The Economy

[farmers_son]

I was reading the various issues discussed in these threads and wondered if we are really overlooking or turning a blind eye to the biggest issue of all… that is the economy.

I do not recall a time in my adult life when I have seen the economy to be so uncertain. The threat of a U.S. dollar crisis is becoming very real. Global central banks are pumping cash into their banking systems as fears of a broad-based credit crisis take hold.

At some point we need to give some thought to how our economy can function on $100 plus oil. It appears that the economy was being fueled not just with oil but with debt. The Central Banks are lowering interest rates in response to the credit crisis and the U.S. Federal Reserve is expected to cut interest rates a full percentage point before Tuesday after cutting interest rates by ¼ percent in an emergency move on Sunday. That would leave the primary credit rate at 2.25%. If that does not work to reverse the credit crisis it is obvious that the primary credit rate can only be cut so much more, we are reaching the lowest possible point.

Where this leaves agriculture is uncertain. But it is known that stability is the farmer’s friend and we are in a very unstable economy. Canada is not immune to a dollar crisis as we are intimately connected to the U.S. Canadian agriculture has a huge amount of debt, much higher than in the U.S. in relation to capital. We are very vulnerable to an unstable economy and a debt crisis.

Look at some of the headlines:

Bank of England sounds alert on credit crisis's impact on economy

Bear Stearns Investment Bank Sold After Shares drop from $84 to $2

Signs U.S. Economy is in Recession

Sub Prime Mortgage Crisis Beyond the U.S. Reserve…Grim times ahead ... the US Federal Reserve may run out of the funds needed to prop up the country's financial system, analysts say

Markets Slumping on Banking Worries
(Fortune Magazine) -- We have never seen a credit crisis quite like this. What's next?

[grassfarmer]

It's certainly a big concern but I don't pretend to understand how it will affect us as beef producers. I see speculation that oil could easily be $125 by midsummer and the Canadian dollar worth $1.25 US. The near total reliance on the US as our only market for cattle and our reliance on the feedlot system to produce those fed cattle certainly don't look so clever.

[Superbad]

At the ABIC we were told by those who should know to
expect the $ CDN to hit between US $1.15 to $1.20,
middle income Americans will have less to spend on
eating out but supply of beef is likely a limiting factor
into the 4th quarter which could boost cattle prices.
Notwithstanding the near term horrors, if producers
can weather the next year the analysts see brighter
days on the horizon. It's gonna be tough for the next
while still though.

[kato]

And yet I heard a money guy on BNN this morning say that the dollar should drop to below par, based on lower demand for oil. It was below par by noon.

Go figure.

They were also saying that the safest and surest places to put money are in the food sector and health care.

[per]

In times of uncertainty the only real certain thing is that those without debt will live to see another day. I need a little debt however, to stay motivated.

[rookie]

To get back to your post F_S, I would have to wonder just how high can the dollar and oil inparticular, go. No one in my neighborhood saw things coming to where they are now.

But, the ceiling on how high the dollar and oil prices is, just keeps getting higher.

Will things level off at $1.20 and $130 / barrel ? And if so, how will our indusries numbers be rewritten in terms of what our balance sheets will look like ?

And when I begin to think about really playing my cards conservatively, I am reminded by this oil patch down the road, that its not going away, and more and more dollars are spilling out of the patch and changing our local economy and land scape more than it has changed in the last 30- 40 years. The local economy is smoking hot!

I don't know what to make of it . There are enough fundamentals out there saying it can't keep this pace, but there are just as many showing it can.

I am looking for the answers too that will help me stay around to see how things will really go. And hopefully I am not the one going.

[farmers_son]

I can remember back in the 80s when oil hit $40 a barrel and there was huge concern. Now we are like the frog in boiling water, we seem oblivious to the effects that $100 oil can have on the entire economy.

Certainly comparisons are being made between the present situation and the 1930s. Obviously the situation is serious. Apparently the economy was looking at what amounted to a run on the Bear Sterns bank, only Bear Sterns’ customers were not the men and women on the street but other banks.

Agriculture certainly was hard hit in the 1930s. Will the same happen again? Or will $100 oil fuel inflation (excuse the pun). Wall Street may collapse, it is certainly tettering. If there is a debt crisis agriculture will not be immune.

It may be time for primary producers to review their history. See:

The Depression of the 1930s
http://www.studyworld.com/depression_of_the_1930's.htm

One of the factors that contributed to the Great Depression, in addition to the bank failures, was the Smoot-Hawley Act which restricted trade through high tariffs. I see the same protectionist pressures within the U.S. today and the stance of the Democrats suggests they will attempt to win votes by promising trade restrictions. Déjà vu all over again.

[greybeard]

Andy Sirski had a relatively simple explanation of the sub-prime problems in a recent Grain news. Very scary. I think there is a lot of spin being put on this to reduce fears of a complete melt down and panic selling on the stock market.
http://www.economist.com/daily/news/displaystory.cfm?story_id=10872696&top_story=1

The above link may be interesting to some. I find the Economist often provides a more worldly view than most U S based publications.
Money needs a place to go. Will the Ag commodity speculation rush find beef?

[wd40]

Maybe wisdom from the old barn is comming back to roost. Remember the one on the chickens comming home.

There is all kinds of wisdom floating around, and all kinds of "people in the know".

An we all know that an ex-spert is a "has been" like an ex-wife and a "spert" is a drip under pressure.

However I really wonder what is REALLY causing the US dollar to sink.

I'm sure one thing is (and we all know) that one can't borrow himself in prosperity, which both North American countries are guilty of. We also know that that direction is not sustainable.

But I really wonder if the siblings from the 911 attack have finally figured out just how much power there is in "single desk selling", and know they have us by the "short hair's".