Market Volatilty

[TOM4CWB]

Charlie,

On your question... Grain price volatility... is directly purportional to WEATHER volatility.

SO

Where are we going with the weather... over the next 6 months?

I met with E. Ray Garnett, B.A., M.Sc. in Winnipeg at Grainworld.

Ray asked the weather folks... some VERY hard questions... that they did not answer well...

Ray has some very interesting ideas... on models to better reveal future weather patterns...

Perhaps a few invested $ in people who ask HARD questions... would be a smart investment?

http://www.members.shaw.ca/agroclime/

Check it out!

[craig]

Charlie
Trying to stick to your orginal question. This market is showing us what we have seen in past. Good prices over a long period of time brings upon complaceny. Then we get a wake up call when the market makes a big drop. At times like this I find it of value to go back to gross or net values per acre. This brings us some reality to the situation. If a gross value drop of over $200.00 per acre in a week is not a wake uo call I'm not sure what is. Gross and net value returns per acre are also a good indication of where seeded acres will tend to go. Right now in our area barley returns stink in realation to wheat. With the fund companies so heavily in the market I would suggest that prudent market strategy is to take the money and run while you can. There are to many factors besides market fundamentals at play in this market.

[TOM4CWB]

Charlie,

Here is an interesting article on causes of Volatility:

Corn demand high

Mar 13, 2008 (The Tribune - McClatchy-Tribune Information Services via COMTEX) -- Hoosier farmers should find no shortage of demand for their corn this year.

"The demand for corn in the world continues to go up as a feedstock, despite the fact that we are using more corn in the United States for ethanol," Mike Anderson told local farmers and business people Wednesday during the annual Ag Day Breakfast sponsored by the Greater Seymour Chamber of Commerce.

Anderson, president and CEO of The Andersons Inc., said the "disappearance of China as an exporter has been a big deal to so many people. We don't really know with the China stock situation, but almost every year that prices rallied, they've had a little extra to throw into the market," Anderson said. "This year not only has that not happened, they (began) their buying of corn."

With China and other developing countries improving their economy, Anderson said, they understandably want to eat more meat, and more meat takes more feed grain for more animals. The larger population increases the demand for more grains.

Demands up

The increase in demand for vegetable oil, Anderson said, is an interesting one both from a food perspective for cooking and bio-diesel. He says the United States will subsidize soybean oil produced here that is blended just a little and shipped to Europe for use in their diesel fuel, bringing in somewhere between $200 million and $300 million.

"Things that are done to stimulate new markets, to me, make a lot of sense when they are starting, but so often it is very hard for Washington to unring a bell," Anderson said. "The concept that we are subsidizing European markets' gasoline is somewhat illogical to me. The result of that is we have oil prices just absolutely go through the roof."

Prices for a gallon of regular gas Wednesday in Seymour was $3.45.

Anderson said there is no question that the demand for ethanol is a major factor into what is going on.

About 1.6 billion bushels of corn were used two years ago to make ethanol in the United States. A little more than 3 billion bushels will be used this year and within a year and a half, Anderson said, that will probably be up to about 4 billion bushels of corn.

This past year the nation produced about 6.5 billion gallons of ethanol. This year it will reach between 8 billion and 9 billion gallons. Anderson said the capacity of new ethanol plants being built right now, that aren't opened, will create a capacity of about 11 billion gallons.

Anderson said the steady growth and soybean demand throughout the world is "really something."

"If you look at corn going up over $5 a bushel, the escalation of soybean prices is needed in order to bring more soybeans back into production," Anderson said. "Even added over 10 million tons a year of demand for soybeans, we took substance production out this year in the U.S."

Over the last three years, global nutrient fertilizer usage is up by about 20 million metric tons. Anderson said that is more than double the annual growth rate of the previous 10 years.

"That growth rate is almost like adding another corn belt's worth of fertilizer usage to the world's consumption in a three-year time frame," Anderson said. "That is a huge deal, and the fact is that the industry, which was really suffering about three years ago, is not invested in extra capacity and it's going to take a while to bring that capacity up."

Government policies have had an effect on the market, he said. The Conservation Reserve Program challenged environmental land production that had a lot of support from the green industry.

"Embedded in the CRP is the ability for the Secretary of Agriculture in Washington to allow early outs with no penalties," Anderson said. "We know very well customers that sell to us have land in that program that they say they could get out without a penalty.

"The realities of today are substantially different from when the CRP was established. I hope that sometime in time that might change."

Energy Act

Anderson said the Energy Act of 2007 will dramatically affect agriculture in the United States. This bill has put in mandates to produce 30 billion gallons of ethanol.

