Endurance test\r\n\r\nAug 21st 2008\r\nFrom The Economist print edition\r\nSome reasons not to expect a collapse in raw-materials prices\r\n\r\nDURING the six months to the end of June commodities posted their best performance in 35 years, rising by 29%. In July they had their worst month in 28 years, falling by 10%. The slide continues: an index compiled by Reuters, a news agency, shows that prices are almost a fifth below the pinnacle reached in early July. The Economist''s index, which excludes oil, has fallen by over 12%. Breathless headlines have hailed the bursting of a bubble.\r\n\r\nBut most analysts are more reticent. They cite various reasons for the recent drop in prices, chief among them the darkening economic outlook in rich countries. In recent weeks it has become clear that Europe and Japan are faring even worse than America, and so are likely to consume less oil, steel, cocoa and the like. But that does not necessarily presage a collapse in commodity prices, they argue, thanks to enduringly strong demand from emerging markets such as China.\r\n\r\nOil consumption, for example, has been falling in rich countries for over two years. Goldman Sachs expects them to use 500,000 fewer barrels a day (b/d) this year than last. But it reckons that decline will be more than offset by an increase of 1.3m b/d in emerging markets. It predicts China''s demand for oil will grow by 5%.\r\n\r\nA similar story could be told of many commodities. Marius Kloppers, the boss of BHP Billiton, a huge mining firm presenting its results this week, argued that emerging markets were much more important to the firm''s fortunes than rich ones were. Developing countries, he said, consume four to five times more raw materials per unit of output than rich ones do. He predicted that China''s use of steel, already greater than any other country''s, will double by 2015. China''s continuing and rapid industrialisation, he argued, would outweigh any temporary slowdown in exports owing to the weakening world economy—although demand for metals that are used in consumer goods, such as aluminium and nickel, may suffer somewhat.\r\n\r\nAs Mr Kloppers pointed out, emerging markets, and China in particular, now account for the lion''s share of growth in global demand for raw materials, and a good chunk of overall consumption (see chart). China''s appetite for such goods is growing more slowly than it did in the early part of the decade—when oil consumption galloped ahead by more than 10% a year. And China''s economy has also slowed slightly—although it is still growing at a rate of about 10%. The IMF expects developing countries to grow by almost 7% this year. That should be enough to keep demand for most commodities expanding briskly.\r\n\r\nIn terms of supply, however, the picture is more mixed. Farmers, encouraged by high prices, have been planting more grain. Heavy rains in America''s farming heartland earlier in the year did less damage to crops than expected. The International Grains Council, an industry group, now expects a record wheat crop this year, 9% bigger than last year''s. China and India, meanwhile, have produced record amounts of soyabeans, while Thailand and Vietnam have harvested bumper crops of rice. Although stocks of most farm commodities remain alarmingly low, and demand continues to grow, the increasing evidence of a strong supply response has helped to push prices down.\r\n\r\nThe world''s output of industrial metals is also expanding, and prices have been dropping for over a year. But progress has been fitful. At many mines, the quality of the ore is falling as the richest seams are exhausted. Mr Kloppers spoke of BHP''s woeful shortage of tyres for its huge trucks, big mechanical shovels, bearings and all manner of other equipment. Such bottlenecks have been hampering the opening of new mines and the expansion of existing ones. Kona Haque of Macquarie Bank points out that copper mines have produced 1m tonnes or so less than planned in each of the past three years (over 5% of global output), and are likely to do so again this year.\r\n\r\nHigh commodity prices have created something of a vicious circle by adding to the expense and difficulty of expanding output. This week, Xstrata, another big mining firm, suspended operations at a nickel mine in the Dominican Republic while converting its power supply to run on coal, rather than—more expensive—oil. Power shortages have disrupted mining and smelting in several countries. The Chinese government has started to discourage the expansion of energy-intensive industries, including aluminium and steelmaking, in an effort to ease the burden on its grid. All this is hampering the production of metals around the world, and so slowing the fall in prices.\r\n\r\nNonetheless, the output of most metals is still growing much faster than that of oil—which is barely expanding at all. The oil industry, too, is suffering from shortages of equipment and engineers. Even worse, all of the countries best equipped to pump more of the stuff are members of the Organisation of the Petroleum Exporting Countries (OPEC).\r\n\r\nSaudi Arabia, the cartel''s biggest producer, has increased its output in recent months, even as the rich economies, still the largest consumers of oil, slowed. That helped to push the price down from $147 a barrel to less than $115. Despite a rise in American inventories, global stocks do not appear to have grown much, suggesting that buoyant developing economies absorbed most of the increase in supply. Meanwhile, more hawkish members of OPEC, such as Venezuela, are calling for a cut in output to stop oil prices falling further. When OPEC last cut production, early in 2007, prices doubled in just over a year.\r\n\r\nOther factors also influence commodity prices. Some see commodities in general, and gold in particular, as a hedge against inflation, and so may sell if their fears about rising prices abate. Other investors may sell to cover losses in other markets, or to rebalance their portfolios in light of falling share and bond prices, or to avoid the wrath of America''s politicians, who have vowed to crack down on "speculation". Commodities also tend to move in the opposite direction to the dollar, which has risen of late. All that notwithstanding, argues Francisco Blanch, of Merrill Lynch, as long as economic growth holds up in the developing world, the price of commodities should too.
