up are buying up futures at higher rates than current cash prices? Seems logical enough to contract corn at $0.50 a bushel more, than the current cash price, if you know the price is going up a $1.50 by your delivery date. Why on earth would this be happening? Because to make ethanol ADM needs corn – lots of corn. A few days ago, I read about all these start up ethanol producers who were washing out of the business because they can not afford the corn to feed their stills.

If you have visited a grocery store recently you have noticed the price of canned corn and most vegetables is up. OK, maybe you don’t eat canned corn, but check the price of beef. Beef cattle are fed lots of corn. Beef prices are about as high as they have ever been. OK, so you are a bunny, and you only eat carrots, strawberries, or something. Don’t smirk too much we can make ethanol out of veggies too. BTW the real ethanol dream is to make it from trash. That would solve most everything BUT the C02 problem.

A few days ago I was talking to this guy, a farmer business fellow. He has various interests, a little money, and a farm or two. I ask him how the farming was going. His response was something like this: The tractor uses 60 gallons of fuel per day. At $3.50 a gallon that comes to $210.00 dollars per day for fuel. What do you think I should do? My reply was: park the tractor. He replied, “I parked the tractor”. Now, if that is happening all over the country side – what do you think is going to happen to the price of food? Unless you are an elitist idiot you know prices are on the way up – a lot, because supply is on the way down – a lot.

Of course there are other possibilities, but probably not. Speculators are speculators, and they really don’t care who they hurt, or how much they hurt them. The media says fuel is headed to four bucks a gallon by the end of May. What do you suppose that means to farmers planting crops this spring? Could it possibly mean they aren’t? And what exactly are you planning to eat in October if they don’t plant crops in May? As a society we need to remind our selves: speculators care only about how much money they make today. At best they are parasites of our economic system. At worst they are economic terrorists. What if Bin Laudin and company are sitting pretty in a Saudi office park helping orchestrate the next big American economic disaster with all the oil money they have been collecting?

Maybe we ARE looking at food shortages caused by some of our wonderful friends. Just think about what that could mean in the USA in early November.  If this materializes my republician friends won’t be able to get themselves elected dog – forget about dog catcher.

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