Market Skeptics

Harvest From Hell VS USDA's "Biggest Crop Ever"

2009-11-06T14:39:00.000-08:00

The Star Tribune reports about miserable harvest.

(emphasis mine) [my comment]

Wet weather delays harvest for farmers from the Midwest to the Deep South
By BECKY BOHRER , Associated Press
Last update: November 5, 2009 - 3:03 AM

[Mississippi, Louisiana]

NEW ORLEANS - Hartwell Huddleston returned the extra combine he bought to help harvest what looked to be one of his best soybean crops ever.

After two months with little letup in rain, he figures he got five days' of work out of it, and one was spent just looking for dry ground to cut. And the quality of some of the crop he did bring in from his northwest Mississippi fields was so rough, an elevator refused truckloads.

"We've had a lot of rainy years, but this one puts those to shame," said Huddleston, who also sells crop insurance. "If a person's a farmer you start to think, 'Where am I going to sleep? How am I going to feed my children?'"

Late-season rains have delayed harvest from the Great Plains to the Deep South, frustrating farmers and raising questions about whether some in the hurricane-ravaged Gulf region would be able to stay in business after disastrous back-to-back years.

The longer the remaining U.S. cotton, corn and soybean crops stay out, the greater the potential for consumers to feel the effects and face ~~slightly~~ higher prices for products ranging from sodas to tofu to meat, said Chad Hart, an extension economist at Iowa State University.

One saving grace for Midwest grain farmers is their corn and soybeans were in relatively good shape heading into the recent rainy spell, and expectations remained high for a still-large production year. Farmers were taking advantage of this week's break in weather to try to make up for lost time.

For many in Louisiana and Mississippi, though, the waiting continued. In some cases, it was just too late.

Stephen Logan was weighing whether to tear up his water-logged fields to get at a cotton crop speckled in places with mold, mildew and stains. He said he got 28.1 inches of rain on his northwest Louisiana farm last month, more than he said he's seen in some entire years, and the shorter days have meant less sunlight to dry things out.

"This was shaping up to be one of the best cotton crops we ever had, but it's absolutely rotted away on the stalk," Logan said. "It's very frustrating and humbling, to say the least."

While the rains helped erase the remnant drought conditions that plagued much of the region earlier this year, their timing — at the peak of harvest in September and October — couldn't have been worse.

The wet weather is expected to cost farmers in the two states more than $120 million on their cotton, according to preliminary estimates by agricultural economists and Louisiana State and Mississippi State universities.

For all major row crops, Louisiana farmers stand to lose $275 million in revenue and Mississippi farmers, $371 million, according to the early estimates. This would further compound the losses many producers suffered last year due to hurricanes Gustav and Ike.

"This isn't a hurricane but in many cases, it's every bit as bad in terms of impact on quality and yields," said Kurt Guidry, who wrote the Louisiana State report. When you take the two years together, "most producers are going to have serious financial stress as they move from this year to next."

And most will need "significant" help, either from the government or another source, to get financing for 2010, he said.

Low-interest loans or other aid may be available to farmers in the handful of Louisiana parishes and Mississippi counties that have been declared federal disaster areas due to late spring and early summer flooding, but state officials are seeking additional help for those affected by the drought and subsequent rains.

"More than ever, Louisiana producers are in need of disaster funds," state Agriculture Commissioner Mike Strain said.

Back in Mississippi, farmer Andy Clark doesn't know what he'll do. He put everything this year into sweet potatoes — an expensive-to-produce crop that in a good year can yield strong returns.

This wasn't a good year. Delays in getting into the fields meant potatoes rotting in the wet soil, and even if one were lucky to harvest some, odds were good — given all the rain — they'd rot in the storage house. And it's hard to justify the labor costs for that, he said.

Of the 82 acres he'd planted in central Mississippi, he'd harvested about four. His side business, hauling potatoes, "is shot."

"It's really going to be hard to sit down and talk with the bank. There's probably not going to be any way to persuade them to give you any more money," he said. "At this point, you're probably going to have to ask them to give you a little more time to pay them back."

"If there's any way possible, I'll still farm," he said. "But you've got to look at everything, you know? I don't know what else I'd do."

Businessinsider reports that Floods In Missouri And Illinois.

