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Predictions and Observations

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    Predictions and Observations

    Watching events unfold at the end of 2023 into 2024 some observations in my opinion.

    1. The really smart guys are sold out of wheat weeks ago at $9 plus and $16-17 canola. The next smartest guys are selling and hauling wheat now at $8.50-9.00 and Canola for $14-14.50 now. No snow to push, no heated grain, bills will be paid and money in the Bank when 4 feet of snow and -40 below hits in Jan/Feb/Mar....The ones doing nothing today will hate their life in -40 February when the sell for less. The only hope for canola will be the crushers, export market is done and will be cheap buyers, and the crushers can't buy it all. We need more crushers.

    2. Grain price "pop up" experience of 2021/22 and part of 2023 are done. We are going back to pre-Covid numbers. Users are going back to hand to mouth, freight is moving normally, very little risk to upward price movement, buyers will wait till they have to buy and will bid low. The shorts are in control.

    3. Land rents and land prices have topped out. People who locked in at high priced rent will hate their life in the next few years. People who broke records and paid insane land prices will make zero money for years to come on their prized investment, or lose it. That money invested in the local credit union will have been a better return. But as they say "greed can be a bitch".

    4. Equipment prices have peaked. Free Cashflow on farms will not support current prices. Dealers and manufactures will reluctantly lower prices. Nobody cares how much their labor costs and steel have gone up...farmers will have no money to support the prices that have been paid. I wouldn't want to be a Seedhawk or Bourgaut manufacture....I mean paying $1million for one drill to plant a crop. We will look back and go wow. What were we smoking?

    5. Interest rates will stay high for years to come 8-10%. On $5000 land that $400-500 per acre...farms will fail. Fixed costs are astronomical on many farms...variable costs will come down and have come down but won't make up for the high fixed costs farmers have got themselves into. Input companies will move quickly to sell farmers land to recover inputs not paid for. Land is so high and greed is off the charts so it will work for awhile till all the money runs out. Even the BTO's with daddy's 50 years of equity will be getting low. FCC employees will hate their life as the panic sets in. They helped create the mess. They have a history 40 years ago doing the same thing.

    6. Crop insurance numbers will be down 25-30% lower coverage in March. Huge hit in coverage, just a reflection of grain prices.

    7. Ukraine war is stalled and virtually wrapped up. Russia is the victor and grain will flow at full speed again. It's amazing the grain moved like it did. This will have a further negative impact on grain prices.

    8. Huge turnover in farms coming. 40% of farmers plan to exit the business in the next 10 years. That will accelerate when the cash flow stops or is negative.

    9. Federal Government hates farmers...can't even throw a bone on carbon tax relief. Western Canada should exit Confederation. There is no economic reason to stay.

    Sorry to be so negative. It's just the way things are lining up. Greed has been fuelling the run up in a lot of areas agriculture, farmers, bankers, suppliers, manufactures and it's all coming to an end. Buffets said to be fearful when people are greedy and there has been lots of that.

    The farmers who have done nothing but build up cash, pay debt down, and made
    prudent purchases to add to their farms will have a chance to benefit from the reset that is coming. Low cost production operators will thrive and continue to grow.

    Thoughts?

    Last edited by Crestliner; Dec 16, 2023, 16:49.

    #2
    Thank you for putting your thoughts out. That is what the commodity marketing forum is supposed to be for. It takes a lot more balls to publicly offer predictions, than to be a Monday morning quarterback.

    Doesn't # 9 contradict #3? When the west separates, there will be a mass exodus of taxpayers from the rest of the country to the west, that will spill over into the land market.

    Plan for the worst, hope for the best. The path you lay out is what my plan for the worst scenario looks like.

    Comment


      #3
      Risk management using option spreads in combination with cas sales with good basis… can significantly increase returns.

      bought 700 canola puts, sold 630 puts, and $770 calls to pay for them.

      Many innovative opportunities to add to profitability of cash sales.

      Creative efficient risk management of grain sales…. Is a wonderful opportunity!

      Merry Christmas! Many Blessings! Happy New Year! Much to be thankful for!!!! Older equipment gets the job done too… Humble attitude helps too!!!

      Comment


        #4
        Peasants like me dont understand calls and puts and cant afford a broker or however that works.

        Comment


          #5
          This reset is broad-based across the entire commodity world, ag, energies, metals etc. Equities entirely grossly overvalued, but this gig lives on. The risk; a break in equities may be enough to turn this recession into a depression.

          Deflation is now rampant. Central banker comments almost meaningless. Powell now suggesting multi-rate cuts in 2024 after drum rolling rate hikes forever. The debt crisis is the issue, not inflation (IMO).
          Last edited by errolanderson; Dec 16, 2023, 23:52.

          Comment


            #6
            If you can understand buying insurance for anything on your farm… then buying puts or call options is your opportunity to buy price insurance. Elevator companies will sell these price insurance policies… but as usual… the more control and understanding that you consider in insurance purchases… the better opportunity to add to the bottom line on grain income opportunities.
            Old dogs can learn new tricks…

            Blessings! Merry Christmas! Happy New Year!!!

