1970s inflation cycle - a serious risk of repeat

[TechAnalyst]

A prime example of why it is so important to filter out the daily noise, no matter how loud it is.

From November 13, 2024...

"The Oct. 30 blog on crude oil laid out an increasingly possible scenario where Middle East tensions resulted in an energy price spike, given the low Strategic Petroleum Reserve levels. The latest media headlines about an Iranian-backed assassination plot targeting the president-elect already lays a foundation for retaliation of some sort, possibly carried out by Israel.

It doesn't take much of an imagination to see how food inflation could reignite."

No off-ramp in sight will keep markets volatile until one is found...

Mitch

[rumrocks]

A prime example of why it is so important to filter out the daily noise, no matter how loud it is.

From November 13, 2024...

"The Oct. 30 blog on crude oil laid out an increasingly possible scenario where Middle East tensions resulted in an energy price spike, given the low Strategic Petroleum Reserve levels. The latest media headlines about an Iranian-backed assassination plot targeting the president-elect already lays a foundation for retaliation of some sort, possibly carried out by Israel.

It doesn't take much of an imagination to see how food inflation could reignite."

No off-ramp in sight will keep markets volatile until one is found...

Mitch

That graph does look like a rhyme.

[SmallTimeOperator]

Ya scary. What do we need to do to make money in this situation?

[AlbertaFarmer5]

Ya scary. What do we need to do to make money in this situation?

Be glad you are in the commodity production industry, instead of being a consumer.

[foragefarmer]

Ya scary. What do we need to do to make money in this situation?

Just one example I'll throw out on here that quickly comes to mind, I'm sure there are pleny of others that could be added.

If your one of those who had the fortitute and was able to make it through the down years in cattle, you'll survive this situation and make money moving forward.

[blackpowder]

I was young then but from memory.
Don't go all cash.

[TechAnalyst]

Ya scary. What do we need to do to make money in this situation?

As AlbertaFarmer5 said, be glad you're in agriculture (and/or benefiting from energy for some reading this).

Besides speculating on increasing commodity values (which comes with significant risk for those so inclined) -- the greatest way to have this work in your favor is through thoughtful management of your business and marketing of your production.

Debt management and interest rate risk is the most important consideration. Debt can be a great tool here if it is used to acquire inflatable assets like land or business expansion of some sort. The key is to lock in rates for as long as possible considering the limited gains of hoping for a lower rate compared to the risk associated with variable rates.

Even considering covering operating loans that are variable rate based with a long-term mortgage at a fixed rate. Then when inventory is sold and cash is in an account, it could be stored in higher rated short-term investments while waiting to be used again. At the height of the last crisis, an acquaintance put proceeds from selling his Versatile dealership into 5-year GIC's paying almost 25% annually. I certainly hope we never go there, but if debt was held in a mortgage locked in at 5-6% while cash was put into 6 month GIC's at 10-15%, it would certainly help weather the storm.

As far as marketing goes, I suggest a simple awareness that upside potential is recognized using a strategy that rewards rallies. The only thing for certain is that none of us would know how it plays out (should a repeat of the '70s occur).

On Jan. 16 2026, billionaire oil tycoon Harold Hamm announced he was shutting down production in North Dakota's Bakken shale field for the first time in decades due to low prices and the President's efforts to drive them lower. Not 8 weeks later, WTI crude hit $119.48/barrel, almost $65/barrel higher (than the $54.87/barrel low seen at the time). In just over 7 weeks.

Point being -- set up a marketing strategy with profit, cash flow and storage considerations in mind, but be keenly aware of the upside potential. All it will take is a repeat of the 2012 drought in the U.S. for example to change everything. And be very careful of a repeat of 2021-22 when drought compounded the problems associated with heavy pre-harvest sales in a sharply rising market.

Just a few things worth considering, realizing that this could take years to play out. And knowing that leaders will do almost anything in their powers to avoid such a repeat.

Mitch