How will financial crisis affect grain markets?

[poorboy]

It is assumed that there is a recession coming in the US and the stock and financial markets are already turning lower and the US gov't is reducing interest rates trying to stabilize and restimulate its economy. My question is how will this affect grain markets here in Canada for this year and the next 3 years?


Are we thinking that if the US goes into a recession and things really slow down that the need for oil will decrease and its price will drop a lot. If it does it should reduce the price of soybean oil and canola as will as reduce ethanol prices and demand. This could spiral and ultimately lower the price of all grains. Show us some good rains and it could fall fast?

Is now the time to lock in prices on 08 crop and potentially a good portion of 2010,2011 as well?

I fear that if the we go to a 1.30 cdn$ to 1 US$ and start getting some rain that prices will get much uglier than we have seen in 25 years.

Looking for opinions on the situation and reasons for your opinions. I hope that I am totally wrong, but I am not so sure that locking some crop for the future at these prices is such a bad thing.

[Hopperbin]

Here is my thinking which could be out to lunch but here it goes anyway. We know our cost of production this year so locking a price for this year production is a good think as long as you don't over do it. Now locking in a price for next year 09 or 10 is a different story when things are unpredictable. What if we have 100 percent inflation next year and cost of production goes up 100 percent or more then where does your pricing leave you? Just something to think about. Hope we don't lose it all because we had some bad times only to have one good year and price so far into the future only to. Well think about it our commodities doubled in price since last year. What's saying that cannot happen with inputs??? Don't price 09 or 10 let alone 11

[SASKFARMER3]

Poor boy locking in prices till 2011 wont work if the global melt down happens.
Banks have financial problems then call loans to grain companies who most have low cash reserves like every one and when those companies fail they push the farmers who will fail and finally Govt have no cash and then the whole system destructs. So whats paper worth when a company is gone.
I am not sure its that bad but its definitely getting interesting.

[bgmb]

Both excellent points. With record high prices logic would tell you to lock in as far out as you can. However in this climate of uncertainty it is risky to lock in the price of your production before you know how much it will cost to produce it.


While very expensive maybe buying calls would be a prudent way to do something.

[agstar77]

Sask. Interesting or scary?

[agstar77]

I wouldn't be just getting to excited right now.

The World right now is in a panic mode. Once this is all shook out this should turn around. Although it may take a few months to stabilize.

I know boys it's tough to ride this crap out..... But lets not lose sight of the big picture. Even with the acres Informa predicted last week in Beans and Corn, and a bumper crop, stocks will be tighter than this year.
Crude is going to $125.00 by summer. This is very bullish. It has to spill over into the grains.

The only thing I would consider today would be pricing some new crop Wheat, if not done some already, if Wheat can hold today, in my area Friday, could still lock in $9.00 HRS.


CP, or am I missing it here?? I will say this isn't the same markets we were custom to the last years. But this shall pass. Will note went short Beans Friday to offset the bleeding in my longs in Beans, which I will continue to hold, because I'm very bullish long term.

My 2 cents.

[tower]

I don't suppose anyone can predict what's going to happen with any surety, so we all have to take it all with a grain of salt.

Unless the Russians are right and the earth is producing oil through tectonic movement and keeping up with our soaring usage of oil we are still running out. We aren't likely to see our input prices drop relative to general inflation.

I agree with the comments about the banks needing money and causing havoc in society so long as they get it. Remember the interest rates of the eighties when the banks had to forgive some third world speculation loans.

Whatever the cause of climate change, and I think our use of fossil fuels ranks right up there with deforestation and solar variances, we appear to be headed for erratic and extreme conditions. I do think our ability to produce is going to be a limiting factor across the worlds economy. That should be a good thing.

Tempering all of that is the fact that even in a chaotic economy there are players that will do their best to manipulate things at our expense. Keep an eye on the stockpiles here and in the states, on what the Chinese are doing, on what other areas are doing with ethanol and biofuels. Britain and Europe are apparently re-thinking a plunge.

If Brazil for example were to consider that it might be making more net cash selling food than producing fuel, that might be a real turn around. But keep an eye on those Russians. :<)

[poorboy]

Sure is interesting how the funds and big money drives a market. The fundamentals and charts help pick a market that should show good growth and then the huge influx of money from funds and the like tends to really rally the market. But look out when the money leaves.

Take the tech stocks of a few years ago. Fundamentals and everything were great with the rush of y2k issues, etc and the big money pushed all tech stocks way past their p/e ratios and everything was great for a while. Once popular opinion changed and the big money wanted out the market crashed.

Happens time and time again. This time the big money has been buying into commodities. The price of oil and grains is way overvalued for just fundamentals. This is ok if the big money decides to stay invested. However, if the big money wants to leave for the next home, then wheat should easily drop back to $6-7/bushel.

The hard part is deciding if the big money is going to stay, or if it is starting to leave. The fundamentals started this market, but I don't think they have much to do with it anymore. It is all perception.

My gut tells me that this is as high as we go for a while. Money will float in and out for the next year, but unlikely that we will make new highs.

When grains were going up every day, there was no one selling, so end users had to keep paying more to get any supply. Now that there are a couple of big down days the farmers are selling in a big way, because they are scared. The end user though has lots of people willing to sell product to him now so he does not have to raise his bid, he keeps dropping it untill there is nothing to buy.

Is there a shortage of grain in the world or a perceived shortage? No food rationing that I have heard of.

Where I farm in Alberta the soil is so dry that I am not sure I can fill a grain contract in the fall. I remember 2002 only too well.