Tuesday, May 31, 2011

Something's fishy...

If not actually rotten in the state of Denmark.  I been spending some time with friends from DK over the last few days (and trying to get planted of course), and their mood was uncharacteristically downbeat.

DK farmland prices are trending down. Despite record grain prices, their heavy dependence on livestock on their smaller farms has made the last few years very difficult. In fact, they are to the point of liquidation to stop the bleeding. This in a country that has had all the pigs the law will allow for years.

While U of I economists tsk-tsk the use of the term "demand destruction", that is sure what it looks like to me. We are at the least shifting the demand curve as we lose entire farms of corn eaters.

Meanwhile, the crop in Europe is not good. Winter barley in France is down ~20%, German grains are poor as well, and dry weather continues.

Europe’s wheat crop, making up a fifth of global output, is under threat in the U.K., France and Germany from the driest growing conditions in at least 36 years.France’s soft-wheat crop, the European Union’s largest, will drop 12 percent, and German output will slide 7.2 percent, local forecasters said today. Wheat jumped 4.5 percent to the highest level since Feb. 14.Smaller-than-expected harvests may boost wheat prices that already rose 59 percent in a year after crops were hurt in the last growing season by floods in Canada and drought in Russia. This year, China is contending with drought while U.S. farmers are facing dry weather in some areas and too much rain in others. The U.S. Department of Agriculture is forecasting a second consecutive annual decline in global stockpiles.“Given the tight levels of stocks for grains and oilseeds we need everything to go right,” Luke Chandler, global head of agricultural-commodity research at Rabobank in London, said in a phone interview. “Downward revisions such as in Europe have the potential to set us on another bull market over the summer.”French soft-wheat production will slide to 31.65 million metric tons, the least in four years, from 35.7 million tons last year, as drought slashes yields to the lowest in at least 16 years, Agritel, a Paris-based farm adviser, said today. [More]
I think there is a partial inability in the minds of American farmers to entertain the fact the world's growers cannot simply increase production at will, and that a massive shortfall is truly possible. In fact, I think it is unfolding as we speak. One more flood somewhere in the US, another month of drought in the EU/China or a monsoon failure in India and the supply demand curves will have trouble meeting, or at least intersecting anywhere congenial.
On a side note, my driving through central and northern IL was not pretty. Waaaay too much water, and mucho beans to plant.


JRthe Original said...

Morning John Here is the question if ethol is valued not against the corn cost but against the replacements cost ie the cost of oil, Than it has no market power to keep it in check against the supply problems. With a weakening dollar exports have no reason to fall apart. That leaves livestock. And so therefore our livestock industry picks off the low hanging fruit which in many cases is your neighbor livestock guy. The bigs can get access to capital much easier and they can generally negotiate a piece of the consumer dollar that is larger than the independent. SO we weaken rural America of entrepreneurs while strengthening rural America with jobs! IT is well known that the small business man is more vital than Joe six pack.
Did we make a bad deal?

John Phipps said...


First I would disagree we have strengthened rural America much with ethanol hobs - look at the recent census data for IA. We have strengthened the wallets of a few rural residents is all.

Second, these types of economic consequence value judgments are best voted on in free market, which the mandate prevents.

Finally, it is not just the small hog/dairy producer who is on the edge. The bought-feed business model isn't working very well for anyone.

JRthe original said...

Yep good points there John. I shouldn't post so early in the morning while chopping hay and spraying corn and planting more corn into a wore out hay filed! LOL Oh yea I also got the cows milked twice!
This is gonna end badly!

And you are right it isn't only the little livestock guy having the wind sucked outa his sails. The bigs are grasping for air also.