Predictions and Observations

[biglentil]

I agree we have seen a pull back in things like energy and fert but cpi is a sticky thing. Nothing has been fixed and volatility in the middle east can change energy prices in a hurry. Yes Errol M2 has shrunk, but the Fed stopped reporting the broader measure of money supply M3 years ago so the truth is opaque.

By my calculations true cpi has averaged 6% compounding yearly since 1990 to account for the home alone basket of groceries price change. Gold price 1990 was around $400usd an ounce today its at an all time high of $2070usd.

[Old Cowzilla]

How does consumer credit card debt from 10 years ago compare to now using inflation adjustments ?

[shtferbrains]

I can't comprehend the reasoning for Diesel price.
There also seems to be a huge discount for large volume?
This was yesterday and by coincidence both the same volume.
$17 difference for less than 10 gallons?

[helmsdale]

I can't comprehend the reasoning for Diesel price.
There also seems to be a huge discount for large volume?
This was yesterday and by coincidence both the same volume.
$17 difference for less than 10 gallons?

The TL/DR of the below is: all of this adds up to diesel trading long term (IMHO) at a significant premium to gasoline. LONG GONE are the days where diesel used to trade at a discount to gasoline.

You can thank government regulation via ULSD for that price difference. Also, the more car/LT/UV electrics that enter the market, i suspect the higher the differential will become. Diesel moves products, gas generally moves people. The more gas that gets offset by EV's the less in demand light sweet will be, and the higher demand will be for heavy (traditionally sour) crude blends.

To unpack that:
1) ULSD is more complicated to make in that it requires copious amounts of Hydrogen in the distillation process to pull Sulphur off of the diesel component of the crack. The price and availability of hydrogen, as well as its now more complex nature to refine mean it no longer is a discount to gasoline, but rather a premium. Remember some of the most recent diesel shortages? They weren't a function of inability to refine diesel, but rather an inability to source Hydrogen. Now... add in increased demand for hydrogen and that feedstock for diesel could become more expensive if efficiencies of scale cannot be attained.

2a) There's only so much of each product that you can pull out of a barrel of oil. You can't simply decide to make 100% of a barrel of oil into diesel fuel if the market is demanding more diesel, but you can switch to heavy oil which gives a larger % of "heavies" than a light barrel of crude. Heavy oil, is naturally a higher percentage of sulphur however than light, so the demand for hydrogen to make ULSD would also increase as refiners push more heavy rather than light through their system. Remember also, that one cannot generally just go from light to heavy feedstock easily. There are refineries that are distinctly for light feedstock, and those that are distinctly for heavy feedstock. They aren't interchangable.

2b) Being that there's only so many things that you can do with a barrel of oil, If we switch gasoline out to EV's, it'll only switch production towards the refining of heavy oil, which is more intensive thereby more expensive. If the EV trend moves as "experts" indicate it *will*, then heavy will likely trade at a premium to light. What is one supposed to do with the high percentage gasoline cut that comes off of light crude if nobody's using it? The largest cost for EV adoption will be with the movement of "product". you can move a 2ton car/truck/SUV down the highway rather easily, but Electric commercial vehicles are going to be retarded expensive! Stateside it's one thing to convert the 80,000lb fleet to electric, but now move the western canadian 140,000lb fleet to electric.

3) diesel is "dirtier" by comparison to gasoline. If C02 is our primary concern, then diesel being more energy dense would be preferrable, but as far as other pollutants S02, N0x, and Pm10/Pm2.5, diesel is compartively filthy! If you want to eliminate/reduce S02 you have to eliminate/reduce S02 in the fuel stream (enter ULSD). If you want to eliminate/reduce Pm2.5 you have to elevate the combustion temperature, but in order to eliminate/reduce N0x you have to reduce the combustion temperature. Enter the tradeoff between DPF's (which use higher fuel burn rates in the form of inefficiencies from lower temperatures of combustion as well as fuel consumption required to burn off particulate filters), and SCR which uses urea to react with N0x and render it inert. There's a basic trade off between the two. Create an engine that efficiently uses diesel to produce power and you have to depend heavily on UREA which is dead weight and difficult to keep in a usable state (non-frozen) in northern climes, or choke the engine (EGR) and create a pile of Pm2.5/Pm10 which requires further fuel injection to purge the particulate matter from DPF's.

