Long Term Pictures in Energy and Food Prices
"CORN BASED" Ethanol, part II the dominoes begin to fall!
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Eight to 12 weeks ago I penned a piece on CORN BASED ethanol in the "Fingers of Instability" series, it is a careful overview of the industry and its potential benefits (NONE) and pitfalls (you can access it at TedBits March 14, 2007 I strongly recommend you read it before beginning this commentary, it is time well spent), now in part two we take a look at the burgeoning problems we outlined in that piece. It is a disaster, written larger and larger like a boulder hitting water the waves emanating outward are killer waves to so much more. It is like a game of dominoes where once set in motion it is difficult to race ahead of the chain reactions to avoid further downfalls.
El Ninja, has emerged off the coast of South America. What does this mean? It means a wet spring and hot summer if history is correct. The wet spring has become a reality, we will see about the hot summer part of the forcast. Having grown up in the corn belt of Lincoln, Nebraska I understand corn fairly well. I still remember some of my earliest summer employment De tasseling corn. It was grueling work in the hottest part of the summer, but as a young boy I was very strong and it was always wonderful to finish the work and emerge with a POCKETFUL of cash. It was great money for me at the time.
But farmers will tell you that if the crop is not substantially in the ground by the end of the first week in May 8-12th, it is probably time to switch your planting intentions to Soy beans or other more hardy crops that can meet the expected weather. The odds of avoiding a freeze, or having good weather during the pollination process when the crop gets MADE start working against you. Make no mistake Farmers are gamblers in that all crops are a gamble till they are taken out of the field during harvest. Drought, hail, windstorms, floods: all are challenges farmers face every year. This winter's wheat crop was set to be record large till early April when a late freeze hit the crop, decimating the expected harvest by 30 to 40%. Mother Nature threw the dice and the American wheat farmer was hit hard!
With the rapid expansion of ethanol production rapidly depleting inventories corn prices have soared to over $4.00 a bushel, old crop and NEW CROP ( new crop prices are always been much much lower than old crop as long as I can remember. It stands to reason that once the crop arrives, supplies become plentiful once again so prices drop). I have watched corn prices almost every year drop to approximately $2.00 or slightly lower. These prices have created intentions to increase corn production by over 15% to over 90 million acres, to meet the requirements of the food industry and energy producers. Soo far so good.
Too many fund investors where on board the anticipated move higher in corn and a washout occurred, taking them off the train, probably only temporarily.
But Murphy's Law is raising its ugly head "What can go wrong will go wrong" and the laws of unintended consequences (unintended don't mean unanticipated these are easily recognized opportunities) is about to explode in our faces. Corn planting has been delayed by cold and very wet weather. They haven't been able to get into the fields as they have been full of mud. Ever tried to get a Tractor or planting machine out of the mud? It is HELLL! So, planting of the intended corn crop is not in the ground is over 50% behind schedule at this late date.
Because of crop insurance that set at high prices many farmers will plant the corn regardless of when it gets into the ground, they are guaranteed their price by the government. But other farmers didn't put their acres into the program. So their planting intentions are already rotating to other grains, they will continue to do so for the next three weeks. From here on in any corn planted has diminished expectations. In three weeks don't even consider it. It is a disaster even today, set to grow to gargantuan proportions over the coming weeks and months. There is no way they can reach the intended acreage from here! Corn this week has been plummeting in price in anticipation of planting getting back on schedule, well as we go to press, huge rain storms have hit Iowa, Missouri and Kansas, 4 to 8 inches of rain and flash floods are being reported. Whoop's El ninja strikes again. Subsoil moisture is outstanding so the crop should start well unless flooding takes place.
Even if they get it in the ground, the anticipated heat will kill the yield, if el ninja produces its usual summer intense heat. Corn is a crop that needs regular rain, weather patterns provide regular anxiety year in and year out as farmers scour the weather map for this vital ingredient. Intense heat over 80 degrees for extended period is also very counter productive, the corn crop need regular temperature drops onto the high 50 to low 60's at night for optimal development. During El ninja you can expect neither, brutal heat day and night combined with far less rain.
But there is now a new problem to add to the equation. Ethanol production is mandated to increase, it is written into the law. The plants are open and new ones are being completed on a weekly basis. Current ethanol demand has completely depleted current inventories and reserves. The USDA barely talks of this ethanol demand, it is potentially explosive news, panic could easily enter the marketplace. It is the one problem that the liars at the USDA can't manage with their usual rhetoric. I have read Bill Gary's excellent work since the mid 1990's, he always publishes his estimates and the official USDA numbers. The USDA regularly rigs the game by releasing numbers that send the grain markets to the lowest price possible, just as the commerce department shades the GDP numbers, the labor department shades the unemployment data, and the treasury manipulates the inflation numbers. It is a predictable pattern used to manipulate the public and manage expectations, they are masters of this game. Some of their lies are unknowable, and we will never discover them, they are buried in the numbers they massage.