New highs in commodities won''t happen anytime soon, says Marc Faber\r\nSource: BI-ME and media reports , Author: BI-ME staff\r\nPosted: 12-09-2008\r\nBack Email Print RSS Feeds\r\n\r\nINTERNATIONAL. Marc Faber, Editor and Publisher of ‘'The Gloom, Boom & Doom Report’ feels that commodities may not see a new high for many years.\r\n\r\nIn an exclusive interview for India’'s CNBC-TV18, Faber said: "We had a contraction of global liquidity ongoing for over a year and not everything falls at the same time. So as equities began to decline last November, commodities still continued to rise and dollar continued to fall. Now commodities and material stocks like steel companies have started to come down. It is like a domino where one asset class tumbles after the other.\r\n\r\nOver the last six weeks or so, the dollar has been very strong and commodities have been weakening including gold. Some foreign currencies have been very weak like the New Zealand dollar, Australian dollar, euro, pound sterling. Now the dollar is overbought, the S&P 500 and commodities are oversold and we can have a counter trend rally. In other words, the S&P 500 can recover 100-points or so and the dollar could correct here from 1.40 against the euro to 1.50. The pound could rebound the Australian dollar, New Zealand dollar. At the same time, we can have rally in commodities but new highs in commodities won’t happen anytime soon.\r\n\r\nThe contraction of liquidity in the world will continue. We will need a base building period around this level before we start recovering in asset markets or at worst we will have another major slide in 2009, 2010." \r\n \r\n"The S&P 500 could recover 100 points," Faber said. The dollar may correct from here, he feels. It could correct from 1.40 to 1.50 against the euro, he said.\r\n\r\nAccording to Faber, new highs in commodities are unlikely anytime soon.\r\n\r\nOne needs to see base building before asset markets recover. The market seems to have discounted recession, Faber added.\r\n\r\nReflecting on the link between the dollar and commodities, Faber said: "It is not the dollar that moves commodities but commodity prices move the dollar. I am not saying that the dollar isn’t going to move higher over the next six-nine months. That could be the case if global liquidity tightens and if US trade and current account deficit contract then you will have dollar strengths for the next six-nine months. For the next ten days, US dollar will weaken."\r\n\r\nAsked about his opinion of India''s future, Faber said: "When index in India went to over 20,000, we clearly had a bubble and strong earnings. That is de-accelerating but this is not the view of the managers who manage India funds, they are all very bullish. So, this is my view but prices are quite vulnerable on the downside in all emerging markets."\r\nShare this page with :\r\nFacebook Delicious Digg StumleUpon Reddit\r\nMIDDLE EAST BUSINESS COMMENT & ANALYSIS\r\nAnalysis: Abu Dhabi takes on Abramovich to rule English soccer\r\ndateosted: 12-09-2008\r\nINTERNATIONAL. At Manchester City soccer club''s store, assistants are busy selling sky-blue team shirts. The most popular is Robinho''s, whose US$57 million signing this month set an English record.\r\nMotorola survey finds UAE ‘'Millennials’' (16-27 year olds) love technology and demand more\r\ndateosted: 11-09-2008\r\nUAE. Research released today by Motorola shows that UAE ‘'Millennials’' (16-27 year olds) love to interact with consumer technology and are one of the most ‘'plugged in’' segments globally.\r\nMarket is oversupplied with oil, says OPEC, targets need to be adhered to\r\ndateosted: 10-09-2008\r\nINTERNATIONAL. By allowing the price of oil to rise too quickly to unrealistic levels during this year already, OPEC has jeopardised price stability and will now have to be very careful to balance supply and demand and try to keep price levels acceptable to both producers and consumers.\r\nMORE COMMENT & ANALYSIS
Commodity bull run not over yet: Jim Rogers\r\n\r\nRenowned global investor Jim Rogers has a knack for knowing the direction of investment winds. Jim Rogers started the Quantum Fund with George Soros nearly three decades ago. He has written several best-selling financial books, and he’s a prolific commentator. Rogers has been bullish on airlines, water treatment and agriculture stocks, beside other recession proof companies. In an exclusive interview Rogers spoke to NDTV Profit''s Namrata Brar about commodities, bail-put package, and his investments.\r\n\r\nNDTV: Do you believe in the theory of commodity cycle cooling off?\r\nJim Rogers: There is no question that commodity prices have cooled off, but that is the way the market works. You always have consolidation and correction. Three times in the last nine years, oil prices have gone down by 50 per cent, and each time it was not the end of the bull market. If suddenly someone discovers huge oil reserves then the bull market is still on.