Considering the environmental zealotry of the various administrations currently in place, there is little doubt that this is only going to get worse!

[fjlip]

Isn't there a surplus of gasoline which is huge percentage from a barrel of crude?

[biglentil]

Uranium

[BTO780]

Nice way to start the new yr, everything in the red. When will this blood bath stop?
If this keeps up there will not be much left of these markets come spring.

[bucket]

Nice way to start the new yr, everything in the red. When will this blood bath stop?
If this keeps up there will not be much left of these markets come spring.

Won't be much for coverage with the premiums we will be paying.

[Grahamp]

1. The top may well be in for canola for quite some time. I certainly don’t see north of $20 anytime soon. Where we end stopping and chopping is hard to say but $13-16 seems like could be the new reality.
2. Spikes are still possible but I agree once a bull market has ended sustained rallies are so much harder.
3. I’m not sure if this one. Land rents may have topped out and may even decline a bit especially in some areas where there appeared to be pure insanity. But land prices? I doubt they’ll drop much if at all. I think you are underestimating the extraordinary profits made by many farmers the last 2-3 years. I understand that for many there has been drought,grasshoppers and extreme frustration at not being able to take advantage of the high prices. But there are large parts of the prairies that have made $100-$400 per acre for the last 3 years. Let’s think about this with dollar figures and then without. So you’re a 5000 acre farm and you just made $300 per acre or 1.5 million. The Saskatchewan market for land (outside of Regina plains) is let’s say 400-600k. So you made enough to buy 3 quarters with cash or roughly increase your farm size 10%. Some farms have had this 3 years in a row. Let’s remove the numbers so inflation and historical ZIRP don’t cloud our judgment. Is being able to increase your land base 10% with the cash profit of one year a good deal? I would say yes. So in some regards the price doesn’t matter because frankly they can print money faster than any of us can imagine. Even if Errol’s deflation dream comes true I think most of us would be happy with this as a yearly outcome regardless of what the actual number is. Making $300,000 when land is $100,000 a quarter or making 1,500,000 when land is $500,000. So I don’t think land is going down.
4. I think you could be right on this one. Some of the combine prices we are seeing reflect unsustainable depreciation. At the very least I think not only flipping but even the prospect of owning new machinery has passed for many farms. Taking 2014 as an example, flipping yearly made sense for even a 10000 acre farm. Now I don’t even know if it makes sense for anyone except the ultra large. (Hard to guess what kind of deals 40,000+ acre farms are getting) But I think the historical occasional new purchaser on say a 5000-8000 (tel:5000-8000) acre farm is now going to find themselves buying 1000 hour combines and 2000 hour tractors at least those who are paying any attention to what depreciation costs.
5. Interest rates. I sort of disagree I don’t think rates will go too much higher and probably we’ll see a cut in 2024. I also truly believe what FCC may or may not have done 40 years ago will have any impact on what they do today. Lastly I doubt very much any farms will go broke. I know the schadenfreude is very strong is almost every farm community. And it seems in almost every area there seems to be a strong desire to see the most aggressive farmer go broke. I am 44 and for the last 20 years have heard on this board and at farm meetings and everyday conversations that someone is going broke etc. Farms almost never go broke. There is just too much equity built over too long a period of time, especially with crop insurance and agristability capping losses.
6. No question crop insurance will be down especially in the bad areas. But don’t underestimate the enormous margins being built in the good areas that will be protected by agristability. MNP in particular knows this program well and has a disproportionate number of 10000 acre + farms as clients.
7. Yes Russia has won. Unfortunately the west will keep sending money for a few years via the printing press.
8. Farm Turnover. Heard this my whole life won’t make any difference. If anything transfer of enormous wealth to younger more aggressive farmers may even cause greater increase.
9. Federal government. They are incompetent and hate farmers. We are in their crosshairs no doubt.

[BTO780]

The world will be at 8 billion people this yr, will be lots of cheap food to feed mouths.