What will the end game look like?

[errolanderson]

A lot of economic change may occur
possibly over the next few weeks/months.
Some of these issues appear headed
toward a crossroads fairly soon.

Here's some interesting factors
occurring right now and questions for
all-of-us to ponder.

1. Will Greece exit the Euro next month?

2. Huge withdrawals from Greek, Spanish
and Italian banks and run on ECB credit.

3. Just how much money did JP Morgan
blow and what are the systematic
fallout, if any?

4. How low will crude prices go? Will
sustained crude weakness pressure
commodity prices? Has natural gas
finally bottomed?

5. Will precious metals continue their
decline?

6. Will our spot loonie continue its
descent . . . if so, a welcomed boost
for our export market prices.

7. Is the BOC able to hike rates in 2012
or is this still at least 2 years away?

8. Is China's economic miracle still a
miracle or will Europe's demise pull
them into recession?

9. The most important question for us
is; How will these global changes affect
Cdn commodity markets including
agriculture heading into 2013?

What are some thoughts?

[malta]

Lots of questions Errol. I don't see Greece as the trigger for the meltdown (they are the canary in the mine), but I do see a meltdown coming that will rival 1929. Until now governments have stalled the meltdown but have done nothing to solve the underlying problems. I am not even going to try to pick timing or numbers, but all commodities will be hit, $6 canola may look good. I know, I sound very negative and really hope I'm wrong.

[BreadWinner]

Too many worries!!! There is a new set every
week , have you ever heard of "the little boy that
cried wolf". Some things you just can't control,
maybe you can delay the eventual outcome but
you cannot stop the end result.
The outcome will be what it will be.

[checking]

Oh!, breadwinner. So very true.

I hope wheatking has his crop in, and has gone fishing, or you will be ripped for that.

[ianben]

Nothing we have seen before.

If we loose faith in money as we know it, and trade
stops even for a week,

Supermarket shelves empty, panic, riots collapse of
law and order. man on man, no fuel,no power might
never harvest canola let alone sell it.

We could very soon be back to the stone age.

Hope I am wrong.

[Farmkid1]

Hey Errol, good questions. I do not think Ag can live in the bubble it has been in when the economic world is literally falling apart.

My question is, if you have a crop planted (all conditions look good), have forward priced a decent amount of canola, wheat, barley and oats. What else can a grower do to insulate themselves from a meltdown? Don't overspend and think the party will last forever, got it, but short term what are some options?

[ColevilleH2S]

What are those forward contracts worth if the
company holding the other side of them goes
insolvent?

[errolanderson]

Farmkid1 . . . appreciate your
insightfulness.

The evolution of commodity funds has
offered incredible pricing opportunities
from time to time. These markets whether
wheat, cattle, canola, crude oil, silver
or whatever become incredibly overvalued
and then yes, the party is over.

Predicting the top of these rallies is
next-to-impossible to forecast as it is
in the hands of the funds and their
ability to finance and hold positions.

But, we are all in debt. But debt must
be controlled even at these incredibly
low interest rates.

Why? This is where I'm about to get a
whole lot of static . . . 'risk of
deflation'. No politician, banker or
newspaper looking for a story wants to
hear or talk about this. The world has
to go through a whole lot of pain ahead
in the form of credit deleveraging.

I believe there is an opportunity to
make money producing every crop and
livestock. The key is; a marketing plan
and discipline and hone those rallies
when they appear.

Forget about targeting the top, that's
just a frustrating and improbable market
goal. But there will no doubt be more
opportunities this summer to hone
profits on global weather volatility.

Errol

[oneoff]

There are relatively few individuals who are making these decisions for the world. Our opinions and solutions will not quickly be accepted. When we drop back to the "stone age" we will have relatively more control over our personal sorry lives. And that is when it will be more important to have friends to cooperatively rely on to survive.
Yesterday I learned again that US Bobcat dealers will not sell new equipment to Canadian customers. Just like in 2007 when Dodge, GM, Honda etc. capitulated one after another in the auto industry. Then it was recreation vehicles and farm tractors etc. About the only argument that ever comes up is that Canadian businessmen have demanded this protection. This may very well be a complete lie; in that long term anyone must be competitive on their own merits, or it is only a matter of time until failure anyways.
Here are some interesting facts. I am told/believe that dealers have ordered 17,000 units and a new order will not arrive for 14 months. This manufacturing company only runs 2 shifts per day, has trouble sourcing motors; tires and pieces that prevent making a whole machine. Salesmen aren't the ones that balk on selling new machines to any eligable customer; but they are afraid of having the dealership licence pulled or fines imposed by the parent company. These companies have world wide trade in sales and parts acquisition; and yet they make their own rules as to whom they will or will not sell to.
In short they make the rules about free and fair trade as they see it.

They and their corporate ilk are hypocrites; and all the names which can be attached to those who make the rules and pull the levers that have created the economic mess that society finds itself in today.

And yet we trust those same people to get us out of the economic chaos that is likely more serious than ordinary people ever suspect.

[cottonpicken]

One important way to look at is this.

What happens if there is big deflation?

Cash is king
Asset values fall
Interest rates rise

-non of these facts can be argued against

Large number of over leveraged households go
bankrupt

Large number of business's go bankrupt

Government tax revenues fall

Interest rates and payment on current debt go up

Ability for government to fund itself with additional
deficits disappears

Mass government lay offs,massive government
pensions disappear

Private pension become even more massively
underfunded(this is a current problem now with
these funds banking on 6-10% gains,but have relized
way less over the past decade)

-and this is the downward spiral of one factor feeding
off another to make the situation worse,higher
unemployment,more business go broke,which means
lower government tax revenues,which means higher
taxes,which means more business go broke,etc,etc

A democratically elected government,in my mind,will
try and print its way out of it,the people will demand
it.

[oneoff]

What else can be expected when all that keeps things going is "zero percent" interest rates, using someone else's money and consumer debt. There HAS to be a realignment.

[oneoff]

And greed, self interest, apathy........

[bucket]

And people, in all of this, still have to eat.

[Hopperbin]

So cotton we allow new Chinese money into Canada. Make a law that to work in the gov't you must now speak 3 languages. Then our gov't workers are entirely Chinese immigrants as they are the only ones with an education. The rest of us either partied our brains away or are still in process.

[Hopperbin]

Errol just wondering why has the Natural Gas price come up so much from the low? Even though oil is down a dollar natural gas continues its climb up. And our oil and gas company stocks are going nuts yet today as they are involved with Natural Gas. Thank you Petrobakken.