Oil Setback Long 'n Painful

[errolanderson]

This is a game-changer . . . .

Living in Calgary, one can just feel the unease from neighbours and colleagues the financial pain that is coming down-the-pipe. Oil CEOs have to cut costs immediately and pass the torch down the supply chain. Companies making untimely recent acquisitions increasing debt may be survival mode. Companies with better cash reserves may be able to make acquisitions but at lower valuations.

To me, global oil prices are apt to stay very low possibly until 2018, maybe 2020. Why so long?
(IMO) excessive global debt that could spark yet another global debt crisis and defaults. Should this play out, oil companies will survive, but at a much lower cost structure. . .. $50 oil, $40 oil, $30 oil may be enough for them to be profitable. But changes have to be made.

Why I bring this up is; the oil correction is (IMO) the beginning of the change in global commodity prices.

Anyone saying the word deflation two years ago was considered a 'nut' case. Then a year ago, 'disinflation' was the polite word used by central bankers. Now the word deflation is seen everywhere.

This turn of events will impact us all and our businesses. Cost control and debt management are paramount . . . and this will also slip down through the ag supply chain from grains to livestock as well over time.

[SASKFARMER3]

Neighbor just proved the slow down is happening. House was listed for two months I guess in Regina their starting to drop. 786 peak down 20% wonder how long till some owe more on their mortgage than their house is worth. Condos are also down and inventory is up.
Check out the number of sleds on kajiji in Lloyd!
Seed chem fuel and fert plus equipment are all over priced.

[agstar77]

Time for a little reality check. Human nature being what it is no one wants to believe things have gone too far. Maybe they don't need that million dollar house or fancy toy. The Oil industry will recover but there will be painful transition to reality.

[agstar77]

We should all go out and buy some of that fancy overpriced NH equipment in the NH T.V. ad so we can be successful like Jordan.

[SASKFARMER3]

Now that's funny!

[farmaholic]

Didn't you know NH smart is smarter than JD smart? And Agco dumb is dumber than IH dumb. KF Farms success hinges on being NH smart and a little greasy....

[cottonpicken]

Won't start up the inflation defalation debate.

Supply/demand because economies are cracking so iron ore/copper/crude are getting donkey punched,they are set in an elastic demand world.

Any opinions about food being more inelastic and price?maybe we will weather the storm a bit better?

I'll try to find the link but one analyze has canadian housing at 63 percent over valued.

[Oilking]

Nice post Errol, I agree that grain and livestock prices will likely be affected down the road. But it's highly unlikely that fertilizer,seed, and chemical prices will come down too. That just wouldn't be right or make sense if it did ( sarcasm fully intended of course) !

[Westcentralsk]

Maybe I'm being too optimistic but with $9 something canola and $5 something wheat how much more downside can there possibly be? Maybe a buck lower on both? It's not like grain had the same run up like oil, gold and other commodities. I remember reading something someone posted awhile back that oil at $11/barrel in 1974, adjusted for inflation today should be $50. $4 wheat back then should be $18 today. So when oil hit @$140 or whatever the high was and wheat hit @$10 for a high...well, it wasn't even close to the same playing field.

[freewheat]

Not saying it will be as crazy low as 2000, but do you remember sub 5 canola and flax, and sub 3 wheat, sub 1.50 barley, and sub 4 peas and sub 1.40 oats?

I think there is unfortunately room for more downside.

Selling flax and canola for 4.80 is no fun, even when n is 25 cents.

[fjlip]

Free, if we see those prices, Jordan and thousands of highly leveraged BTO's will be on the auction block for pennies on the dollar. This is "Reality shit show 2015", coming to a free market near you. If all costs and values drop, perhaps it will all be relative and less equity will buy more. Certainly sounds like interest rates will not be the final nail in business/consumer loans.

[Hopalong]

Deflation should be good for older people living on fixed income from pensions, annuities and savings.
Will this translate in support at polls for politicians who support it?
Demographics say it could happen and maybe ageing population has something to do with Japan experience.

[SASKFARMER3]

Free wheat I agree selling canola for 5 or less is not fun. Oats under a dollar or flax with a 6 not 16!
It can and could happen. History repeats I always say. If houses in city drop by 63% wo wow the shit will hit the fan then all the Canadians who purchased homes in the USA using their home in Canada as security. Ouch this could be a ugly ugly year. Last time oil dropped the financial crash happened a few months later could that be May!

[SASKFARMER3]

Does any one else wonder if buying anything ahead of spring seeding was wise this year?

[phoenix64]

Yes sf3 I'm thinking waiting till spring may have paid off, but pulled the trigger this week on fertilizer and canola seed, just didnt have the nerves of steel to wait for the input suppliers to drop the ball