            A wonderful adventure is ahead for those with open minds and a humble spirit!!!!

            Cheers

            Comment


              #7
              To be fair Tom, I always stumble at the premium. Lol.
              I'd rather sell the physicals and buy price insurance as a production loss cover. That's the limit of my expense and effort.

              Comment


                #8
                Crest. That's a lot to digest.
                I agree with caution.
                I disagree the sky is falling.
                Costs are supply demand driven.
                That imbalance will exist for a while yet on iron. Try sourcing non ag equipment, same everywhere.
                There could be short line consolidation again, yes.
                A long while on land.
                I do remember the 80s-90s.
                You pay to play and I see a lot of deep pockets here.
                80s style poor managers and small operators exist of course. They represent a smaller percentage this go around.
                This go around will take longer for the bump to take hold.
                Estate transfer of titles will definitely be different this time.
                I just think the pool of buyers is much bigger this time.

                If you were able and ready to retire, would you?? Otherwise you carry on.

                Undersold on inventory here but have a little more faith in the spring rally. Yes, $10 is my new mark.
                Starting equipment in 30 below hasn't been a problem in years. I don't need to do it.

                Comment


                  #9
                  Originally posted by blackpowder View Post
                  Crest. That's a lot to digest.
                  I agree with caution.
                  I disagree the sky is falling.
                  Costs are supply demand driven.
                  That imbalance will exist for a while yet on iron. Try sourcing non ag equipment, same everywhere.
                  There could be short line consolidation again, yes.
                  A long while on land.
                  I do remember the 80s-90s.
                  You pay to play and I see a lot of deep pockets here.
                  80s style poor managers and small operators exist of course. They represent a smaller percentage this go around.
                  This go around will take longer for the bump to take hold.
                  Estate transfer of titles will definitely be different this time.
                  I just think the pool of buyers is much bigger this time.

                  If you were able and ready to retire, would you?? Otherwise you carry on.

                  Undersold on inventory here but have a little more faith in the spring rally. Yes, $10 is my new mark.
                  Starting equipment in 30 below hasn't been a problem in years. I don't need to do it.
                  I agree with the sentiment that the sky isn't falling.

                  However caution is prudent anytime. Lately there have been tough times for the drier areas but very few exits.

                  The community is more resilient than I thought.

                  Comment


                    #10
                    Kinda agree on this canola situation but cold weather would likely be our friend and as for the -30 crap tractor is already warmed up from doing chores so hook on to grain vac is no problem. Things are dif in this area compared to 80's now my neighbors are Amish, huts and big dairy. They play with different rules it seems buying or renting dirt is getting a lot harder. And they keep reminding me they want more . Don't know how this will play out for my son who is taking over and more traveling time might be required if he wants more dirt.

                    Comment


                      #11

                      8. Huge turnover in farms coming. 40% of farmers plan to exit the business in the next 10 years. That will accelerate when the cash flow stops or is negative.

                      I have been hearing some variation of this theme since I was a kid. I'm glad I didn't wait for this event to take place.

                      It seems the most likely outcome is that the non-farming offspring inherit the land, and it never does come up for sale. Maybe that would change in a high interest rate environment.?

                      Comment


                        #12
                        Interesting post.
                        The idea that machinery dealers and manufacturers will reluctantly lower prices.
                        Has there ever been a time when machinery prices have ever moved lower?
                        Used equipment at auction could move lower for sure but new?
                        Only time equipment actually got reasonable was when the Canadian dollar briefly raised above the US. Dollar.

                        Comment


                          #13
                          No debt , don't care. Don't need latest and greatest equipment. Farming to make a living not to impress the neighbors or finance the ag industry. Almost a century farm and it has worked so far, no greed less stress. Merry x-mas to all and to all a good night.

                          Comment


                            #14
                            Originally posted by AlbertaFarmer5 View Post
                            8. Huge turnover in farms coming. 40% of farmers plan to exit the business in the next 10 years. That will accelerate when the cash flow stops or is negative.

                            I have been hearing some variation of this theme since I was a kid. I'm glad I didn't wait for this event to take place.

                            It seems the most likely outcome is that the non-farming offspring inherit the land, and it never does come up for sale. Maybe that would change in a high interest rate environment.?
                            Agree, but depends on the ability of the inheritors to pay the taxes. As well as afford not to cash out.
                            At $1M per quarter, it's a lot for non farmers to sit on. Only the wealthier will be able to keep it.
                            Hence the trend in rents to reflect a % of FMV whatever that number may be.
                            How bad will it be for all when there is no one left willing or able to cash flow that number?
                            It'll take a different generation to find out. One that, if actively farming, will be rather well heeled.
                            It seems every acre on earth gets planted somehow regardless of cost structure.

                            Comment


                              #15
                              The future retirement has largely happened here. Alot of consolidation has occurred and actually quite a few 5 to 15,000 acre entities. Plus a handful in the 25,000 to 110,000 range.

                              Biggest risk is interest rates for those operations. In the mid term that doesn't seem too likely to take off.

                              All bets are off if they do.

                              Comment

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