Floods In Missouri And Illinois Leave Soy And Corn Crops Sitting Idle
John CarneyNov. 2, 2009, 3:20 PM

[Missouri, Illinois]

This is supposed to be harvest season for corn and soy beans in the midwest. You can't harvest flooded fields. Even after the flooding recedes, the crops generally need to dry before they can be harvested. Right now there's a lot of corn and beans sitting idle in the field.

You can pick up some of the latest chatter from farmers themselves over at the Farm Journal's message board.

One farmer from Will County, Illinois writes:

We are now very wet. Basically the last harvesting was done on Wednesday, Thursday and Friday (Oct. 21-23). We received 3.1" of rain. Soybean harvest in this area still stands at 30-40% complete. Since Oct 21, no soybeans have been harvested. As of today, received 3.5" rain this week, with .7" early in week, and last night and today an additional 2.8", so far. There has been a few operators taking a little corn out before this last big rain, moisture levels still reported to be in the 30 + % range, and field conditions are muddy. You can probably go ten miles in any direction of our farm and find less than 1 % of corn harvested. In our low spots today, we have corn standing in water, with water up to the ears, and in some places the ears are in the water. So far this month, we received 9.2", let’s hope Nov. will be dry.

Here's a AP's write up of the flooding:

By JIM SALTER, Associated Press Writer

ST. LOUIS (AP) — Midwestern flooding is usually associated with the spring or summer, so even officials at the National Weather Service are perplexed about the unusual fall flood that is causing rivers to spill over their banks in parts of Missouri and Illinois.

Heavy rain fell last week over much of the two states, causing flash flooding and rising rivers. In fact, October rainfall was at record amounts at many spots.

The autumn monsoons are hard to figure, said Benjamin Sittrell, a meteorologist for the National Weather Service office in suburban St. Louis.

"Typically during the late-year period, it's our driest portion of the year," Sittrell said. "To see such astronomically high amounts of precipitation, where we got several inches above the previous record levels, is very abnormal.

"I think there's a lot of uncertainty about how this wet October unfolded."

The flooding is generally pretty minimal compared to events such as the floods of last summer and those in the summers of 1993 and 1995, but some problems exist.

Sittrell said thousands of acres of farmland are under water, particularly in the flat areas of southern and western Illinois, where the Illinois, Ohio and Kaskaskia rivers are among several that are flooding.

The Vicksburg Post reports that Farmers look to D.C. for help.

Farmers look to D.C. for help
By Pamela Hitchins
Wednesday, November 4, 2009 1:14 PM CST

[Mississippi]

Mississippi farmers facing catastrophic crop losses after heavy fall rains hope to see extra disaster relief funded by Congress.

Dr. Lester Spell, Mississippi Commissioner of Agriculture and Commerce, said he has asked the Mississippi congressional delegation and the U.S. Department of Agriculture to go beyond normal programs to help farmers seeing double devastation in 2009 — flooding in the spring and the fall — after 2008, which was a tough year as well.

Losses are on the horizon in soybean, cotton, sweet potato, corn and rice crops. The state’s pecan crop looks better than average this year, though extended periods of rain are threatening to delay that harvest, too.

Economists at Mississippi State University estimate farm losses have reached $485 million. Nearly 64 percent of the state’s sweet potato crop — valued at nearly $40 million — is expected to be lost. Soybean losses could top 44 percent, or $307 million, along with half of the state’s nearly $150 million cotton crop.

“Existing USDA assistance for many of these crops will not be available for up to a year or more,” Spell said in a press release. “By that time, I fear many of our hardworking Mississippi farmers will no longer be able to operate due to the excessive losses faced this year which will, in turn, affect their access to financing for the future.”
…
“There’s a great need for additional relief for farmers,” Warren County farmer Ed McKnight said this morning from the field off Chickasaw Road where he was harvesting soybeans. “But they need it like AIG got it — in a matter of weeks.”

…
In addition to rainfall, Warren County farmers like McKnight with fields north of Vicksburg in the Chickasaw and Long Lake areas, also are facing an unusually high Mississippi River for this time of year, said Coccaro. Generally measured in single digits in November, the river was at 36.6 feet Tuesday and forecast to crest at 40 feet Nov. 13.

“That’s putting a lot of acres under water,” Coccaro said, “and makes other farm-land a lot harder to get to.”

