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Guest Post: Ag Commodities And The Coming Inflation

Tyler Durden's picture




 

Submitted by TFMetalsreport

Ag Commodities And The Coming Inflation

Longtime readers will recall that we've had several conversations here
regarding the impact that the Fed's quantitative easing policy is having
on the costs of everyday food items. Soaring prices of agricultural
commodities are going to continue to have a devastating effect on the
purchasing power of average Americans and consumers around the globe.
Since prices have now recovered some from the selloffs after the
Japanese earthquake and tsunami and since there is no end in sight to
QE, I thought it was time to once again take a look at out favorite
commodities and assess where their prices may be headed over the spring
and summer.

Let's start with the grains because rising grain prices cause all sorts
of inflation. Not only are grains the raw input to countless consumer
goods, grains are also the primary foodstuff for cattle ranchers and hog
finishers as they prepare their herds for slaughter. Let's start with
wheat, which is being influenced not just by the falling dollar. Price
is also feeling the impact of the ongoing drought in the "winter wheat
zone" of the high plains of Kansas, Oklahoma and Texas.
http://www.bloomberg.com/news/2011-03-24/worst-texas-drought-in-44-years-eroding-wheat-beef-supply-as-food-rallies.html
Now take a look at the chart. Long-term support held at $7.50 and wheat looks almost certain to catapult higher very soon.

OK,
so how about corn? Corn is extremely important in food production as it
is used not only as a primary ingredient but as a sweetener, as well.
First, let's look at the chart. Support was found, as expected in the
area around $6.50. I have no doubt that corn will soon resume its upward
move along its primary trendline from last summer.

Now
here's the deal with corn...it's expensive to grow! The primary
fertilizer that Midwestern corn farmers utilize is anhydrous ammonia.
Last year, anhydrous ammonia cost your average farmer about $425/ton.
This year, the cost has almost doubled to $750-800/ton. So, while it
might be tempting to seed a lot of acres with corn to capitalize on the
high price, the input and production costs are so high that many farmers
will choose to plant soybeans, instead. Less acres of corn planted lead
directly to less production. Less production leads directly to even
higher prices. (Remember that below when we get to cattle.)

So what about soybeans? Soybeans are the one grain that I don't expect
to rise in price. They will, most likely, stay rangebound through the
summer. Why? Besides the fertilizer costs affecting plantings, soybeans
get extra acreage for another reason: Weather. Because soybeans have a
shorter growing season, they are a "fall back plan" for many farmers who
struggled to get corn planted due to overly wet spring conditions.
http://www.galesburg.com/news/x1777821638/Galesburgs-spring-outlook-cool-and-wet
If the upper Midwest spring turns out cool and wet, many farmers will
forego corn planting and turn, instead, to soybeans. Extra supply =
Lower cost.

Now, let's get back to corn. Have you ever heard the term "corn-fed
beef"? Most of the best steakhouses proudly champion corn-fed beef
because, frankly, its tastes a helluva lot better than grass-fed. The
high sugar content of the corn gets converted into fat. The fat makes
its way into the muscle and you, Mr. Steakeater, get yourself a
beautiful, marbled "prime" steak. Fat cows are also desirable at
slaughter because, well, they weigh more and cattle are sold by the
pound. OK, so now, pretend for a moment that you're a cattle rancher. As
your cattle are growing and being prepared for market (the term is
"finished"), you want to feed them as much corn as they'll eat and you
can afford. Corn at $7.00/bushel really cramps your business plan. Your
first reaction is to control costs by thinning your herd, i.e. you sell
some prematurely, before they are "finished". You might also simply want
to sell some of your herd to take advantage of today's high prices.
http://www.saljournal.com/news/story/Cattle-prices-32411
Either way, this extra supply in the short term has actually worked to
keep cattle prices from soaring at the same rate as the grains. But this
is temporary. By this summer, supply will decrease as cattle that would
have been coming to market just then have already been slaughtered. Are
we already beginning to see this play out on the chart? Well, take a
look:

Many of the same dynamics are in play in the pig market. Note the similar chart pattern of a recent breakout to new highs.
So what does all this mean? It means you'd better prepare.
Maybe you're comfortable and you have all the disposable income you
need. Great, but what about your sister, trying to raise her three kids
on 50 grand a year? What about your neighbor or your best friend who is
trying simply to make ends meet after losing a job? What can you do to
help them?
You
start by warning them about the coming surge in food costs brought about
by quantitative easing. All of the factors discussed above, combined
with soaring fuel costs, will most certainly lead to a much higher "cost
of living" in the near future. The time to act is now.
 

