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| Some questions on the post & I will address those later today.
In 1932, our corn acreage was 113,032 m. acres with a yield of 26.5 bushels.
I am trying not to watch these markets too closely in here and find myself busy with other thoughts as my daily caffeine dose keeps my mind on edge, but also like to appear busy for the benefit of the spouse to avoid this long list of usual projects I know she keeps in her very sharp mind. She is convinced I need a hearing aid because she has so many interesting things to tell me & I seem to not listen (intentionally, but I am not about to go down that road). She has a good head for business and comes from a long line of very determined and successful women.
Pofarmer asked the other day what the pricing assumptions were on this last ethanol study I received which was a private paper put together by a major investment bank.
Keep in mind this so-called white paper was completed just a few days ago, and their cost of corn assumption is $2.75 per bushel! Of course, these are the same folks who got caught in the Oil Patch in 1986, Savings & Loan crisis & now sub-prime loans & back in the 70’s, those famous South American Loans which proved unwise.
When very young and bold & convinced the big money for the future was in the financial arena rather than the grain business & wanted to be my own boss I checked out a lot of the stock brokerages & formed the opinion (in those days) their primary motivation was commissions, dumping stock on uninformed investors, the regulations made going short very difficult unless you were a dealer (dealers could go short) & I had great difficulty in determining the value of a stock due to the complex methods of their financial statements. I thought I knew what a bushel of corn was worth, or soybeans & etc. Onions might have been an exception as at one time onions were traded on the old Merc & went to a negative value & deliveries were taken to salvage the burlap bags. I decided to focus on futures and the board of trade. Thereafter leaving stock investments to one or two good mutual funds who seem to know what they’re doing & have low management costs.
On a couple of occasions later, I had the opportunity to sit in on a couple of meetings in very fancy boardrooms on Wall Street, drink some tea out of tiny cups & a little wine out of glasses with stems so thin you plain hoped it did not break while it sat on the table. The very senile (nearly so) directors giving me the eye & wondering how I could afford a suit perhaps more expensive than theirs & wondering why I was even at the table as I had no Ivy League University in my past-an agricultural college!! These folks needed to hedge their grain use, but none of them had a clue about corn or wheat & they would ask some very uninformed questions and in the final analysis, as I knew they would do…they advised ‘use your own judgment.” Which I did.
Things have changed a lot since those days. The financial industry is more lean and mean with access to a lot of talent and information. They have discovered clients DO NEED TO MAKE A PROFIT. So, now it is a different world on Wall Street.
However, as every one of you know, there is a big gap between the feasibility study of a project and actually getting the project off the ground and making a profit.
In my personal opinion, there are some folks in the financing of Ethanol who are not exactly on top of their game. But, they might be learning.
I believe in ethanol to some degree, and soy based and cellulose; crude oil in the next few years is probably going to trade in a range between $65 & somewhere above $100. But, the ethanol industry is young and will have more growing pains. The distribution will be addressed but the industry will still be somewhat tied to politics. I understand in this new energy bill will also be tied to a 2009 study to take action in case of a drought or some other event which brings about very high-priced corn.
China will eventually become a strong exporter of corn, down the road. Russia has internal transportation problems, which will eventually be solved; also, they only have 10 deep water ports on the Black Sea and understand there is a lot of congestion at those ports at this very moment. However, they are undergoing a massive modernization program. Russia (former soviet union countries) will eventually become an export influence.
Our strong suit is the ability of our agricultural producers to produce grain and meat. We are very good at it, we have the technology and the expertise. There is the possibility that 10 years down the road, our corn exports might become a smaller segment of usage.
This new energy bill mandates ethanol production 6 times the current level. That is a huge corn requirement!
In my experience, folks in agriculture are better students of history than most others. Several generations passed in this country as farms consolidated; this is going to happen much faster, and is right now, in China and Russia. Their problem is to provide food for the urbanized population. It happened gradually in our country. In addition, these countries and many other countries are also turning to ag based fuel production.
One other item which I believe agricultural producers are going to have to investigate is currency. While the Fed is mandated to maintain the value of the dollar, let’s be real here. Our economy is based on consumption, not savings. Every few years there is going to be a cycle in the value of the dollar. A good manager has to invest in productive depreciable assets greater than his/her current deprecation and own fixed assets which gain value during inflation (our economy is based on a continuing low rate of inflation) but there might be periods when operating cash or savings has to be in a European or Japanese Bank. Of course, this can be accomplished today, but the timing is wrong at the moment.
The other point is, we are in a global economy whether or not we are comfortable in this new atmosphere, it is here. We must adapt and GET AHEAD OF THE CURVE. Most certainly our present grain prices will peak shortly, but I think we have to adjust to the thought we may be entering a new parameter of price range. There will also be some bad times, as we are becoming more and more tied to other economies in the world. A price shock in another major country, will send ripples over here.
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Random mostly useless thoughts.