\r\n\r\nNDTV: But how long the bear market in the current commodity space will continue?\r\nJim Rogers: In the 1970s, gold went down 50 per cent, but after two years it turned around and went up 850 per cent. So I don’t know how long this correction is going to last. If the worldwide economic problem continues for a while then it can last for a longer period.\r\n\r\nNDTV: But everybody is talking about global slowdown, so if there is no demand then how will commodity price rise?\r\nJim Rogers: They will have a consolidation but if you are suggesting the world in a perpetual economic decline, then we will never have any bull market.\r\n\r\nNDTV: Regarding the bailout of mortgage giants Freddie Mac and Fannie Mae, you vocally criticized and said that ‘US is bigger communist than China.”\r\nJim Rogers: I would call it ‘pure socialism.’ It is welfare or socialism for the rich. It is absurd! The US national debt is $5 trillion but within a week the government doubled the national debt. On September 30, the total US federal debt passed the $10 trillion mark, which I and my children will pay off. It is bad for the US economy, dollar and inflation. The government is bailing out the Wall Street, which is not for me but for a few guys at troubled banks.\r\n\r\nNDTV: What if somebody doesn’t bail out troubled banks as the exposure is not just limited to US financials but it is across the world?\r\nJim Rogers: We have had banks going bankrupt for so many years. You think the world will come to an end just because banks go bankrupt, it will not. There maybe disruptions for a while but it is not the end of the world.\r\n\r\nNDTV: Will you buy when there’s blood on the street?\r\nJim Rogers: If the US and other world stock markets did have a selling climate then I would go for it.\r\n\r\nNDTV: But what will you buy in terms of equity asset class?\r\nJim Rogers: Well, it depends on what goes down the most. I would probably buy stocks of airlines, water treatment, agriculture, and other recession proof companies. The way you are going to get rich in the side market is define by the companies that come through hard times with good results. Those are the companies when you have next bull market that you make a fortune. \r\nNDTV: Are you saying that decoupling would work?\r\nJim Rogers: When the largest economy in the world gets into trouble then it would also affect anyone associated with it. If you are doing business with the largest US retailer Wal-Mart then you may suffer during this phase of slowdown. But if you involved in water treatment business in India or China, then you don’t have to worry about. It is because the business has nothing to do with the US. If you are involved in agriculture business in Asia then who cares about America. \r\nNDTV: In India what excites you the most? As an investment story what will convince you to come and perhaps endorse India for the future? Also what worries you in terms of economic policies?\r\nJim Rogers: I always tell people that there is no country in the world that has the breadth and depth of culture like India. The Indian government said that inflation is caused because of commodity trade, which I think is quite absurd. India should be the greatest agriculture nation in the world, not the America. If I wanted to buy shares in India then I just couldn’t go to a broker and open an account. India has got some insane regulations which prevent India from an open and free economy. \r\nNDTV: What will tempt you Jim to come in and buy India story despite all those problems?\r\nJim Rogers: If I can find shares that I can trade freely and equally then probably I have to be outside of India. I am very bullish on tourism, agriculture and water treatment sectors. These are spectacular parts of Indian economy that despite the government could have a great future. \r\nNDTV: You partnered with the legendary George Soros to co-found the Quantum Fund in 1970. Over the next 10 years, the fund gained 4,200 per cent. In the same period, the S&P returned 47 per cent. So what did you do?\r\nJim Rogers: I performed like an ordinary investor. I worked very hard and did enormous research to find out sectors that are going to do best. Then I invested a lot of money into those sectors. I used a lot of leverage and it worked.\r\nNDTV: If you believe that commodity and equities work in opposite directions then will it not make more sense to buy directly into commodities rather than buying commodity stocks?\r\nJim Rogers: Over the past many decades commodities and stocks have gone in separate ways. If you can balance your portfolio then one of the best things you can use is commodities. If you are a good stock picker then you are much better off buying commodity stocks than commodities. Natural gas prices may triple but if you find the right natural gas stock, then you can make 10-15 times of your money.\r\nNDTV: It has been a pleasure to talk to you!\r\nJim Rogers: Thanks a lot!