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Wed, 03/30/2011 - 11:00 | 1116924 slow_roast
slow_roast's picture

What shithead wrote this article?  Just kidding. ;)

Wed, 03/30/2011 - 11:06 | 1116956 the mad hatter
the mad hatter's picture

yeah what a douche. stop making the cost of living go up, speculator.

Wed, 03/30/2011 - 11:12 | 1116976 egdeh orez
egdeh orez's picture

LOL!

High quality charts/presentation.  Reminds me of the type I'd make!

Wed, 03/30/2011 - 12:03 | 1117309 HoofHearted
HoofHearted's picture

Love the Turd. Embrace the Turd. Uh, nevermind.

Wed, 03/30/2011 - 11:02 | 1116933 baby_BLYTHE
baby_BLYTHE's picture

Help feed the Turd!

Wed, 03/30/2011 - 11:03 | 1116939 Dr. Richard Head
Dr. Richard Head's picture

TURD!!!!!!!!

I remember talking to my pops about inflation back in late 2008 and early 2009.  He said that tide will lift all boats. 

Last year I made more money than at any point in my life on a nominal basis.  Too bad basic life needs have risen faster. 

Anyone see that reset button? 

Wed, 03/30/2011 - 11:29 | 1117081 Dr. Richard Head
Dr. Richard Head's picture

Junked really?

Someone upset by the fact that the cost-push inflation created by Bennie Boy takes boats underwater quicker than demand pull inflation?

Tide is coming in bitchez.  Better recognize.

Wed, 03/30/2011 - 11:47 | 1117187 Imminent Crucible
Imminent Crucible's picture

Junked? I'm sure someone meant to hit the reply button and hit junk instead.

Either that, or it was your dad.

Wed, 03/30/2011 - 11:07 | 1116950 Misean
Misean's picture

The real problem is that these price increases are bubbly (freshly printed levered money chasing a near-time limited supply) and inflationy (more money floating around the plebes). This distorts the ag markets and causes chaos in the food chain.

Wed, 03/30/2011 - 11:25 | 1117052 LawsofPhysics
LawsofPhysics's picture

Yes, but I am making too much on commodities and rare earths to push it, just yet.

Wed, 03/30/2011 - 11:11 | 1116982 Eric The Red
Eric The Red's picture

Holy Crap, 

 

A Turd post was the only thing that could have made me log back in on ZH.  And my picture thing still works, WoooooooHoooooooo!!!!!!!!!!

Wed, 03/30/2011 - 11:40 | 1117137 CD
CD's picture

Hiya, Eric#1. Good to see you flying the Viking flag...

I too have trouble with getting the icon to display in Blogspot, but what the heck..

Wed, 03/30/2011 - 11:14 | 1116987 nevadan
nevadan's picture

USDA grain and crop reports out tomorrow.  Probably a volatile day ahead.

Wed, 03/30/2011 - 11:13 | 1116992 Idiot Savant
Idiot Savant's picture

Beans & rice, bitchez!

Wed, 03/30/2011 - 11:50 | 1117205 Bubbles...bubbl...
Bubbles...bubbles everywhere's picture

Since I started reading this blog a few months ago, I bought a 20 lb. bag of beans and thought myself how to cook them. I now make a mean batch of beans and have save probably hundreds of dollars in the process by just cutting my dinning out habits. Oh, and I made a few bucks buying silver too ;) 

Wed, 03/30/2011 - 15:09 | 1118344 Lord Koos
Lord Koos's picture

The problem with buying that many beans is that they get stale, unless you are eating them every single day.

Wed, 03/30/2011 - 11:13 | 1116996 SheepDog-One
SheepDog-One's picture

But hog prices are bullish! We just learned that consumption is not down, well as long as they dont stop printing food stamps or make anyone pay their mortgage ever again!

Wed, 03/30/2011 - 11:16 | 1116998 MountainMan
MountainMan's picture

All hail the turd!