“We’re trying to get them out before the river gets them again,” McKnight said of his soybeans. “The rainfall has delayed us from harvesting, but the quality is still good.”

Deltafarmpress reports about Arkansas harvest

Soybeans: half a crop if lucky
Nov 4, 2009 11:00 AM, By Mary Hightower, University of Arkansas

[Arkansas]

The rain-shocked 2009 growing season may prove to be devastating for Chicot County, Ark., where more than 65 percent of the county is farmland.

SUNKEN SOYBEANS — This Chicot County, Ark., soybean field seems equal parts water to soy. Farmers in the southeasternmost county of Arkansas may wait days or weeks to be able to get back into their fields. (University of Arkansas Division of Agriculture photo by Gus Wilson)

On Monday and Tuesday, Gus Wilson, Chicot County Extension staff chairman for the University of Arkansas Division of Agriculture, made the rounds, visiting farmers and getting a first-hand look at what record rain has left of crops in the state’s southeasternmost county.

He said on Tuesday that he believed Chicot and neighboring Ashley and Desha counties were the hardest hit by the 2009 rain.

“It’s bleak,” Wilson said. “It’s going to really hurt these poor Delta counties because here, agriculture is all that we’ve got.”

Earlier this season, the harvest outlook was promising.

“In September, I was pretty happy with what I was seeing in the fields,” he said. “Now we are going to be lucky to make half a crop compared to the last couple of years, all because of the weather.”

“Seven or eight weeks ago, we were looking at 1,100- to 1,200-pound cotton” lint yield per acre, Wilson said. “Now we’re 500 to 600 pounds.”

The soybeans are just as bad. Back in September, “we had a good soybean crop. The yield was there,” he said. “We have lost at least 60 percent to 80 percent due to the weather.”

“Our rice is going to be half,” Wilson said.

Wes Kirkpatrick, Desha County, Ark., staff chair for the U of A Division of Agriculture, said, “I have heard instances where producers had fields that traditionally yielded 1,200 to 1,400 pounds per acre are yielding 700 to 800 pounds per acre this year.”

Soybean quality is also an issue, and the quality issues vary widely from field to field, he said. “Some fields have no damage and other fields have nearly 100 percent damage.”
…
“Dryers in Chicot are rejecting beans because their quality had deteriorated so much,” Wilson said. Beans that are being taken are so deeply discounted that growers are lucky to get $3 a bushel.

Non-discounted prices on Tuesday were running between $9.89 a bushel at Des Arc, Augusta and Clarendon to a high of $10.31 at Memphis, Tenn., said Scott Stiles, Extension economist-risk management, for the U of A Division of Agriculture.

“This is the worst I’ve ever seen and I’ve been a county agent for eight years and around farming all my life,” Wilson said.

Last week, another county agent said that as a group, farmers tended to be optimistic people. “They have to be,” he said last week while 5 inches of rain fell in 24 hours in some parts of Arkansas.

Wilson agreed, but added Tuesday that “I have never seen such a discouraged bunch. It boils down to them saying, ‘I’m not going to be able to pay my bills.’”

Kirkpatrick heard the same in his county. “Most farmers are ready to get this one behind them so they can lick their wounds and pray for a better year next year,” he said.

Last month, Arkansas’ governor designated 23 counties disaster areas due to flooding and rainfall, including Ashley, Chicot and Desha.

Last Thursday, the governor’s office said it was working with USDA to obtain a declaration that would help farmers in Ashley, Bradley, Calhoun, Chicot, Conway, Cross, Desha, Faulkner, Independence, Jackson, Jefferson, Lafayette, Lincoln, Little River, Miller, Monroe, Perry, Phillips, Poinsett, Pope, Prairie, St. Francis, Union, White, Woodruff and Yell Counties. [Are there any counties that won’t be declared disaster area?]

Ashley County Ledger reports that 'It's bad'.

‘It’s bad,’ Agent Characterizes Crop Situation in Ashley County

[Arkansas]

A tractor leaves deep ruts in this UA Extension photo.

"It's bad," was the way Ashley County Cooperative Extension Agent-Agriculture Kevin Norton described the status of Ashley County's crops this past week.

At the point in the year when farmers should be right in the middle of the fall planting season for wheat and oats, they are still struggling to harvest some of this year's crops, particularly cotton.