Funda, hari ini saya benar2 bargain hunting di saham2 komod. 3 bulan lalu ngga kebayang bisa beli BHP dan RIO Tinto dng 40-50% discount. Tadi pagi baru pickup BHP di A$29.5, RIO di A$81 dan 84. (All time high May lalu masing2 $50 dan $150). Kamu sudah berani masuk ngga ? Saya juga sudah pick up beberapa bargain bulan lalu ambil Gold Mining shares kaya Newmont dan Newcrest.
Kalau mau jadi investor kontrarian harus half brain damage yah. Buy when there is blood on the street. Ignore the fear hype. Good luck with your investing and wish me luck too yah !!
good luck bung josjes.
yah tadi saya cek BHP di UK udah lebih dari 50% dari peak. harusnya div yield bhp udah di atas 5%. Tapi rio tinto saya belum berani beli, pe masih tinggi. selain itu, saya pantau terus saham2 anglo american, xstrata.
saya masuk lagi di saham2 resources senin dan selasa minggu ini. tapi saya cari yang PE termurah, dividen yield tertinggi, dan PBV termurah. sekarang mending cari di asia aja … lebih murah dari saham2 di negara barat.
porto saya rata2 di hk & spore sekarang
yanzhou coal pe 4x pbv 1x
hidili industry pe 5x pbv 0.9x
first resources pbv 0.7x
golden agri pbv 0.7x
zijin mining pe 11x div yield 3-4%
cnooc pe 7x div yield 4%
shougang concord pe 3x div yield 11%
shandong molong pe 6x div yield 4%
saham2 infrastructure dan utility di spore dan hk yang saya pegang
rotary engineering pe 4x div yield 11%
china farm pe 3x div yield 6%
pan united pe 5x div yield 12%
sky petrol pe 2.5x div yield 9%
taisin cable div yield 11%
anhui tianda oil pipe pe 5x yield 6%
zhengzhou gas holdings pe 4x div yield 4%
okp holdings div yield 11% (infra play) tapi ngak dapat.
pacific basin div yield minimal 15%
jutal oil services div yield 8%
ptt di thailand juga ok … kalau ke 180 baht mau saya ambil. pbv 1.1x div yield 7% pe 5x
tapi saya udah ngak punya ETF Commodities (sugar, nat gas) .. udah saya jual … soalnya ngeri, counter partynya AIG …
inventory komoditas masih dalam multi decade low …. saya ngak percaya aja kalau bull market udah over. inventory gasoline di amrik aja masih lowest dalam 10 tahun ini …
btw … saya kurang suka ama newmount secara personally … lebih suka goldcorp, yamana, dan zijin mining. soalnya newmount production growthnya menyedihkan … tapi cuma pendapat pribadi aja.
malas pegang kebanyakan cash …. dibank bunga paling berapa … dividend2 dari saham2 resources lumayan buat jadi uang saku … mengenai harga sahamnya lownya bisa berapa … ngak ada yang tau … tapi kelihatannya udah sangat, sangat oversold … soalnya semua orang lagi pikirin ngeshort saham …. :rofl:
Saya mah ngga mau pusing2 pegang banyak saham Funda. Beli BHP and RIO saja cukup, menurut saya karena BHP itu the biggest diversified miner in the world, bisnisnya komplit dari Iron Ore, Oil, Copper, Gold semua ada. Demikian juga dng RIO. Harga Mining companies itu beregerak sama arah, kecil kemungkinannya salah satu company bergerak outperform peer sector dalam jangka panjang, may be in a few weeks or month but in the longer term pasti akan in line dengan sector performance.
Kalau Gold Mining share, saya juga beli GDX (ini ETF of Gold mining shares di AMEX komposis companynya spt yg ada di HUI), lebih aman dari pada pegang individual gold company.
Mengenai Newmont, saya ngga banyak tahu tentang company ini, jujur aja :-), yg saya tahu ini biggest market cap gold mining shares, so can''t go much wrong. Tapi saya ada tambah Lihir, Newcrest dan 2 spekulatif junior miner (buat tambah2 cuan kali2 bisa cuan 200% haha).