Wed, 03/30/2011 - 11:16 | 1116999 thebark
thebark's picture

Look...the Fed is going to bring QE2 to an end in June....the dollar will soar....commodities will crash...along with the stock market.....

but when no one shows up at the auction for our trash(bonds & treasuries) the following month the Fed will come right back in with QE3!

Then the shit(gold, silver & most all commodities) goes parabolic....

 

Wed, 03/30/2011 - 11:14 | 1117001 Dan The Man
Dan The Man's picture

 

nice penmanship !

Wed, 03/30/2011 - 11:18 | 1117010 oh_bama
oh_bama's picture

Which part of the two points below you don't understand?

  • FOOD AND ENERGY MOVES UP AND DOWN ALL THE TIME!!!
  • INFLATION EXPECTATIONS ARE TOO LOW SO THEY--THE FED--HAVE TO QE!!

 

Wed, 03/30/2011 - 11:20 | 1117018 Bicycle Repairman
Bicycle Repairman's picture

Bernanke has got to get the primary dealers to stop buying food commodities and focus on APPL.  Meanwhile they can raise the margin requirements on these commodities.

Wed, 03/30/2011 - 11:20 | 1117020 DosZap
DosZap's picture

Thw worst part is people can and will, and are doing without meat.

It is also the easiest to keep, the grains are where the killing fields lie.

Stop and think about what is made out of just three grains, Wheat,Corn, Rice.

They feed the world.

We douchebags, burn it as fuel, and it's not a $ friendly substitute.

Wed, 03/30/2011 - 11:20 | 1117032 Spalding_Smailes
Spalding_Smailes's picture

But, but, but ..... How do charts work in a rigged fiat casino driven by the EE & Blythe ? Just can't wrap my mind around that one .....

Wed, 03/30/2011 - 11:23 | 1117036 SheepDog-One
SheepDog-One's picture

Turd...why do I get the distinct impression its US that are being fattened up and lulled into complacency for the slaughter??

Wed, 03/30/2011 - 11:23 | 1117038 RobotTrader
RobotTrader's picture

Metals getting crushed today.

Could be enough to send the CRB Index and the ags into a freefall.....

So far, the line appear to be holding.

Wed, 03/30/2011 - 11:24 | 1117055 Spalding_Smailes
Spalding_Smailes's picture

Don't worry the crash will be blamed on the EE or something so the said predictions are not put into question .... Happens every single time. A win • win. And you get payed in fiat.

Wed, 03/30/2011 - 11:44 | 1117159 nope-1004
nope-1004's picture

Chart shows Gold down .02%.  "Crushed"???

If Netflix goes up .01%, is that "parabolic"??

The only thing happening here is the banksters have no metal and are flooding the market with unbacked paper shorts to keep prices down, all to mask the inflationary cliff Benocide has us headed toward.

 

Gotta love white collar crime.

Blythe has no conscience.

Wed, 03/30/2011 - 11:56 | 1117255 Robot Traders Mom
Robot Traders Mom's picture

What is your definition of a crash? I wasn't on ZH 30 years ago when silver crashed so I can't say blaming the EE happens everytime.

In fact, I can't remember the last time silver and gold crashed.

Wed, 03/30/2011 - 11:35 | 1117121 lieutenantjohnchard
lieutenantjohnchard's picture

the buffoon strikes again. silver is up. true, it opened up, and then filled the gap. but folks bought the non-dip.

and gold is flat.

and home depot is down .73%. hd, you will remember, is the stock that must be on everyone's buying wish list if you want to be part of the 2% winners in the market that school the 98% losers, at least according to zh's resident clown, the catfish mouth robo uber bull bear wannabe poster known as robottrader.

Wed, 03/30/2011 - 11:38 | 1117138 RobotTrader
RobotTrader's picture

Home Depot has vastly outpeformed the biggest, blue chip gold stock, NEM by a mile.

And, Home Depot pays a dividend which is more than double Newmont's.

Any wonder why the smart money has been buying retail stocks and not big cap golds?

 

Wed, 03/30/2011 - 11:43 | 1117167 Spalding_Smailes
Spalding_Smailes's picture

A monkey hammer ..... Or should I say .... Pin Drop .....

