Commodities, Food, Inflation

The office of Lynch Livestock, Iowa.  We sold cull sows last week.  Leroy always treats us well, but I was shocked with our price.  He paid $.61 per pound for the heaviest sows weighing over 600 pounds.  It was about $370 per sow.  I can remember when I was pleased with $200 per sow.

Hog, cattle, corn, and other commodity prices are at or near historic highs.  I’ve been trying to understand why this is happening and if it’s going to continue.  Our direct-market meat used to be priced at a premium, paying us for the extra costs involved with hoop-house pork and grass-finished beef.  But the commodity markets have narrowed that premium, and I’m rethinking it.  Maybe grass-finished beef should be cheaper, since the cattle aren’t being fed high-priced corn?

A buddy turned me on to Chris Martenson.  Chris says there is unprecedented levels of money and debt.  Inflation is just more money chasing after the same amount of resources.  The USA and world carry so much debt, there are only two ways out; default, or print more money.  If more money continues to enter circulation, inflation will ensue.  Inflation erodes wealth, because a dollar today buys less in the future.

Is this what’s happening in agriculture?  We are certainly handling more money.  But the costs of our inputs: fertilizer, corn, soybean meal, metal, wood, machinery, have all risen.  Should we save for a rainy day or buy now?

Toasted Tofu sent me a link about how Goldman Sachs created the food crisis.  It said that these huge hedge funds have been buying commodities, and only buying, and this has driven up the price of commodities.  An error in the article says that corn prices just kept going up.  Actually, in the last few years, corn went up to $7 per bushel, dropped back under $4, and then went back up over $7.  There is definitely more volatility.  My grandfather remembers when corn was $1 per bushel, only moving a few cents up or down for years and years.

As you can probably tell by this disjointed post, I don’t really understand what’s happening, or what’s going to happen.  I guess I’ll continue to use this blog to post what is actually happening to me, and the prices I incur and receive.  History always becomes a clear, concise, obvious story, but the future is always uncertain, with only fools and experts making obvious predictions.

5 Responses to Commodities, Food, Inflation

  1. matthew Solverson says:

    Check the CPI which is inflation monitor. I think it says $0.16 of money in 1982 buys $1 today(not sure if that is accurate). So, if corn was a dollar a bushel in 1982 that would put it at $6.25 today. Actually, corn price was between $2.25 and $3.40 per bushel in 1982 so that means corn would be $14-$21.25 per bushel if it were valued against the dollar from 1982 with what the dollar could buy today. This means a bushel of corn as a currency has devalued relative to the dollar as measured by CPI. To take this a step further some people say the government has changed the CPI calculation from the 90’s to mask true inflation and it is higher than what the CPI number shows.

  2. matthew Solverson says:

    I looked up purchasing of CPI for $1 today is equal to $ 0.45 in 1982 changes corn calculations to $5 -$7.55 per bushel is where the range has been running if the CPI calculation is not flawed.

  3. curiousfarmer says:

    Interesting, Matt.
    The CPI is flawed. This chapter from “The Crash Course” shows how the numbers have been fudged over time to show a rosier picture. It is very interesting.
    http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers

  4. hpx83 says:

    Interesting to find a blog about farming. I’m hoping to become a farmer one day. A few thoughts on the inflation problem :

    1 ) Yes, prices going up is due to money printing (physical or electronic). It will continue. If it weren’t for money printing / credit expansion prices would generally go down, due to increase efficiency in production.

    2 ) Your best bet in an inflationary environment is to try and make sure you up the price you sell things for BEFORE your input costs rise. Stay one step ahead.

    3 ) For savings, look out when the dollar starts nosediving for real. Diversification into some precious metals is crucial. Also, selling your crops “forward” will be a suckers game, as the price will likely have gone up once it comes time for delivery. As long as inflation is soaring, don’t sell anything forward unless absolutely necessary.

    4 ) The “end game” for the monetary inflation they are currently doing is pretty nasty. Either the currency goes the way of all banana republic currencies (prices start rising 15%+ annually, then 25%+, then 50%+ and so forth) OR they put a stop to it. If they stop, then there will be a period where prices start rising slower and finally stop rising. Meanwhile banks start going bankrupt, unemployment gets worse and credit becomes EXTREMELY hard to get. This is the time when you don’t want to have borrowed to much money or be dependant on credit as interest rates will temporarily SPIKE straight up, before slowly settling down again (see early 80’s).

    Anyhow, thats just some minor bits of info I’ve gathered. While trying to save up to afford some kind of small farm, I do some amateur economics from time to time.

    Again, nice to see a blog about farming….

  5. Thanks for your input, Hpx83. You don’t paint a rosy picture. I don’t feel I understand the concepts well enough to take any extreme actions. How has your behavior changed as you learn more?

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