The heavy and continuing rains in September and October not only hampered the harvest, but also led to extreme reductions in quality and yield. Norton said that some cotton fields which normally produce 1,200 to 1,500 pounds per acre are yielding only 500 to 800 pounds this year. "Five hundred to 800 pound cotton does not pay the bills," he said.

The county agent said that between the rains most farmers have been able to harvest most of the rice, most of the soybeans and almost all of the corn. He said that there is a little bit of corn still in the fields, "but it is not in good shape." Corn yields, Norton said, were down about 15 to 20 bushels per acre from last year. For the corn still left in the field, both the yields and quality will be greatly reduced. He said that most of the unharvested corn is laying on the ground which will mean that from 25 to 50 percent of the yield will be left in the fields.

Norton said that most of the rice crop was fair to OK, noting that one verification field cut 201 bushels per acre.

The same is not true for soybeans and cotton. Norton said that the soybeans which were ready to cut when the rains began "really took a beating" with both the yields and quality very low. He said that yields were down across the board, depending on the timing. The location also plays a role in yields. Norton said that normally in wet weather, soybeans on the prairie areas do better than those in the Delta.

He estimated that 80 percent of the soybeans have been harvested. For the remaining soybeans, some of which will have extremely low grades, he is concerned that granaries may not want to take them because of the quality.

With the continuing rains, "It is possible that there will be cotton out there at Christmas," Norton said, "but I am not sure how much will be left on the plant."

…
Overall, Norton said, he expects farmers to carry over a lot of debt this year. "I am afraid we will see a shakeup," he said. "It will be months before we see the full magnitude of how bad this fall has been."

Conditions Bad Statewide

Statewide, conditions were deteriorating rapidly as continued drenching rains wreaked havoc on the fall harvest. Yield potential and quality decreases the longer finished crops remain in the field.

"At this stage, yield and quality losses for Arkansas' major row crops could easily exceed $650 million," said Arkansas Farm Bureau President Randy Veach Thursday. "Presently, the bulk of the state's fall harvested crops are rated only fair in their quality. With additional delays, a growing percentage of the crop will move to a poor rating."

Veach says already 40 percent of the cotton and a third of the state's soybean crop have a poor rating. Seven consecutive weeks with at least one day of measurable rainfall, statewide, have prevented crops from drying out.

The cotton harvest is at only 15 percent complete, compared to nearly 75 percent by this time normally.

The soybean harvest is nearly 40 percent complete, compared to a normal harvest rate at this time of 60-70 percent.

Rice is 15 percent behind its normal harvest rate.

And the corn harvest is usually done by now, but 10 percent of the crop is still in the field.

The combination of heavy rains during this spring's planting season and now during harvest is really hurting farmers.

…
State Damage

Near constant rain has caused between 25 percent and 80 percent damage in some cotton, rice and soybean fields in Arkansas as growers struggle to harvest what's left during brief periods of dry weather, according to extension agents, agronomist and economists with the University of Arkansas Division of Agriculture.

In Phillips County, there was some good news for cotton farmers. "For sure, there is no total loss," Robert Goodson, Phillips County extension agent for the division of agriculture, said Thursday. "While we won't meet the crop average for Phillips County, it won't be as bad as everyone thought at first."

However, some soybeans in his county were fungus-fraught, rotting or splitting. "There are a lot of fields that have above 25 percent damage due to the wet weather," he said. "I have heard horror stories of damage in the 80 percent range."

Still, while the yield won't hit 2008's 50-bushel-an-acre mark, "this year, I think we'll be in the low 40-bushel range," Goodson said. "The saving grace for the soybean crop is the price. It is still strong. "Cash price at Marvell is $10.05, which makes lower yields look better," he said.

Scott Stiles, extension economist-risk management, said the moisture was chipping away at the strong prices. "Moisture discounts, foreign material, mold in the samples-- all these discounts add up to dollars," he said, adding that despite the strong prices, "the discounts are getting pretty deep on soybeans."

…
"The longer it rains, the uglier it gets," he said, adding there will be consequences for next year. "Seed quality for soybeans for planting next year's crop could get tight. There's simply no good seed."