Wed, 03/30/2011 - 11:54 | 1117237 lieutenantjohnchard
lieutenantjohnchard's picture

no fair changing the target. you said "the metals" are getting crushed, not nem.

silver is up and gold is flat.

Wed, 03/30/2011 - 11:55 | 1117247 suldog
suldog's picture

Bingo.

Wed, 03/30/2011 - 11:56 | 1117267 francis_sawyer
francis_sawyer's picture

Robo, my inclination would be here to JUNK you (for putting up a Home Depot chart)...

Why?

Because of ALL retail, that would be the one tied most closely to "Armageddon" (think people who are behind the 8-ball - taking inventory of what PHYSICAL upgrades they need to do to their homes to improve efficiency due to the EXPECTATION of higher commodity costs [lumber, insulation, "do-it-yourself" tools, lawn & garden...emphasis on GARDEN]).

One could EASILY determine that Home Depot happens to be in a cyclical "bull" here (until people get re-stocked on basic necessities)...

Hell - I'm thinking that they could stay afloat for the next 2 years just selling SEED packets & garden hoses...

I'm at Home Depot 2-3 times per week...

Just saying...

 

Wed, 03/30/2011 - 12:16 | 1117399 SubjectivObject
SubjectivObject's picture

I resemble this remark.

Now think how HD would perform is they sold G&A.

Wed, 03/30/2011 - 12:06 | 1117323 Hugh_Jorgan
Hugh_Jorgan's picture

It's physical or nothing.

Paper metals are for... well, folks like you.

Wed, 03/30/2011 - 11:41 | 1117146 Vint Slugs
Vint Slugs's picture

Time for some moron to tell us to btfd

Wed, 03/30/2011 - 11:43 | 1117162 LawsofPhysics
LawsofPhysics's picture

sorry, you missed it. Many of us already turned paper gold into revenue bearing equities.

Wed, 03/30/2011 - 11:55 | 1117252 lieutenantjohnchard
lieutenantjohnchard's picture

actually i tried to buy the dip. but physical prices are up from yesterday where i buy. i wish there were a dip to buy.

Wed, 03/30/2011 - 11:22 | 1117045 JerseyGuy
JerseyGuy's picture

Wait - going vegetarian will not only suck in general terms but it wont save me any money??? Another reason to never trust a hemp-covered hippie.  But will this mean the end of the 99cent Taco Bell menu?

Wed, 03/30/2011 - 11:54 | 1117246 Geoff-UK
Geoff-UK's picture

As long as people are willing to eat sawdust, the 99 cent menu at Taco Bell is safe.

Wed, 03/30/2011 - 11:26 | 1117057 Dagny Taggart
Dagny Taggart's picture

You start by warning them about the coming surge in food costs brought about by quantitative easing.

And if they don't seem to "get" it, this is what they get on their birthday.

http://beprepared.com/product.asp_Q_pn_E_FG%20S200_A_name_E_Garden%20Seeds

Wed, 03/30/2011 - 11:37 | 1117103 falak pema
falak pema's picture

By the law of averages, all things that rise have as consequence all other things that fall.

Lets try and name a few :

My appetite when I see these rises.

My ability to take my wife out.

My desire to pay my banker's or tax man's calls, for imminent, last minute before closing of account/ summons by bailiff, warnings. They can just fuck off. All the more so that when you call them for explanation you end up with an answer phone tape, and it costs you telephone time to leave your complaint.

My ability to drive down to the sea for a day out at the drop of a hat when the sun shines.

My ability to talk to my friends about sports events/results as they don't watch the TV any more. Too much work!

My ability to fuck around in town as a book buyer or girl gawker, with time to kill on a side walk café when the sky is blue and I feel my office stinks of my perspiration from over work.

Fortunately on the upside,  I can always kick the can in front of a woman who gives me a parking ticket as I always drive the car of my son-in-law to be. He's lent it to me as I lend him my town flat at expensive rates. It's my ride and his ticket. Welcome to the family son.

Lol, life does have it's meager satisfactions, when I see his face over week ends. But he is a nice guy except he works for a Hedge fund, so he can pay for the dents I put into his car bumpers.

Written by my alter-ego, my avatar on a dog leash.

Wed, 03/30/2011 - 11:47 | 1117183 kaiserhoff
kaiserhoff's picture

Kill the ethanol subsidies/mandates and many problems go away.  If there is a need for ethanol fuel (there isn't) import from Brazil at a fraction of the cost.

