Agricultural Commodities Glut Across the Board — Farmland Price Bubble In The US

Short summary: the agricultural will, like any other of these inflationist trades, end in tears. Do not believe the hype, the Greater Depression will be just as the Great Depression was: deflationary, and full of oversupply, creating a self-sustaining declining spiral.

Record corn crop in China, but the Chinese government is still building inventories. This cannot last forever.
(Bloomberg) Nov 3, 2011 — China reaped its seventh record corn crop in eight years in the harvest now ending. 
That still won’t be enough to meet demand, driving a fivefold gain in imports as prices head for the highest-ever annual average. 
The world is awash with wheat.
(Bloomberg) Nov 14, 2011 — France may lose its place as the second-biggest wheat exporter after failing to win more than a dozen tenders in Egypt, the world’s biggest buyer, as shipments from Russia, Ukraine and Kazakhstan overwhelm markets
[...] France’s crop office expects a 23 percent drop in shipments in the 12 months ending in June, the most in at least a decade. 
[...] Output is also expanding elsewhere and the United Nations expects the biggest-ever global harvest. Wheat may drop another 20 percent in Paris by May, said Greg Grow, director of agribusiness at Archer Financial Services Inc. in Chicago.  “The world is awash with wheat and unless you can compete with the Black Sea you’re stuck,” said Tom Fritz, the Chicago- based co-founder of EFG Group LLC, a researcher and adviser to commodity traders. “The bias is for lower prices in an effort to clean up the glut.” Production reached 189.2 million metric tons in the harvest that began in September, 6.7 percent more than a year earlier, according to a survey of growers in the seven main producing regions carried out by Geneva-based SGS SA for Bloomberg.
Japan buys 800,000 Tons corn from Ukraine as U.S. substitute:
Nov. 16 (Bloomberg) — Japan, the world’s largest corn importer, made its biggest purchase of European grain in at least a decade, seeking a cheaper alternative to U.S. supply. 
The country bought about 800,000 metric tons from Ukraine after it removed a tax on exports last month. The purchase, made by five Japanese trading companies, was for shipments in November to March at prices that were about $20 a ton cheaper than U.S. corn, Nobuyuki Chino, president of Continental Rice Corp. in Tokyo, said in an interview today. 
Japan, which sourced almost 90 percent of its corn last year from the U.S., the biggest exporter, is seeking different options after a drought hurt the U.S. crop, driving annual prices to an all-time high and curbing global food supplies. 
“Japan joined other Asian buyers in finding cheaper alternatives to U.S. corn in feed as the American supply became too expensive,” Takaki Shigemoto, a commodity analyst at research company JSC Corp. in Tokyo, said today by phone. “A shift in demand will drag Chicago futures toward $6.”
We already discussed this a few days ago, but it's now making more headlines: the prices of farmland in the US have disconnected from their historical average yield. Their yield is now at a 40 year low.

Via Calculated Risk:

From the NY Fed earlier today: Conditions for New York manufacturers held steady in November
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers held steady in November. After a string of five consecutive months of negative readings, the general business conditions index rose nine points, to 0.6. While the new orders index edged down to -2.1, indicating that orders were a little lower, the shipments index rose to 9.4, indicating an increase in shipments. The inventories index fell to -12.2 — a sign that inventory levels dropped.
Employment indexes were mixed: employment levels were slightly lower and the average workweek slightly longer.
And from the Chicago Fed: Third Quarter Midwest Farmland Values Surge
At 25 percent, the year-over-year gain in agricultural land values in the third quarter of 2011 for the Seventh Federal Reserve District was the largest in just over three decades. Moreover, at 7 percent, the quarterly increase in the value of “good” farmland matched the highest since the late 1970s.


Tiho said...

Agriculture is about to boom for 20 to 30 years and you are calling the top in year 2! I'm sorry to say this... do not get offended, but I have nothing else to say other than...

You are an idiot... you just made it official with this post!

pej said...

Again, we'll see. Do you have any other argument than "It will boom for 200 years" and "It's a secular bull market"?

These do not make arguments, they are random statements.

Tiho said...

It is going to look so bad when prices go through the roof over the coming decade and you stay poor, while farmers drive Bentleys!

Tiho said...

p.s. As for statements... go and study some history. I'm not going to spoon feed you. It's a secular bull market.

You say in your post oversupply will create deflation, buy you actually have no clue what you are on about!

Did you know that Agriculture boomed for 20 years from 1930s to 1940s during the Great Depression? Bankers got killed and farmers made a killing...

