Tuesday, November 24, 2015

Betting Food Prices Fall

The hegemon has subsidized USA Big Ag exports to disaster:
Overflowing grain bins prompted money managers to expand their wagers on lower crop prices by almost ten times in the space of a week.
Global inventories of corn, wheat and soybeans will each rise to all-time highs before next year’s North American harvests, the U.S. government forecasts. While grain prices have already dropped to five-year lows, hedge funds are predicting more losses as stockpiles expand. The funds are holding the biggest bearish bet on the crops since June.
Supplies are rising after record prices in 2008 spurred farmers worldwide to increase plantings, while favorable weather in the past few seasons helped spur bigger yields. Even with a slowdown in acreage growth in recent years, gains for global consumption are also easing. A stronger dollar is also cutting the appeal of exports from the U.S., the world’s largest seller.
“We’re negative on the grains right now,” said Paul Christopher, St. Louis-based head global market strategist for Wells Fargo Investment Institute, which oversees $1.7 trillion. “It’s a combination of negative factors including weak foreign demand, record production in some places, and global supplies that are at worst, adequate, and at best, more than adequate.’
This is commodity grains, the vast majority of USA exports of food.  A stronger dollqar actuaklly matters to this category, but does not to specialty foods.  The ships that carry these graiins are not the ones that carry specialty foods, but we do have overcapacity on export, hjave for a while, so great freight low ocean freight rates.

We do not compete on price, but we can ride prices down in deflation and enjoy ever wider profits.  Here is how: as the cost of inputs of drops at an accelerating pace, you lower your prices at a slower pace.  There is a lag on perceived value, and as your costs drop faster than your selling price, your profits widen.  The next crash cannot come soon enough!
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