(Authors note; looking for assistance in creating portfolio diversification that can survive and thrive in what I am outlining? In fingers of instability? If so contact me through www.TraderView.com. Subscriptions to this newsletter are also free at this address; send it to a friend, Thank you!)
Well the numbers are really becoming quite clear as it relates to corn. THEY ARE VERY UGLY. There is no room for a poor crop, but we are already at a poor crop because of the late planting. People and livestock require food. The crop is not going to be the size that was intended or required to meet all these demands of the competing groups of consumers: people, livestock and ethanol. Corn stocks in China, Mexico, the former Soviet Union, the EU and India are low as well. Food protests are emerging in many of these places. World corn consumption has exceeded production for 7 out of the last 8 years.
Well, domestic and international wheat stocks are also very low. Droughts throughout the world last year severely reduced wheat stocks and prompting export restrictions in many exporting countries, Australia, a major exporting nation suffered an almost complete wheat crop failure, production plunged from 25 million bushels to about 10 million. So major consuming regions went to higher priced producers to supplement their food and feed requirements. Reducing inventories around the world even more. Six out of the last seven years the world has consumed more wheat than it produced. Ending world stocks of wheat this year will be the lowest in 26 years.
As mentioned above the US wheat crop has been severely reduced by the late freeze. Can you guess who is having problems for the 2nd straight year? Yep, you got it Australia is again in trouble. So switching to wheat as feed grain is problematic at best, additionally wheat doesn't really fatten livestock like corn does. So you need to feed more of it to get the same weight. Chickens can eat a lot of soy meal, but cows and pigs can't. It causes the runs, especially in the piggy's.
As incomes rise around the world demand for grains and meats will drive usage incrementally higher as they use rising incomes to feed themselves better. Incomes are rising around the world as 3 billion people enter the global economy after years in poverty. They wish to feed themselves in a better manner, and are doing so daily.
We are in the beginning stages of a massive bull market in grains. Historic, shortages in beans and wheat which should emerge with next years crop, and are close on the heels of the present and emerging corn shortage. The full impact of bio-fuels has still not been felt, as worldwide new plants come on line over the next year, they will be. See how soy and palm oil are beginning to move? Add to this situation the tremendous liquidity now searching for alpha in the hedge and commodity investment funds "fire hoses of hot money" and this really is shaping up to be quite a fireworks show. At one point earlier this year the corn crops open interest at the Chicago board of trade was double what could be harvested. WOW. The dominoes of disaster roll forward as CORN BASED ethanol's unintended consequences (unintended does not mean unanticipated, these are big investment opportunities). This is an asset class that has "Finger of Instability" (see Tedbits archives for the series at www.TraderView.com), written all over it. It can and will get way ahead of itself before the bubble pops.
The definition of inflation is when you purchase something today because you know it will be higher in price tomorrow. We are going to see this written in real life as the consumers and industrial users of this essential commodity we call corn duke it out, with the speculators in there to make their lives even more miserable through higher prices. The stupid, politically inspired American experiment in "CORN BASED" ethanol is about to roll over you like a steamroller!!! What a wonderful addition to add to our lives! NOT. Do you know what to do? Do you know who to thank for this wonderful opportunity?The most ridiculous item of the week.
Most NGO's (non governmental organizations, funded by groups of nations for common goals) such as the United Nations, OECD, World bank, the International Monetary fund were valuable contributors to world stability after world wars I and II. But for lack a mission now all have sunk into the depths of corrupt bureaucracies. They are comic book characters now slinking around the world serving up self aggrandizing and self serving goals. Just as Government programs everywhere never are ended decades after their usefulness has ended, but never die, these dinosaurs still roam the earth fighting extinction. They are politically correct as their original intentions/missions were so virtuous, so nobody calls a spade a spade in the politically correct press. Now they are big money machines with heavy strings attached, power and control strings.
Anybody that is involved with them are in it for the money and the money they graft off them is enormous. Any nation taking advice from the IMF is doomed to poverty and economic destruction, its prescriptions are recipes for disaster. Ask Russia, Argentina, Thailand and Brazil to name a few.
Asia has formed its own consortium of central banks with a insurance pool to provide liquidity in times of trouble, with 1997-98 still fresh in their minds. To avoid IMF and World Bank involvement in future crisis management. The OECD is the taxman for the welfare states as they sink into bankruptcy from their impossible spending schemes, currency controls and higher taxes are their only goals, economic development is lip service. Ending Harmful tax competition is its principle mission, putting the stranglehold of hold of the welfare states high taxes onto more competitive economies. The examples of the World Bank, IMF and United nations are ripe with horror story after horror story of incompetence, unbelievable poor advice, and criminality.Make no mistake the railroading of Paul Wolfowitz at the World bank is a bag job. This issue was vetted BEFORE he ascended as President of the bank. The Wall street journal has carefully detailed every move by his adversaries. Talk about the pot calling the kettle black. Corrupt insiders are putting the Kibosh on reform, pronto. Paul Volker was being invited to the party and they new it was going to be a debacle. Food for Oil was going to be a walk in the park compared to the wholesale thefts that is the World Bank. Any informed careful observers that do not form opinions on headlines know this. I still remember Secretary General of the UN, Kofi Annan rushing to Baghdad just before the invasion of Iraq stating that he had met with Saddam and that this was a man he could do business with. A Freudian slip of epic proportions as we learned when the food for oil scandal broke. He was heavily ALREADY involved in business with Saddam as he spoke those words of B*** poop. He, his son, France, and Russia were on a gravy train extraordinaire, as they skimmed money and made kickback to Saddam and his boys.