Oil dan coal companies saya masih belum berani pegang, karena Oil shares itu paling lama toppingnya bulan Juli masih kuat sementara saham komod lainnya bulan May sudah mulai jatuh. Jadi menurut saya masih ada kemngkinan jatuh lagi. Nanti kalo sudah saya beli saya kabarin lagi deh.
Commods Bull Goldman Turns Bearish, Warns on $50 Oil
Topics:Economy (U.S.) | Economy (Global) | Market Outlook | Environment | Alternative Energy | Energy | Commodities
Sectors:Industrial Goods and Services | Utilities | Oil and Gas
Companies:Goldman Sachs Group Inc
By Reuters | 13 Oct 2008 | 05:51 AM ET
Goldman Sachs, one of the foremost bulls on commodities, turned a near-term bear on Monday after conceding that global financial turmoil would take a far bigger toll on demand than first anticipated.
"We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," its commodity markets research team lead by Jeffrey Currie said in a report dated Oct.13.
The bank, which has consistently been at the top of Reuters oil price polls for years, said in the report that it now expects U.S. crude oil prices to end the year at around $70 a barrel, down from a previous forecast of $115 a barrel.
"However, should the financial and evolving economic crisis cut deeper into demand, the market could fall as low as $50, which we believe to be the industry''s cash cost and shut in level," the analysts wrote.
U.S. crude rose $3.11 or 4 percent to $80.81 a barrel on Monday as news of fresh European efforts to end the financial crisis revived prices from a 13-month low on Friday, when heavy selling and demand fears knocked prices 10 percent lower.
Goldmanalso cut its end-2009 price target to $107 a barrel from $125 and made an even deeper $37 cut to its average-2009 forecast, which it now put at $86 a barrel – making it the third most-bearish forecaster as of Reuters last poll on Sept 26.
The bank also cut its forecast for copper prices in three months to $3,500 a tonne versus and old forecast of $7,960, but predicted a recovery to $6,625 in 12 month''s time.
London Metals Exchange three-month copper rose 2.5 percent to $4,920 a tonne.
It also cut its three-month view on aluminum to $2,060 from $2,950 and saw a more measured rise to $2,600 in 12 months.
Current DateTime: 04:58:40 13 Oct 2008
LinksList Documentid: 27159015
* Goldman Sachs Cuts Oil Forecast
* OPEC Seeks Stability as Oil Prices Plunge
* Oil Above $81, Goldman Cuts Price Forecasts
"As copper is the only base metal that remains substantially above its marginal cost of production even at the current depressed price levels, we believe that it remains the most vulnerable to further downside in the near term."
But the analysts also said recent events strengthened their argument for a structural bull market, as commodity producers are "highly dependent upon access to capital and were already struggling to grow production capacity before recent events."
"While the swiftness and severity of the pullback in commodity and other asset prices stresses the ability of the industry to grow future production capacity, it also creates a much more unstable political environment in many of the producing countries around the world."
"As a result, it is likely that the supply constraints that have propelled commodity prices to record-high levels in recent years will likely be even more binding as the credit crisis resolves and as economic growth regains positive momentum.
"This suggests the potential for substantial upside from commodity investments in the medium-to-longerterm."
On base metals, it said infrastructure growth in China, the expansion of Chinese consumer demand for manufactured good and stretched production infrastructure supported a bullish case.
Farm-Credit Squeeze May Shrink Crops, Spur Prices, Food Crisis
By Carlos Caminada, Shruti Singh and Jeff Wilson
Oct. 27 (Bloomberg) – The credit crunch is compounding a profit squeeze for farmers that may curb global harvests and worsen a food crisis for developing countries.
Global production of wheat, the most-consumed food crop, may drop 4.4 percent next year, said Dan Basse, president of AgResource Co. in Chicago, who has advised farmers, food companies and investors for 29 years. Harvests of corn and soybeans also are likely to fall, Basse said.
Smaller crops risk reviving prices of farm commodities that sank from records in 2008 after a six-year rally that spurred inflation and sparked riots from Asia to the Caribbean. Futures contracts on the Chicago Board of Trade show wheat will jump 16 percent by the end of 2009, corn will rise 15 percent and soybeans will gain 3 percent.
``The credit situation is worrying even the biggest and best farmers,'''' said Brian Willot, 36, a former University of Missouri commodity analyst who now grows soybeans on 2,000 acres in Brazil. ``For the financially weak, credit has dried up completely. For the strong, credit has been delayed and interest rates are higher.''''
