FedUpUSA

Archive for the ‘Commodities’ Category

A warning to those who think that this story being off the front page means it’s over.

It’s not.

I am getting repeated reports that farmers and other producers are turning increasingly to direct deals with the users of their products, eschewing the futures markets entirely.

These are not speculators.  These are the people who grow the corn, wheat, soybeans and other products you wish to buy in “processed” form.

This is exactly what I warned might happen, and it appears that it is.

It is an extremely dangerous trend for consumer price stability and in fact for the stability of our nation’s economy in general.

Futures markets in various forms are not new constructs.  They literally date to the East India Tea Company with spice contracts.  They are necessary lubricants for price stability and the even functioning of markets.

Some very ordinary transactions that we have all become accustomed to are at risk of disappearing entirely.  Among them are airline tickets at a known price for travel six months from now.  Reasonably-stable prices for a box of cereal are another example (corn has traded from 572 to 799 in the last year; a forty percent range over the last 12 months; soy and wheat have seen similar moves); indeed, virtually every food item in your store, from orange juice to bacon (pork bellies) is hedged off in these markets!

The move to direct transactions means that the reasonable stability we have enjoyed in these transactions, or even the ability to enter into them at all over a horizon of more than a month or two, is at risk of disappearing!

I warned when this story first broke that the danger was much more severe than being reported and that in fact the financial media was downplaying the importance of this fiasco.  It was (and is) my expectation that if there is another event of this sort the entire futures market structure for hedging these prices would be likely to collapse.

But now the cracks are becoming evident around the edges anyway.

The producers don’t have to put up with this crap and they are beginning to vote with their feet.

The unwillingness of the government, from Obama and Eric Holder on down, to demand that these funds be returned to the segregated client accounts immediately irrespective of who holds them and irrespective of how, with sorting out who goes to prison for the actions behind their loss, if anyone, at a later date is a failure that the markets appear to be taking very poorly.

If you think this story is “over” because it’s no longer front-page news, you’re wrong.  Keep your ear to the ground on this one — it is rather likely that more unpleasant surprises are going to be forthcoming in this sad saga.

(Reuters) – For the first time in 25 years, Minnesota farmer Dean Tofteland has missed his deadline to buy seed for next spring’s corn and soybean crops.

With $200,000 of his money yet to be returned from the accounts of MF Global, his former broker, the 49-year-old farmer has missed a $5,000 discount for early buyers, and is watching friends and neighbors snap up the best varieties of seeds.

In the latest sign of how MF Global’s failure is continuing to cascade across the commodity industry, Tofteland and other farmers who have yet to recover more than a third of their money from the bankrupt broker now find themselves in a cash crunch that risks rippling far beyond the futures market.

Some farmers have had to postpone purchases of land or equipment. Tofteland still expects to sow his 1,000 acres in the southwest corner of the state, but may have to borrow money to do so.

Still, the delay in returning billions of dollars in customer funds more than a month after MF Global filed for bankruptcy is starting to affect actual decisions on the farm. This threatens to cloud the outlook for U.S. crops, warn farmers who have been ratcheting up pressure on the bankruptcy trustee to move faster to disperse any cash he secures.

“That’s pretty serious when you’re raising food for the country and the world,” Tofteland said.

For most farmers, the fact that their broker may have taken as much as $1.2 billion of customer money for its own use is bad enough. But the seasonal business of farming is now being disrupted since regulators still can’t account for the missing funds, or even agree how big the hole is.

The chief regulatory officer for CME Group said on Tuesday the exchange was confident after more investigations that some of the higher estimates of the shortfall in MF Global customer funds were inflated. CME was MF Global’s main regulator at the exchange level.

“The amount of money that we have tied up is significant,” Tofteland said. “Because of this I’ve been delaying my seed purchase decisions.”

Tofteland normally would have made his purchases at least two weeks ago to take advantage of discounts for farmers who buy early. He has avoided borrowing money in order to do so because he does not want to take on more debt but says he will consider a loan if the delay persists.

Tofteland worries his harvest next fall will suffer because the best-performing types of seeds will likely be sold out by the time he makes his purchases. He still plans to plant his crop in the spring.

DAWNING IMPACT

Farmers are among the thousands of former MF Global clients who are missing money from the brokerage. The firm run by former New Jersey Governor Jon Corzine, an ex-CEO of Goldman Sachs, collapsed on October 31 after making bad bets on European debt.

The bankruptcy had an immediate impact on farmers’ abilities to hedge their crops at grain exchanges. Many had to liquidate positions or put up additional cash to meet margin calls after their accounts were transferred from MF Global to other brokerages.

Now, the collapse has begun to impact farm decisions that can directly affect output.

In Montana, Marty Klinker, who grows wheat and barley, is missing about $275,000 from his accounts at MF Global. He said the shortfall caused him to delay buying more than $500,000 worth of farm equipment, including a tractor and combine, from manufacturer Case IH.

Klinker didn’t know whether he would eventually buy the equipment, which would replace older models on his farm. He said he has to decide by the end of the year to take advantage of prices he previously negotiated with the company.

Case is a brand of CNH, a majority-owned subsidiary of Italy’s Fiat SpA. A Case spokesman did not respond to a request for comment.

“We’re right in the middle of year-end equipment decisions,” Klinker said.