The nation uses roughly 145 billion gallons of gasoline in the United States every year. He said it's a mandate that 20 percent of gasoline consumption be basically alternative bio-fuels. The way that's set up, he said, it's likely that half of that will come from corn and the other half from non-developed things such as cellulosic ethanol by 2021.

"I think it's great that we are supporting investment (cellulosic) even though we are in the corn-based side," Anderson said. "I do get concerned with the issue of the mandate. Within the mandate there is the ability of Washington to relax the mandate if they so desire. I think the people that put together this program have failed to adequately consider the fact that we will have the next drought.

"Fundamentally, I think we are in a great new world of agriculture," Anderson said. "I think the combination of oil and fuel and the ability to use agricultural food stocks with the driving surge in protein demand across the world will keep us in a situation where we will have higher than normal prices, have extreme volatility and that's going to drive a lot of pressure on the input prices.

"It's a great time if you've got stuff sold and it produces well and you've got your inputs bought, but for those of us in the business, ... it's going to be a challenging, fun time, a rewarding time, but it is going to be volatile."

http://news.tradingcharts.com/futures/5/3/106133535.html

[mustardman]

Charlie with all this volatility , what are your thoughts on our Ag minister eliminating need for companies to be bonded ?? How does he think this is going to be an asset for producers ??

[charliep]

Never thought I would have both tom4cwb and you on the same side. Will leave Ritz/advisors alone but likely premature (in my opinion) to talk about elimination.

Having said that, current CGC bonding only has limited application in the current environment. It covers risk of non payment after delivery and only for 90 days. Not all companies are bonded by the CGC. If I remember right, the CGC only asks for information from the grain companies once a month and only does actual audits to ensure the bond is enough to cover their inventory on an irregular basis. In fast moving markets like this, it is quite possible (and in fact likely) that the grain company bonds are not adequate.

Long term, current CGC bonding is not the answer. So that raises the question what is? Clearinghouse? Agricorp model in Ontario? Tighter rules, better surveilance, more companies and/or bigger bonds for companies that buy grain?

The original thought was about the volatility on farmers/grain companies. This is also be a cash flow draw in addition to bonding in many cases.

[cottonpicken]

In my opinion anderson doesnt know what he is talking about.

The number one reason commodities are going up in price is that investors are getting out of paper and into tangibles.

If any analyst,speaker,commentator,person fails to see this fact than you should ignore them.They dont understand how and why things are the way they are.

[charliep]

Cottonpicken

At least I have the courage to put my name behind what I say. There is room in the moderator area for name, background and interests. You can then address the good questions that chaffmeister put to you I am curious as to how you would run a grain company for for that matter the CWB.

[cottonpicken]

I thought i addressed all of chaffs questions, and he still has to respond to one of mine.

Heres a question to you charlie-

Why is the broad market ignored when it comes to ag prices?

Its as if people think there is no relation.

Most of the time on this site is spent debating cwb issues and not real world market factors.

And how do you run a grain company?
How about a few very smart,proven people to steer the ship and a million gophers.

[TOM4CWB]

Charlie,

I don't see why the bond is not useful to grain growers in western Canada... in your opinion.

If people believe that growers depend too much on the Security the CGC provides... Change it to a CDIC/Bank bond type system... where the first $100,000 is covered.

I don't see why this is an unreasonable request for inter provincial and international sales of Canadian grain.

Grain sold and used within the province... is already exempt... because it is constitutionally not in the flow of trade and commerce... until it crossed prov. boundaries or internationally.

If an 80% bond level... of a $60,000 level of coverage was applied to CGC security... then those who wanted better coverage could do it through the Ag Clearing system.

Most folks I talk with... think this is just to allow the little grainco's a start up opportunity... and that the big grainco's will still be CGC bonded in some fashion. My MP told me this on Friday night.

The proposed legislation removes the CGC security... totally... if I have this wrong... someone please straighten me out!

The Resolution past at the Western Barley Growers last month... did not request the CGC drop all security... and encouraged the Ag Clearing system be given a chance to work.

I voted in favour of that Resolution.

I believe it would be as foolish to drop CGC monitoring of large grainco's... as it would be to drop the CDIC $100,000.00(www.cdic.ca) assurance system for depositors.


Why exactly is their any LESS RISK... for us selling our grain into the international market place... than their is for bonding our bank accounts?

Why should we be required to pay a big chunk of change for Security on our grain... when bank bonding is taken for granted... and the banks cost if they want to do business in the flow of commerce in Canada?

[parsley]

How about a few very smart,proven people to steer the ship and a million gophers.

Yah.

As along as I can jump on the ship I want.

That's why we need choice.

The gophers are eating derivitive papers for lunch because the provens were actually proven long-view-stupid.

Parsley