(Authors note; looking for assistance in creating portfolio diversification that can survive and thrive in what I am outlining? In fingers of instability? If so contact me through www.TraderView.com. Subscriptions to this newsletter are also free at this address; send it to a friend, Thank you)
Now here comes the United Nations with another real laugher. There used to be a country named Rhodesia. Rhodesia was the flower of Africa, prosperous, self sufficient, responsible and honest government and an agricultural power house. A bread-basket to Africa. Poverty and corrupt government was everywhere in Africa but Rhodesia. But as we all know, all good things come to an end and this did too. As good Samaritans these government NGO's pushed for the end of apartheid in South Africa. i.e. white government. In South Africa there was a big divide between whites and blacks and it needed to be addressed. Nelson Mandela was the poster child of this movement as he lead the revolution till it succeeded.
Rhodesia was another story though, most of the blacks and whites were rising in income together, famine and unemployment was not an issue in this garden place. It was well managed and as far as the repression in South Africa it was like black is to white. When everybody is making money tough feelings are reduced. But the NGO's went after Rhodesia anyway, and they blinked.
It changed its name to Zimbabwe, threw out the white government and the rest is history. A man named Robert Mugabe seized power and never has relinquished it. Driving this prosperous and peaceful powerhouse into abject poverty. Its economy has gone from FIRST to the WORST. Its currency now suffers inflation measured in wheelbarrows. Thousands of percent a year as there is no wealth creation now taking place in Zimbabwe, there are no tax revenues because there are no revenues. Productive enterprise is a distant memory. Everything is paid for with a printing press and the result predictable, Hyper inflation and Weimar republic type conditions now exist.
HORNS BLARING: Guess who is poised to be elected to the chair of the United Nations Commission on Sustainable Development? You guessed it. ZIMBABWE. Who is the main funder of the group? The World Bank and the IMF. I could laugh but I am crying. Just as Sudan was named to the chair of the human rights commission. This new appointment is right along the lines of previous demonstrations of exemplary leadership and shining moral examples to the world. Comic book contradictions, George Orwells1984 in the real world. How can they put forward these obscenities and get away with it. Why isn't the press having a field day? Left leaning journalists and political correctness. Why does no one ever criticize the obscene behemoths, and unmask them for what they are and have become?
This is the same United Nations whose Environmental commission Al Gore cites as the conclusive authority on "GLOBAL WARMING". After this above mentioned endorsement for this moral authority Gore Cites that the debate is over!! 2500 scientists in 150 countries opinions as established fact. Think about that number and slice it apart, 2500 scientists divided by 150 countries. That's 16 scientists per country: you could fit that group in a small bus or seat them at two big dinner tables. Hardly a broad chorus of hard conclusions. Do you think there might be 16 scientists in each country working on one government sponsored climate projects? Who do you think pay their current salaries? Do you think they may have been promised future work when the fleecing of the planet begins based on their canards? Global warming is probably taking place, as it has since the last ice age, but the cause of it is highly debatable, human versus nature. It is a power and money grab from the most ignorant among us.
Do you really want to put your futures into these people's hands? These groups are institutionalized corruption, the fiat money and credit creation are part of their theft of your future prosperity, as it is what funds them. It is this money and credit creation that destroys the value of your savings no matter which country it resides in. Endless redistribution of income with the global politicians at the wheel. Fiat money and credit creation are the holy grails of governments everywhere as it is the recipe for endless government growth And increasing slavery for us all!!! These NGO"s are a dream come true for power mad politicians worldwide.
In Conclusion, Everything I have covered has inflation written all over it. Exploding prices up and down as these things play out in "FINGERS OF INSTABILITY" (see www.TraderView.com for the whole series). Government inspired and implemented foolishness and absurdity. They are opportunities or pitfalls: you get to decide. To overcome their current poor policies and future boondoggles will require cubic money and credit creation, so it's set to continue. The economies of the world are booming for the most part, the United States is the emerging sick man at this point as the money and credit creation sickness are far more advanced than the rest of the world.
The United States started massive doses of it when Greenspan came to office, the rest of the world has done so much more recently, so it still has much farther to go. They also can support more credit creation for development as they have massive savings built up. This is the financial and economic NO SPIN zone. See it, unfurl your sails and benefit from it as it unfolds. It is not doom and gloom: it is a roadmap to salvation for smart investors everywhere. Thank you for reading Tedbits, if you enjoyed it send it to a friend, subscribe yourself it's free at www.TraderView.com. Thank you for spending your valuable time with us. Don't miss the next issue!!
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January 19th, 2021
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