With all due respect to Turd, if you want to understand agriculture, read the trade journal, The Prairie Farmer.  Well worth the effort for the serious few.

Wed, 03/30/2011 - 12:19 | 1117413 Flyingtrader
Flyingtrader's picture

Just FYI... we EXPORTED 1.25 million barrels of ethanol to Brazil this year.

Wed, 03/30/2011 - 14:38 | 1118174 kaiserhoff
kaiserhoff's picture

It is much cheaper to make ethanol from sugar than corn, a trick well known to all distillers.  If we export ethanol, it is for the same reason we make sugar from beets: retarded, soviet socialist style price manipulation from the government.

Wed, 03/30/2011 - 11:52 | 1117221 Smu the Wonderhorse
Smu the Wonderhorse's picture

Viva Turd!

Wed, 03/30/2011 - 11:54 | 1117223 no2foreclosures
no2foreclosures's picture

"Most of the best steakhouses proudly champion corn-fed beef because, frankly, its tastes a helluva lot better than grass-fed."

Love that idiotic statement!

Cows are not designed by Mother Nature to digest the starch in corn.  That's why it takes 10 lbs of corn to produce 1 lb of beef meat.

This writer hasn't been to Argentina where their cows are a lot happier munching on grass and their beef tastes 10 times better than any "champion corn-fed beef".

Case in point: Watch the returning Argentineans flying back to Buenos Aires and see if they choose beef or chicken.  Almost to a single man and woman, they will always choose chicken, because they think American "champion corn-fed beef" tastes like shit.

Not to mention the GMO aspect of American "champion corn-fed beef" which causes the unsightly scenes of the supersized Norte Americanos at Walmart.

Wed, 03/30/2011 - 13:31 | 1117802 The Count
The Count's picture

+100 on your post. the corn fed beef hype is typical of how the population gets brainwashed. my brother in law is a cattle farmer in brazil. his cows only eat whatever grows on his pastures and let me tell you, the meat is THE best. our corn fed beef takes like old cardboard in comparison. bet you thats why import of brazilian beef is prohibited, because the jig would be up.

 

Wed, 03/30/2011 - 14:43 | 1118202 kaiserhoff
kaiserhoff's picture

+ 200  If you ever eat grass fed beef, you won't go back.  Feedlots stuff the cattle with antibiotics and common "feeds" are sawdust (sweetened with molasses) and chicken shit.  Bon appetit

Wed, 03/30/2011 - 12:01 | 1117295 Geoff-UK
Geoff-UK's picture

Finally, something different (farm stuff) AND interesting at ZH.

 

More articles from this author, and much much much less from Charles Hugh Smith and Reggie "More Powerpoint Charts!" Middleton please.

Wed, 03/30/2011 - 12:16 | 1117390 Coast Watcher
Coast Watcher's picture

Apparently George Soros agrees on grain price inflation. Gavilon, a privately held ag investment firm associated with Soros, is about to become the third largest grain elevator company in the US after buying Union Elevator and Warehouse in the PNW. Gavilon also moving into the Aussie grain market in a big way.

Wed, 03/30/2011 - 12:16 | 1117400 Cinfultreat
Cinfultreat's picture

When I try to tell this to my sister she thinks I am a whack job and talks about her mac book and iphone (no joke), my friends say they dont care, they can just about go fuck themselves at this point.  At least i tried.

Wed, 03/30/2011 - 12:29 | 1117466 ragedmaximus
ragedmaximus's picture

 !!!!!!LLIK SREKNAB

Wed, 03/30/2011 - 13:36 | 1117852 reader2010
reader2010's picture

Feed them GMOs and Cloned meats instead. 

Wed, 03/30/2011 - 14:09 | 1118043 rumblefish
rumblefish's picture

is there a cattle etf trade on US markets?

Wed, 03/30/2011 - 15:22 | 1118408 kaiserhoff
kaiserhoff's picture

There is a futures contract.

Thu, 03/31/2011 - 00:39 | 1120327 seenod2010
seenod2010's picture

Wouldn't there also be a correlation between raising corn prices as demand for in various forms of Biofuels as an alternative to gasoline aka oil?

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