Jackson County Extension Staff Chair Randy Chlapecka said river and stream flooding "has completely ruined some soybeans. "In regards to rice, we still have about 30 percent of our rice still in the field, which is unheard of for this time of the year," he said. "There is great concern about how much the late planting plus the wet, cool late summer and fall has impacted yields and milling of the remaining crop."

Chlapecka also said the effects of this year's rain would stretch into 2010. Jackson County had some of the state's heaviest rain this year: recording more than 19 inches from Aug. 1-Oct. 21.

"Very little wheat has been planted and we're rapidly approaching the end of the optimum planting window," he said. "We'll almost certainly end up with the smallest wheat acreage in forever.

Texarkana Gazette reports that damage to crops is 'tremendous' in Arkansas.

Agriculture: Damage to crops is ‘tremendous’
By: Jim Williamson - Texarkana Gazette -
Published: 11/05/2009

[Arkansas]

Dollar amounts have yet to be placed on crop damages in Lafayette and Miller counties, but estimates by the University of Arkansas Extension Service indicate the losses will be tremendous, especially for soybeans.

The grain elevator companies are turning down soybeans because the damage is “too severe,” said Joe Vestal, Lafayette County Extension agent, staff chair. “We can’t put a dollar amount on the damage yet, but we’ve had lots of damage. It will be tremendous for soybeans. Most of the soybeans ready to be cut, before the rain started in September, will probably be a total loss." About 70 percent of the loads to grain elevators are damaged.

Agfax reports that 24/7 Harvest in Arkansas.

Arkansas: Harvest is a 24/7 Affair
AgFax.Com - Your Online Ag News Source
By Mary Hightower

[Arkansas]

HARRISBURG (November 4) – After a month of watching promising crops succumb to fungus and other ills caused by record rainfall, Arkansas farmers were running combines and pickers full tilt this week to reap what’s left in the fields before the next rain falls.

“As long as the weather holds, guys will be going 24/7,” Jeremy Ross, extension soybean agronomist for the University of Arkansas Division of Agriculture, said Wednesday. “They were harvesting around my house last night ‘til around 9 p.m.”.

…
For all their effort, some growers may see precious little. Cotton growers have seen hard-locked bolls, sprouts in the bolls, boll rot, discoloration and other conditions that, in some cases, have nearly halved their yields to 700 or 800 pounds of lint per acre..

Soybean growers who had great stands in September, are now harvesting beans damaged by fungus, germination, split pods and other problems that will cut deeply into the per-bushel price. In southeastern Arkansas, some growers were lucky to get $3 a bushel when non-discounted prices were running around $10..

…
Beyond the harvest, there is anxiety about the future for some farmers.

“Some growers expect to go out of business in this region, based on the heavy damage to their soybean and cotton crops,” Ross said..

THV reports that underwater soybeans in Arkansas.

White, Ouachita Rivers Still Rising From Heavy Rain
Ashley Blackstone Mike Duncan 11/4/2009

[Arkansas]
…
And further downstream in near Des Arc, the crest is not expected until Saturday or Sunday. Farmers there are paying the big price. Five-hundred acres of Doyle Burnett's soybeans are already underwater.

THV's Mike Duncan asked Burnett, "What are you going to do with that? Just let it go I guess", Burnett replied. "It will be gone. I don't see any chance of the river coming back down anytime soon. So I think they're totally gone."

The Forest City Summit reports that rain causing a crisis for area farmers.

Rain causing a crisis for area farmers
By Chris Todd, For the News-Tribune
Nov 03, 2009 - 17:07:38 CST.

[Iowa]

Farmer's Coop Association General Manager Randy Broesder has been involved in farming for a long time, but he can't remember a harvest season that's been as scary as this one.

An inch to two inches of rain fell on the Britt and north Iowa area early Thursday morning and most of the day, making a tough situation in the already saturated fields even tougher.

“Some of the guys have told me that harvest hasn't been this late since 1962, and that's a long time ago,” Broesder said.

Darwin Luedtke, a grain merchandiser for the North Central Cooperative office in Woden, said this harvest has been a major battle for farmers.

“I haven't seen anything like this in 37 years,” Luedtke said. “The fields are wet, beans and corn aren't as mature as they should be because of the cooler weather this summer, and it's going to cost farmers money to dry the crop. It's been a very difficult harvest.”
…
“But the weather is critical at this point. We'll need about six more weeks of dry weather to get this harvest done.”

