Monday, February 4, 2008

A Grain Bubble?

"Come spring, Tim Recker plans to demolish two rotating barns and a dilapidated workshop on his 1,500-acre farm in Arlington, Iowa. In their place will sit about three acres of rich, black topsoil prime for capitalizing on the biggest global grain boom in decades. 'Every acre is more valuable that it was five years ago,' says Mr. Recker, a farmer and land excavator. ... Farmland prices have climbed more than 20% over the past year in many Midwestern states, so the many growers who lease land are shelling out higher rents. Some seed prices have jumped 30% and fertilizer prices have doubled nearly across the board. ... Farmers are left to wonder: Could the grain boom be another bubble like dot-com and housing? Kevin Paap ... [said], 'This year, the markets are telling us they want more everything'," my emphasis, WSJ, 31 January 2008.

We last had a grain boom in the early 1970s. Here we go again! "Everything", except: dollars! What's happening? Grains' dollar-price is rising as the dollar falls. Let's ask Jeffrey Currie of Goldman Sachs if he agrees. For those of you with some gray hair, try to remember Richard Nixon (RN) embargoing soybean shipments intended for Japan on 27 June 1973. Literally, RN made the dollar "good for nothing". In July 1973 Soybeans reached $12.90, or about $70 today. As I write they are $12.87. Beans may be cheap. See also my 5 September and 24 October 2007 posts.

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