The number of hungry around the world is at risk of increasing as the financial crisis cuts investment in agriculture and crops, said Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at the United Nations Food and Agriculture Organization in Rome. The total increased by 75 million last year to 923 million, the UN estimates.
``The net effect of the financial crisis may end up being lower planting, lower production,'''' Abbassian said. ``More people will go hungry.''''
In Brazil, the world''s third-biggest exporter of corn after the U.S. and Argentina, production may fall more than 20 percent because farmers can''t get loans to buy fertilizer, said Enori Barbieri, a National Corn Producers Association vice president. The nation''s coffee harvest, the world''s largest, may drop 25 percent for the same reason, said Lucio Araujo, commercial director at farmer cooperative Cooxupe, located in Guaxupe.
Borrowing costs increased and farmers struggled to get loans after the worst financial crisis since the Great Depression made banks and grain processors, including Cargill Inc. and Archer Daniels Midland Co., less tolerant of risk.
Minnetonka, Minnesota-based Cargill and Decatur, Illinois- based Archer Daniels, the world''s largest grain processors, are among the crop buyers to halt financing for growers in Brazil, said Eduardo Dahe, who represents the companies as president of the National Association of Fertilizer Distributors.
Processors usually cover half the financing needs of farmers by accepting part of the future crop as payment. ``No one is doing it,'''' Dahe said. ``It''s stopped.''''
In Russia, loan rates for farmers have jumped by half in some cases to more than 20 percent in the past few months, Arkady Zlochevsky, president of the Russian Grain Union, said in an interview earlier this month.
While the credit squeeze gripping emerging markets has yet to hurt the U.S., the risk remains, Agriculture Secretary Ed Schafer said Oct. 1.
``We certainly could see tight credit having an effect on agricultural production,'''' Schafer said in Washington. ``The costs of farming operations today are huge, and that backs up to the banks that have balance sheets that are tight, it backs up to elevators that have credit stretched out.''''
To be sure, farmers in the U.S., the world''s largest grain exporter, may have enough cash to avoid production cuts through next year because of this year''s record profits.
Net farm income will rise 10 percent this year to $95.7 billion, the U.S. Agriculture Department estimated Aug. 28. While farm debt jumped 7.7 percent last year to $211 billion, the total is 9.6 percent of assets, a ratio that the government forecast on Aug. 28 will drop to 8.9 percent this year, the lowest level since at least 1960, the earliest data available.
``I don''t see the crisis'''' for U.S. farmers, said Corny Gallagher, who helps oversee $20 billion in global agribusiness and food-product loans for Bank of America Corp. in Sacramento, California. ``While commodity prices are down from their peak, they are still relatively high.''''
Warning signs are appearing.
The Federal Reserve Bank of Kansas City said Aug. 15 that credit conditions in the second quarter, the most recent data available, ``showed signs of deterioration'''' in the seven-state region that includes Kansas, the biggest U.S. producer of winter wheat. Loan-repayment rates fell for the first time since 2006 as wheat slid 7.6 percent in the quarter. Wheat lost another 40 percent since then.
``This year is going to be the best year ever and now we are looking at the potential to give it all back in 2009 if prices don''t rise above the expected cost of production,'''' said Mark Kraft, 49, who grows corn and soybeans in Normal, Illinois. ``You have to hope that fertilizer, seed and land rents come down and the price of corn improves.''''
One 80,000-kernel bag of Monsanto Co. corn seed, enough for about 2.5 acres, rose 45 percent this year to $320, the same amount Midwest tenant farmers paid to rent an acre of land, Kraft said. A gallon of diesel for tractors averaged $4.47 in the third quarter, up 51 percent from a year earlier, according to AAA, the largest U.S. motorist organization.
The value of the collateral farmers use to secure loans – crops and land – is diminishing. Lenders are demanding more equity for farm loans used to run operations or acquire land and equipment.
``We need two to three times the amount of money we used to need with the same collateral,'''' said Bo Stone, 37, a seventh- generation farmer in Rowland, North Carolina. ``It means we have way more risk than we''ve ever had. This is a time where one bad crop year, with the amount of money and input tied up, could potentially cost you your equipment, land and livelihood.''''
To contact the reporters on this story: Carlos Caminada in Sao Paulo at at email@example.com; Shruti Date Singh in Chicago at firstname.lastname@example.org; Jeff Wilson in Chicago at email@example.com.
Last Updated: October 26, 2008 21:00 EDT