At the Coop, farmers will be bringing in a lot of wet corn and it may be harvested faster than it can be dried by the elevator.

“There's going to be some lines, and guys are just going to have to be patient,” Broesder said.

The Gothenburg Times reports that farmers challenged by shrinking corn.

Farmers challenged by shrinking corn
Written by Elizabeth Barrett Thursday, 05 November 2009 16:22

[Nebraska]

SNOW SHROUDS: Corn throughout the area received a heavy blanket of the white stuff Friday morning—up to 18 inches south of Brady. Snow fell three times in October. That coupled with plentiful rain has delayed harvest as much as three weeks.

Agriculture.com reports about The Harvest From Hades.

The harvest from hades
By Ray Grabanski
Market Analyst
11/04/2009, 10:18 AM CST

This year's harvest has been an extremely trying time for corn and soybean producers who have struggled through perhaps the worst October ever for harvesting grain. As we enter November, only 25% of the corn and 51% of the soybeans are harvested - woefully behind the normal pace of 71% corn and 87% soybeans. This could be a disaster in waiting, and the market is starting to treat this serious threat to the 2009 crop with more and more price premium as time clicks on. The one thing that can seal the nail in this coffin is an early arrival of winter, effectively socking in a good share of the 2009 crop in the fields.

Soybeans could be more devastating than corn in this regard, as snow would shatter soybeans certainly more easily than causing losses in corn. But even corn could be affected, as corn needs time to dry down and also to get picked and dried in grain dryers. We already are getting well behind normal so that drying needs to occur at cooler temps in November instead of October - slowing the whole process down. The seriousness is even more evident when you consider that problem areas will take a while to dry down soils before being able to tackle the harvest. The time needed to do that will be frustratingly long, as the whole process of drying out soils takes longer in November under cooler conditions and shorter days than in September or October.

So, the whole process of dealing with this harvest has been more than trying. For some areas, it actually gets even worse. In many ND, MN, and other fields down into Ill, corn is molding in the cob. The mold can be a potential problem down the road, as buyers are being very particular about not accepting this questionable quality grain at harvest. Buyers simply don't have time to blend this 'off' grade grain off at this time, and therefore some farmers are finding they don't have a market for this grain at harvest.

Pro Ag has researched the mold problem and found that crop insurance considers it kernel damage, and is not treated like mycotoxins. Instead, the kernel damage is considered a loss but it takes over 35% of kernel damage (corn and soybeans) to qualify for a price comparison method of adjustment (Reduction in Value or RIV treatment), where the big insurance checks can come. Otherwise kernel damage for both corn and soybeans up to 35% is basically a one-for-one deal (slightly more in corn but less in soybeans) - based on a table in RMA special provisions. For example, 22.5% molded corn is adjusted at 22.5% less than total production (our 200 bu example would be 200 x .775 = 155 bu corn). The elevator may say the corn is worthless today, but crop insurance says its worth the same as 155 bu corn. Therein lies the rub. Of course, after harvest this corn might be worth a whole lot more as competition to blend the corn for cattle feed might make it more marketable.

For farmers with less than 35% mold (which includes most corn with mold problems), there is an unpleasant surprise! Many elevators say over 10% mold is unmarketable, so farmers are finding that crop insurance will give only a 5.9% adjustment for 10.5% mold. If you have a 200 bu crop, 94.1% of it still counts as production so essentially this is no loss for most producers. Quite a catch to find a large crop that is unmarketable, and then find no loss for crop insurance. The table ratchets up to 41.1% adjustment at 34-35% mold, and over 35% goes to a price comparison method, or RIV.

Below are the comments made during the last few days from Agweb's November Crop Comments in which some farmers express skepticism about the USDA’s bumper harvest.

