Friday, October 8, 2010

A Busy Week

The Grains market went ballistic today. The USDA slashed end of year inventory (the food supply's margin of error) to the lowest level in 16 years (in the end, my bet is it will the lowest level, EVER).

To you doomers:

No, this does not mean food shortages (at least not right away, and not here in the U.S.  I would not want to be living in a Pakistan, Sudan, or Egypt...). It does mean that the 2011 crop has ZERO margin for error. If the U.S. experiences some kind of extreme weather phenomenon in the Corn producing regions next year... there will STILL not be a food shortage (well, unless we have weather on par with 1936... then we would be in some deep doodoo).  There WILL BE a gasoline shortage, though.  The U.S. consumes over 42% of its corn crop to produce ethanol - so the slack would have to come from there... and, given that ethanol provides roughly 10% of the U.S. consumption of gasoline BY VOLUME... something would have to give... but I do need to noodle this some more...


The Fed and U.S. Treasury seem hell bent on bringing the US$ to its knees.  I am not sure what they have in mind and what they hope the outcome is... but it is a fascinating time to be alive... and at this moment they are "in for a penny, in for a pound"... today's unemployment number was horrific, and the data upcoming for at least a couple of quarters are going to be ugly - so the equity market bid up prices in anticipation of QE2.  The market must have missed class the day they covered the "Broken Window Fallacy" in Eco 101.


Bank of America halted foreclosure sales in all 50 states today.  The other big banks are not far behind.  What a windfall for the irresponsible!  And what a disaster for the modest, frugal, rational folks that kept their debt levels in order.  Politicians are tripping all over each other trying to enact some kind of moratorium... be careful what you ask for, you might just get it.  Any foreclosure moratorium would drop the housing market and economy to its knees... and they might not be able to get the whole debt slave thing going again, or at least for quite some time.



PioneerPreppy said...

I don't know if I agree with your "no food shortage" statement.

This corn shortage coupled with Russia's wheat shortage may cause some huge problems. Maybe not in the US but in other places and it will effect our prices big time I think.

Not to mention it has been my experience that when the Ag dept forecasts a shortage this early it usually gets worse. Or maybe I am just having a selective memory moment.

And BoA can't foreclose with no buyers out there foreclosure means no money backing the other loans they have made. What would happen if the banks were forced to call in all those payable on demand business loans right now?

Dextred1 said...


It seems to me there is some plan to destroy our nation. How else do you explain the actions of our corrupt, degenerate, pathetic government? It comes down to either the government does not know what it is doing or it knows what it is doing and is purposefully doing it. The first option means they are stupid and inept, the second means that the government is bought and sold. Either way means we are up the creek without a paddle. The question is will americans stand up and take back what is rightfully theirs.

"If ever time should come, when vain and aspiring men shall possess the highest seats in Government, our country will stand in need of its experienced patriots to prevent its ruin."
Samuel Adams

Anonymous said...

Windfall for the irresponsible? What about the jerks who have stuck a dagger through the orderly accounting for private property, just because they didn't want to pay filing fees at the county court.
The slice and dice boyz are criminal in a way that leaves ghetto hip hoppers in the dust.
Why does Wall Street hate America and the private property system?
You were there, can you explain it?
I have spent a lot of time in third world coutries and one thing that cripples them most is not having a trustworthy accounting for real estate and private property. It's all about possession.

Dan said...

There is nothing wrong with the corn crop the problem is the estimate. The initial estimate was for 162.5 bushels per acre even though the average over the last five years was 153.3 bushels per acre. The current projection is still for 155.8 bushels per acre which is better four of the last five years, though slightly below the all time record of 164.7 bushels per acre set in 2009.

What really tipped me off was when I saw an article calming “Nebraska corn crop disappoints”- like hell it does I was there recently and it was fantastic. The “disappointment” is with a currently projected 170 bushels per acre which will be only the second largest corn crop in the states history. They had forecasted 179 bushels per acre.

If we have to set a new record every year just to keep up...

kathy said...

Were the projetions wishful thinking, a reflection of what was needed? If so, no matter what levels were in relation to other years, we are still in trouble. It takes a lot more food to feed all of these new mouths each year. I don't fully understand the forclosure issues. Initially, would it remove inventory and make things look better than they really are?

Stephen B. said...

I've been wondering for some time what the longer term implications are of this lost paper trail on so much real property and I'm not sure that I've really sorted out much.

What it does seem to do is create a couple of different classes of property - that which most likely has a clear, clean title (property that didn't change hands during the past 10 to 15 years or so with financing involving a sold, resold mortgage) and that property that is clouded with untraceable paper.

It seems to me property in the former category is now more valuable than the latter...if the latter can even be sold at all.

