World Commodity Prices Deflate; U.S. Farmbelt Faces Below-Breakeven Crop Prices
Oct. 6, 2008 (LPAC)--Index prices have fallen over 40 percent since July for a combined group of commodities, including grains (e.g. corn, wheat, soybeans), industrial metals (e.g. copper, zinc, nickel), precious metals (gold, silver), as well as oil, according to all data composites. The global price value of 19 commodities in the Reuters-Jefferies CRB Index has fallen $280.6 billion, or 43 percent, from its July 3 peak, a loss larger than their total worth two years ago, according to coverage of the index by Bloomberg. Last week alone, the CRB index fell 10.4 percent, the largest weekly drop in over fifty years.
The deflation reflects a mass exodus from the Chicago, New York, London and other major exchanges by hedge funds and other players in commodities speculation, now lacking credit for their gambling habit, and seeking to cover losses or just fleeing to find 'safer bets.'
Among the dramatic price declines from July to October:
* Wheat-- $13 a bushel, down to $6 a bushel
* Tin-- $25,000 a metric ton, down to $17,600
* Nickel--$33,000 (March) down to $15,900
But far from signifying a "break" for end-users, which would spur actual physical activity in agro-industry and construction, the dynamic is for chaos, given the lack of concerted international collaboration for a new credit system to stabilize and expand national economic functioning. The case of the U.S. Cornbelt makes the point.
Corn prices were run up as of July to the level of $8 a bushel in futures speculation, which occurred in the context of the Mississippi/Missouri Basin flooding, which hit the heart of the U.S. Cornbelt, which accounts for nearly 35 percent of the world's annual corn output. However, after the corn futures price went down by September to $6 a bushel, then last week, the price dropped 16 percent down to $4.55 per bushel (futures price for December delivery), on the Chicago BOard of Trade. At some actual grain elevator buying stations, the price to the farmer is still lower. The Iowa state cash average is only $4.12 right now. This is a barely break-even price for the farmer, given the costs of fuel, fertilizer and other crop inputs.
The same process is affecting soybeans, wheat, and other farm commodities. Soybean futures have dropped from $16 a bushel in Summer, down to $10 for November futures on the CBOT. Below this, and the farmer gets no profit at all, and losses set in.
Wheat is at the same point, having dropped from the $13 a bushel high, down to $6 a bushel. "With average yields, current prices and higher input costs, you are back down to breakeven levels for winter wheat," summed up Dr. Mark Welch, an agriculture extension economist in Randall County, Texas recently.
In this context, farmers have no basis at all for planning ahead. One longtime Iowa corn and bean farmer reports that ad hoc solicitations are showing up in his county, asking him and neighbors to quit operations, and to just rent out their land to roving teams of young workers, geared up to farm 10,000 acres or more as "investments" for absentee money funds. A page from the book of feudalism.