Study some history... you seriously need to man!

pej said...

You're parroting Jim Rogers but changing some details.

Jim Rogers always says farmers will be driving Ferraris and Maseratis, not Bentleys. He seems to have better taste than you ;-)

pej said...

Farmers doing well during the great depression? You're delusional my friend. They were doing so poorly, that FDR thought it would be a great idea to actually destroy crops and kill cattle in order to try to raise the prices and create inflation!

Which books are you running man? Those written by Karl Marx? Or Staline??


Congress passed the Farm Relief and Inflation Act, also known as the Agricultural Adjustment Act (AAA). It was supposed to increase the income of farmers by reducing the number of acres under cultivation and by destroying crops already in the field. Farmers were paid not to plant. The program spread rapidly from its original coverage of cotton to all basic cereals and meat and then to all cash crops.[...]. Healthy animals were slaughtered, and fields of cotton, wheat, and corn were plowed under. Farmers were paid not to plant crops. [...] Even if the program had helped the farmers—which it did not—it would have done so at enormous cost to the millions who had to pay higher prices or had less to eat.

Here are more mentions of gluts and surpluses, my delusional friend.


At the time when millions of Americans were hungry and ill-clothed during the depth of the depression, the AAA ordered farmers to destroy crops and to kill livestock. The goal of the Tugwell AAA was simply, to "raise farm prices." The problem that was ignored, is that someone must pay the rising food and crop costs. And in a depression, who should that be? The millions of unemployed?

In order to raise prices fast, Wallace ordered 10 million acres of cotton crop to be plowed under and destroyed in August 1933, followed by the killing of 6 million pigs, including the reproductive potential of sows and small pigs, to meet the demand of farmers for 1914 levels of "purchasing power parity." Ironically, under AAA, the pigs were turned into fertilizer which went to raise output on remaining farms even more.

The farm surplus crisis was further aggravated by FDR's high-handed decision to torpedo a summer 1933 international monetary conference in London, opting instead for a national course, leaving European governments little choice but to counter USA import tariffs with their own, further limiting US exports of agriculture products, adding to the relative glut.

Tiho said...

Bentley shits all over Ferrari or Maserati. I'm not gonna even bother with rest...

Lets just say you don't get it. Your mind is stuck in deflation. Oh well.... best of luck with that!

Tiho said...

p.s. Good luck with holding US Dollars as well. That thing is going to crash SOOOO HARD, its going to make Euro look like a Golden Currency hahahaha!

pej said...

I'm still trying to understand your arguments.

You reject every point that is documented, even when it is history we're talking about, without coming up with any other record of what you state happened...

I'm puzzled dude.

Tiho said...

"You reject every point that is documented."

I cannot believe I am doing this. I am going to try one more time, one last time... but you know it is so difficult to talk to a brick wall that doesn't get it!

You continue to read non sense as your historical sources and perspectives to prove a point which didn't happen and never made any money for anyone. In theory it all sounds great, but it NEVER happened... deflation era of 30s and 40s was a great time for commodity producers like farmers!

Agriculture boomed after - key word after - the initial shock of the 30s and was the best industry all the way until 1950s and than even into 1970s! For god sake, all you have to do is look at the price of those commodities and you will realise what happened - click here.

The boom lasted into the late 40s including the World War. If we assume 1929 is 2000, both of those dates representing the start of a so called deflationary secular bear market in equities and secular bull in commodities, just look at what has been happening with Agriculture afterwards. Do some research, do some study, look at the demand and supply, look at the prices, look at the facts.

The stupid articles you outlined were just another proof of shortages developing due to stupid government policies and while that hindered farmers for a planting season or two, they became stinking rich by late 40s all around the world. prices went so so so high, they turned into a massive bubble.

Today, we are barley half way through, this huge boom, and you are already calling it a top and a bubble?

Dude you really do need to start figuring some basics out. Seriously... you are struggling if you calling bubbles for anything that goes up for a few years. Bubbles end in great mania, for god sake where is a mania in farming?

No one even wants to be a farmer man...how many young people you know are farmers or want to work as farmers? Farmers are so old everywhere from India, to UK, to Australia and the US. In five years, the old farmers will be so weak, that they will not be able to milk a bloody cow by themselves.

What are you on about man? Seriously?

That is my last try to help you see stuff properly. If you do not get it, there is no hope for you. Your mind is stuck in economic theories of total price collapses that don't happen unless we are on the Gold Standard.