November Crop Comments
11/5/2009

Here's a sampling of what some folks are saying:

…
11/4 - Franklin Country, North-Central Iowa: Corn at 28%, we have maybe 10% harvested in this area. The last load of beans I took in was 14.2%, we have around 33% harvested around here. Yields for beans going low-50's to low-60's. Corn yields- only God knows. I would say we will be down around 25 bu from 2004 record yields; probably 190-195 will catch it this year. Certainly no record yield in my part of Iowa as the USDA is saying. Quality will be a big issue this year; I see a lot of corn getting dumped, rather than stored. The old-timers are saying they have not seen a harvest like this for many years and I hope we never see another one like this one for 30 years.
…
11/3 - St. Clair County, Southwestern Illinois: We picked up a mere 14 inches of rain in October. Not only was this the wettest October on record, it was the fourth wettest month ever recorded in our area. Saturday brought about panic for guys farming in the bottoms along the rivers. Many were doing anything possible to get their crops out before any of the rivers crested. It is slow going for everyone as you cannot bring any trucks, wagons, or grain carts into any fields for fear of burying them. The neighbor down the road buried his combine and it took two Caterpillars to get him out. I would put corn harvest at maybe 8 percent complete as some folks have never started due to high moisture and no on the farm drying. Beans are maybe 30 percent complete. I guess we will see how much the beans rotted in the next few days. We are hoping for beans to go on Wednesday or Thursday in this area. It was 70 degrees today and we could use another six weeks of this weather. Many nervous folks around here and who can blame them. Corn yields are running anywhere from 170-240 and beans are running 35-54. Be safe everyone and best of luck with your harvest.

11/3 - Central Nebraska: 12 in snow just melted. Fields a saturated and corm is wet with little hope of drying down because of freeze before maturity. The USDA needs to wake up and smell the roses.
…
11/2 - Winnebago County, North Iowa: 9.8 inches of rain last 35 days -Winnebago River is bank-full slowing drainage-beans 40% harvested -corn -5% at most. Corn running from 24-30%. Won't turn a wheel here to at least Wednesday/Thursday on sandy ground. Local elevator can dry only 25,000 bu daily of 25% corn. Almost all reporting points in Iowa are showing from 2x to 3x normal rainfall from history in past 30 days. Tow ropes are sold out. Fields will look like war zones before this December harvest is over!
…
11/2 - Houston County, Minn.: Help me out here. I am confused. Just finished reading the crop comments. No harvest progress, beans to wet to combine or frosted while green. Corn molding, too wet to combine and many reports of very low test weight. Snow burying corn in Colorado and Nebraska. Flooding burying crops in Iowa, Illinois, Indiana, etc., etc. Was at the local elevator yesterday. They are in a bind because they have contracts to fill but either no beans are coming in or they have to reject them because of high moisture. Biggest crop ever coming in??? Where?

USDA’s "Biggest Crop Ever"

Agrimoney reports that USDA believes the crops have suffered minimal damage.

18:20 UK, 4^th November 2009, by Agrimoney.com
Informa cuts crop guesses - but not by much

Informa Economics has cut its estimate for US corn and soybean production - but not by much, signalling that it [and the USDA] believes the crops have suffered minimal damage from a delayed harvest and October frost.

The analysis group trimmed its forecast for US the corn harvest by 63m bushels to 13.06bn bushels.

The estimate for soybeans was trimmed by 50m bushels to 3.333bn bushels.

Many analysts have forecast losses of 100m-200m bushels [it will be much, much more] for a harvest which is the slowest since records began in 1985 thanks to rain both in the spring, which delayed planting, and in recent weeks, which has hampered field work.

'Good indicator'

The Informa data, which will be followed by forecasts from FC Stone later on Wednesday, is viewed by many investors as a reliable indicator of Washington thinking. [Not the reality]

The US Department of Agriculture will on Tuesday release its next monthly global crop supply and demand report, which are seen as highlights of the commodities calendar.

"Historically, Informa has been very close to the USDA," Iowa broker US Commodities said.

"In the last seven years… Informa has been within 20m bushels of the USDA November estimate [for soybeans]. The bottom line is that the trade should respect Informa's numbers [as if they were the USDA’s numbers themselves, and give them the respect the USDA is due—which is none at all]."

Informa's estimates leave it more optimistic on both corn and soybean than the USDA, whose latest forecasts were made nearly a month ago, before harvest delays and frost kicked in.

What The USDA Is Saying About 2009 Fall Harvest

Speaking of USDA numbers, below is a comparison between the USDA’s September and October estimates.

