In the past few days, Golman and the rest of the big managers came out with the latest” Big Idea. In short, an end to the commodity supercyle and a beginning of money flow back into equities and away from commodities.
Generally, a contrarian, I actually am leaning towards agreeing with these guys.
In the past year we’ve seen Ny Fund manager’s trying to buy US Farmland, and also trying to buy elavators and rail lines trying to get a foot hold into the distribution/ supply chain of grain in the US. I guess they looked at US agricluture as low hanging fruit they could scarf up, repackage and then sell to their clients.
They did it with Super stores, they did it with mortgages and that worked out so well, didn’t it?
They have the best interest of the USA citizen, don’t they?
I’m just saying that for the past 8 or 9 months with farm land selling in little mini bubbles at 10K+ an acre (GRANTED, NOT WIDE SPREAD) so don’t email me saying I am a chicken little… It just seemed that it was getting late in the day.
I have a client who is a farmer and has been since the late 70’s, All the land he bought in the 80’s finally came back for him. He has a brother who started farming in the early 90’s. His brother never bought a piece of land he didn’t see a double in profits or much more. Two brothers. Two differnet perspectives on farm land as an investment.
Stories like that made me stop and wonder that it might be late in the day for price appreciation. I’m NOT saying its gonna fall off the cliff. Most farmers are conservative. Most farmers have not leverged their land up 125% of its value so they can 1) go on vacations or buy 10K dollar shower curtains. So I don’t see an insane blow off lower in prices.
The only thing that might spark a 30 or 40% pull back is the following.
commodities have benefitted from the in flow of money from 1) money managers 2) speculators) 3) hedge fund managers and 4) Index funds who buy and hold as a hedge against inflation.
If that was to slow down, if money flows back into equities, then that could lower prices.
If a farmer has NOT hedged his inputs. If a farmer has not contracted grains at these levels. If a farmer thinks that prices can only go higher. They may be in for a surprise. Will the price correction come quickly? OR will it take 2 years to go back to where we were in 2010?
3.80 corn and 9.30 beans. Currenlty we are at 6.40 corn and 13.50 beans.
Cattle are are record highs.
I’m not calling a top.
I am just saying, it might be a good time to do some planning for a downside which might be looming on the horizon.
Manage your risk.
For a spec, buy some cheap out of the money puts, put them in the cup board. don’t look at them.
In a year or two that 2 or 4 cent option might be worth 1.50 or 2.00..
I’m doing it for my own account and for my clients.
CER
