Nogger's Crystal Gonad
I think it's pretty fair to say that nobody really foresaw the magnitude of the current economic crisis coming. Certainly some people saw a recession coming, I remember discussing it's potential arrival with Graham Milton in one alcohol-fuelled pool-shooting session round at his house maybe 12 months or more ago. But even we didn't things would get this bad.
Twelve months doesn't really seem like a long time does it? But how things looked different just one year ago. The wheat market had just about topped, but corn, soybeans & crude were still a couple of months off their highs yet.
Which got me thinking: I wonder where we will be twelve months from now? A difficult question to answer, nobody knows, we can only hazard a guess. An appropriate time therefore to dig out Nogger's crystal gonad.
What we can say for sure is that printing money on a large scale, or QE as we now call it, causes inflation. That's something you can put your money on, because that my friends is a certainty. The only thing we don't know is when it will start to happen.
That's the first piece of the jigsaw in place, lets have a look at some of the others.
As soon as the crunch hit, prices fell out of bed, farmers scaled back on their plantings for 2009. Not only that but they also started cost saving by reducing inputs, the full impact of that combination is yet to be felt. Given anything other than absolutely ideal growing conditions reduced yields are highly likely. That's piece No 2.
Lets have a look at Argentina, the next major world producer to start planting. They brought in their smallest wheat crop since 1982 at the end of last year. The drought that ravaged that harvest is still ongoing, that's why the USDA cut 4MMT off their soybean crop estimate just before Easter. That estimate of 39MMT is already starting to look "toppy" with the Buenos Aires Grain Exchange and Oil World now citing lower numbers.
Meanwhile, Argy farmers will shortly begin planting this season's wheat crop. Against a backdrop of parched soils, lack of credit and anti-government hostility, plantings are being called 10% lower than last season. And last season's sowings were the smallest since 1992. In a knock on effect from the poor harvest of 2008 Argy farmers have less money for seed or fertiliser, and can't get credit from the banks.
This combination of lower plantings and reduced inputs is a potentially lethal cocktail for global production in 2009 and beyond. That's a few more pieces in place, can you tell what it is yet?
A quick glance down the current wheat futures price tables makes for interesting reading. London wheat for Nov09 offers a GBP10.50 premium over May09, and Nov10 pays GBP6 over Nov09.
CBOT wheat for Dec09 pays a 51 3/4 cents premium over May09, and Dec10 pays a further 58 1/2 cents over Dec09.
As I've mentioned on here before all this is screaming don't sell unless you have to. With interest rates at an effective zero, and the spectre of raging inflation lurking somewhere over the horizon, sitting on wheat is better than having money in the bank if you have the storage. And with a decent monthly increment to be had it's a relatively no-risk strategy to boot.
You can look at my wheat, but you can't have it. The newspapers will call it hoarding when the time comes, they like to use emotive words like that. I'd prefer to use the term QT - quantitative teasing.
Twelve months doesn't really seem like a long time does it? But how things looked different just one year ago. The wheat market had just about topped, but corn, soybeans & crude were still a couple of months off their highs yet.
Which got me thinking: I wonder where we will be twelve months from now? A difficult question to answer, nobody knows, we can only hazard a guess. An appropriate time therefore to dig out Nogger's crystal gonad.
What we can say for sure is that printing money on a large scale, or QE as we now call it, causes inflation. That's something you can put your money on, because that my friends is a certainty. The only thing we don't know is when it will start to happen.
That's the first piece of the jigsaw in place, lets have a look at some of the others.
As soon as the crunch hit, prices fell out of bed, farmers scaled back on their plantings for 2009. Not only that but they also started cost saving by reducing inputs, the full impact of that combination is yet to be felt. Given anything other than absolutely ideal growing conditions reduced yields are highly likely. That's piece No 2.
Lets have a look at Argentina, the next major world producer to start planting. They brought in their smallest wheat crop since 1982 at the end of last year. The drought that ravaged that harvest is still ongoing, that's why the USDA cut 4MMT off their soybean crop estimate just before Easter. That estimate of 39MMT is already starting to look "toppy" with the Buenos Aires Grain Exchange and Oil World now citing lower numbers.
Meanwhile, Argy farmers will shortly begin planting this season's wheat crop. Against a backdrop of parched soils, lack of credit and anti-government hostility, plantings are being called 10% lower than last season. And last season's sowings were the smallest since 1992. In a knock on effect from the poor harvest of 2008 Argy farmers have less money for seed or fertiliser, and can't get credit from the banks.
This combination of lower plantings and reduced inputs is a potentially lethal cocktail for global production in 2009 and beyond. That's a few more pieces in place, can you tell what it is yet?
A quick glance down the current wheat futures price tables makes for interesting reading. London wheat for Nov09 offers a GBP10.50 premium over May09, and Nov10 pays GBP6 over Nov09.
CBOT wheat for Dec09 pays a 51 3/4 cents premium over May09, and Dec10 pays a further 58 1/2 cents over Dec09.
As I've mentioned on here before all this is screaming don't sell unless you have to. With interest rates at an effective zero, and the spectre of raging inflation lurking somewhere over the horizon, sitting on wheat is better than having money in the bank if you have the storage. And with a decent monthly increment to be had it's a relatively no-risk strategy to boot.
You can look at my wheat, but you can't have it. The newspapers will call it hoarding when the time comes, they like to use emotive words like that. I'd prefer to use the term QT - quantitative teasing.