FARMERS CAUGHT OFF GUARD

MF Global’s collapse has not completely halted farm purchases.

Stine Seed, which calls itself the largest independent U.S. seed company, has not seen a slowdown in sales, said Myron Stine, vice president of sales and marketing.

Yet, other agribusiness professionals confirm shockwaves from the bankruptcy have disrupted plans affecting crop production.

Diana Klemme, a broker for Midwest grain elevators and vice president of Grain Service Corp in Atlanta, said one of her clients was holding about $400,000 cash in an MF Global account at the time of its collapse. The client had to delay purchasing some land because the money had been frozen, she said.

Farmers were caught off guard by the disappearance of their money because it was held in segregated accounts considered to be immune from troubles at brokerages. Several farmers said they had felt it was safer to keep cash in the accounts than at local banks.

(Reporting by Tom Polansek; Additional reporting by Jonathan Spicer in New York and Dave Clark in Washington; Editing by Dale Hudson)

It does not help your case when you make absurd statements to support your views. All it does is damage your credibility. Here are a couple of completely unrelated viewpoints that will show what I mean.

“No Food at Any Price”

Speaking on food shortages, Jim Rogers says Global Agriculture Supply Worsening May Spur Food Shortages

The global agriculture supply situation has worsened and a failure to boost food production fast enough to meet demand may lead to shortages, said investor Jim Rogers, chairman of Rogers Holdings.

“We’ve got to do something or we’re going to have no food at any price at times in the next few years,” Rogers said in a Bloomberg Television interview with Rishaad Salamat today in Singapore. “I still own agriculture. If I found something to buy, I would buy it.”

Rogers likes agriculture. Maybe he’s right, and maybe not. However, the notion “We’ve got to do something or we’re going to have no food at any price at times in the next few years” is one of the more blatantly absurd things regarding food shortages that I have ever heard.

US has record grain forecasts. Even if you do not believe those forecasts, the US is going to have a good crop. How does that translate to “no food”? The short answer is “it doesn’t”.

Many reported shortages are weather-related. Some “alleged” shortages are not shortages at all, but unavailability because of government price controls. The rest of the “shortage” problem is  higher prices caused by speculation and/or rampant inflation in China and India.

The idea there will be no food at any price is absurd. There may not be food available at government mandated prices, but that is certainly not what Rogers said.

“U.S. Needs a Massive Public Works Program”

Barton Biggs Says U.S. Needs a Massive Public Works Program

Don’t expect the economy to perk up any time soon.

The U.S. and Europe are set to grow at an anemic pace for the foreseeable future unless the government can step in with an enormous fiscal stimulus, according to a veteran investor.

Speaking exclusively with The Wall Street Journal, Barton Biggs, managing partner at multibillion dollar hedge fund Traxis Partners, painted a bleak outlook for the developed world with only huge government intervention likely to improve things.

On the final day of the Federal Reserve’s bond-buying program, Mr. Biggs dismissed a further round of the so-called quantitative easing as a possible solution. It was meant to lower borrowing costs and simulate investment.

Instead, Mr. Biggs, former chief global strategist for U.S. investment banking powerhouse Morgan Stanley, demanded the U.S. government temporarily return to ideas used in the Great Depression as a way to get the country back to higher growth.

“What the U.S. really needs is a massive infrastructure program … similar to the WPA back in the 1930s,” he says.

He suggested financing such building through the sale of U.S. Treasuries.

Failure of Japan

It amazes me that apparently bright people can neither think nor see. Biggs is proposing the same medicine Japan tried. Where did it leave Japan? After 20 years of infrastructure projects, Japan has government debt to the tune of 200% of GDP and is still mired in deflation.

Looking Down the Road

Demographics and debt levels now are both far more precarious than they  were in the 30′s and 40′s. Worse yet, Davis-Bacon and prevailing wage  laws guarantee government will overpay for what it gets.

What if we tried the idea anyway? What if we fixed everything in 5 years?

The economy would boom for 5 years, then what? How would the US pay back that debt? What would happen to jobs the moment the projects finished? How would our children and grandchildren pay back that debt?

No Painless Solution, No Free Lunch

The very last thing the US needs is a massive infrastructure program paid for via the printing presses. Instead, we need to cut military spending, scrap Davis-Bacon, scrap prevailing wage laws, get rid of government workers, reduce public worker pensions, and get the budget in shape before the US becomes the next Greece.

Will that cause pain? Of course it will. However, Biggs wants a free lunch. If printing money solved problems, Zimbabwe would be the wealthiest nation on the planet.

Biggs Cannot See, Hear, Think

It  would help if Biggs could look at Greece, or Spain, or Portugal, or  Ireland. Those countries show what happens when debt gets excessive and the bond market takes matters into its own hands.

The  logical conclusion is Biggs is cannot see, hear, or think.

Perhaps Biggs is simply talking his short-term book with complete disregard to what his proposal would do to our children and grandchildren, so that he could have one last party.

Mike  “Mish”  Shedlock
Global economic Analysis

Gee, what’s this from Hoenig?

The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.

And what did I post a good long while back?

That was the second version, and now that Hoenig has admitted it, well…..

Where are the handcuffs for BendOverBernanke?  It’s a crime to lie to Congress!

The Market-Ticker