But then too it seems to me that a fair amount of property is simply going to be occupied by whomever is occupying it now. That is, people holding property that would have been foreclosed upon except for the paper trail being muddied now more or less get to keep it at much reduced cost with the penalty being that they can't really sell it now, at least if selling in the traditional sense with a recorded, insured title, etc. I fear and smell more national laws being enacted to enable the squatters at the expense of everyone else.

This kind of reminds me of something I read a few years back - perhaps it was Sharon Astyk, but I'm not sure - in which the writer talked about the US having record homeless (or about to be homeless) in the face of record foreclosures and vacant property and how the nation would reconcile this situation one way or the other by putting the homeless in that property. The more I think about it, the more I realize that this involves some kind of breakdown in our system of accounting for real property ownership. As a person and family that lives in a house owned free and clear, the whole idea is very troubling.

It does indeed smell third world-like, at least partially, and it could, and probably will, bedevil our financial system for years.

I need the brains that usually comment here at Greg's blog to help better sort this out for me, please.

PioneerPreppy said...

Three things playing out here at least in my region. The Spring rains were extended and the lower fields were too wet to plant until it was too late. Of course it is usually the lower fields that produce the best here anyway.

Some of the other fields which were sown never did look right and produced much smaller ears and a number of those did not pollinate uniformly and simply rotted in the husk. Some say it was the uneven rains and warmer than usual nights.

Also a larger than usual percentage of planters spaced their crop from the usual 6 inches up to as much as 9. That saves on fertilizer. Why they were forced to do this I haven't asked but I noticed the larger spacing right off. My step father who works for one of the local counties also noticed the wider spacing this year and he was a large scale farmer before he retired.

I am sure conditions were different in other areas but I get pretty decent second hand information that stretches throughout North Eastern Missouri, Central to North Central Illinois, and South Eastern Iowa. At least for random fields.

I have read some reports that it was the lowest yield since the early to mid 90's. How many people have we added since say 1995?

Kathy - As I understand it with my first grade rating in current banking practices these banks use the mortgages to legally loan upto 8 times the value of the mortgage in mostly business loans. So if they foreclose on say a 100K loan they are actually reducing the amount they can have as loaned on the books by as much as 800k.

Business loans have a clause that allows immediate payment in full when demanded so that adds another danger if the banks must call these loans in.

Maybe I got it all wrong but that was what I took away from my reading on it.

bureaucrat said...

There will be no shortages of any kind in this country for a long time. We are awash in everything, and demand for everything (due to 360% debt-to-GDP ratio) continues to fall off at every level. We are in a deflationary depression. Everything has been overproduced, and everything is for sale.

This country is overflowing in: gasoline, oil, natural gas, diesel, corn, soybeans, wheat, coffee, cocoa, cotton, houses, commercial buildings, storefronts, electric power, you name it. There is no reason to panic, for the time being. When the retail prices start rising, then worry.

For all of you hoping and praying for the destruction of the U.S. (all you old men who no one listens to anymore, with your guns and gold), it ain't gonna happen. People are piling into the Treasuries cause, for the all big wind about governmental collapse, the rest of the world doesn't buy it. Even Americans themselves are buying Treasuries.

Americans may pretend not to trust their government cause they think it is trendy and they listen to the nuts on Fox News, but in really,, the people trust government in the U.S. implicitly. Those social security checks always are despoited on time.

My portfolio of commodities, metals, a few dividend-paying stocks and lots and lots of Federal bonds is going like gandbusters. Don't choke on my smoke. :)

Dan said...

Here is a link to the data at USDA-NASS. There was a bad patch between Liberal, KS and Garden City, KS too; but a hundred or so square miles of low yield doesn’t make for a bad corn crop in aggregate. On the whole we are looking at excellent yields.

Here is a chart of the yield, production, and month over month change.

Something isn’t right here.

Greg T. Jeffers said...


Dan, what does not add up is ethanol. Where the U.S. once exported more than half its corn production, we now export a fraction, and have increased corn use for ethanol production to 42.5% of the nations corn crop.

Too, the U.S. has been able to increase yield per acre fairly steadily with better strains and increased fertilizer use... but that has its limits as well.

I can only use the USDA data (and I despise that organization), I do not have the resources to check every micro region.

Dan said...

Looking at the data it is all but obvious that next years corn crop will not be enough. There is no way a natural system can keep up with exponential demand growth even if they do manage a record setting crop. So unless our too big to fail banks are running another scam, and even if they are, this looks pretty simple to figure out.

The estimate was either what they actually expected to get, which is not likely in my opinion. There was no freak storms that killed it and there is nothing complicated about walking a field plucking some sample ears and extrapolating. Or it could be what they needed to get, which I consider most likely, there is a well developed pattern of this lately. Alternately, it could be an inverse pump and dump. A. juice the estimate. B. go out tell the farmers it is looking to be a record setting harvest, better sell it forward before it’s worthless. C. then when you own enough of the crop...

Is it possible to buy calls on corn?