Soybeans for Beans: Area Harvested, Yield, and Production by State
and United States, 2008 and Forecasted September 1 and October 1, 2009
	Yield		Production
	(Bushels per acre)		1000 bushels
	Sep	Oct	Sep	Oct
Alaska	37	37	16,280	15,910
Arkansas	38	39	127,300	131,430
Delaware	36	36	6,768	6,588
Georgia	34	34	16,320	15,300
Illinois	44	44	398,200	411,400
Indiana	43	43	235,640	233,490
Iowa	52	52	505,960	495,560
Kansas	40	40	140,000	146,000
Kentucky	42	44	60,060	62,040
Louisiana	35	37	35,000	35,890
Maryland	39	40	18,720	19,000
Michigan	38	37	75,620	73,630
Minnesota	40	40	284,000	284,000
Mississippi	41	39	88,970	83,460
Missouri	42	42	224,700	222,600
Nebraska	51	52	237,150	247,000
New Jersey	35	38	3,150	3,306
New York	43	42	10,836	10,584
North Carolina	34	34	59,840	59,840
North Dakota	30	30	120,000	115,500
Ohio	47	46	215,260	210,680
Oklahoma	26	28	8,580	10,360
Pennsylvania	45	46	20,025	20,470
South Carolina	27	27	15,930	15,120
South Dakota	39	40	167,700	168,000
Tennessee	40	40	62,400	61,200
Texas	25	25	5,250	4,875
Virginia	35	37	20,650	21,460
Wisconsin	39	39	63,570	63,570
Other	33.6	35.6	1,413	1,850

		Total	3,229,012	3,234,203

Why did production estimates get bigger in October for Arkansas, Illinois, Kentucky, Louisiana, and Nebraska???

What Everyone Else Is Saying About 2009 Fall Harvest

(Below are quotes from the articles above)

"We've had a lot of rainy years, but this one puts those to shame,"
"If a person's a farmer you start to think, 'Where am I going to sleep? How am I going to feed my children?'"
"More than ever, Louisiana producers are in need of disaster funds"
"If there's any way possible, I'll still farm, but you've got to look at everything, you know? I don't know what else I'd do."
“I fear many of our hardworking Mississippi farmers will no longer be able to operate due to the excessive losses faced this year”
"That's putting a lot of acres under water and makes other farm-land a lot harder to get to.”
“We're trying to get them out before the river gets them again,"
"It's bleak,"
"Now we are going to be lucky to make half a crop compared to the last couple of years, all because of the weather."
"we had a good soybean crop. The yield was there," he said. "We have lost at least 60 percent to 80 percent due to the weather."
"Our rice is going to be half,"
"We had a good soybean crop. The yield was there. We have lost at least 60 percent to 80 percent due to the weather."
"Dryers in Chicot are rejecting beans because their quality had deteriorated so much,"
"This is the worst I've ever seen and I've been a county agent for eight years and around farming all my life,"
"I have never seen such a discouraged bunch. It boils down to them saying, 'I'm not going to be able to pay my bills.'"
"It's bad,"
"I am afraid we will see a shakeup. It will be months before we see the full magnitude of how bad this fall has been."
"At this stage, yield and quality losses for Arkansas' major row crops could easily exceed $650 million,"
"There are a lot of fields that have above 25 percent damage due to the wet weather. I have heard horror stories of damage in the 80 percent range."
"Moisture discounts, foreign material, mold in the samples-- all these discounts add up to dollars. The discounts are getting pretty deep on soybeans."
"The longer it rains, the uglier it gets. Seed quality for soybeans for planting next year's crop could get tight. There's simply no good seed."
"[River and stream flooding] has completely ruined some soybeans.”
"Very little wheat has been planted and we're rapidly approaching the end of the optimum planting window. We'll almost certainly end up with the smallest wheat acreage in forever.”
"We can't put a dollar amount on the damage yet, but we've had lots of damage. It will be tremendous for soybeans. Most of the soybeans ready to be cut, before the rain started in September, will probably be a total loss."
"Some growers expect to go out of business in this region, based on the heavy damage to their soybean and cotton crops,"
"What are you going to do with that [five-hundred acres of underwater soybeans]? Just let it go I guess. It will be gone. I don't see any chance of the river coming back down anytime soon. So I think they're totally gone."
"Some of the guys have told me that harvest hasn't been this late since 1962, and that's a long time ago,"
"I haven't seen anything like this in 37 years."

Investing In Black Earth Farmland

2009-11-04T23:35:00.000-08:00

AFP reports that black earth stirs investors in Russia.

Black earth stirs investors in Russia
By Eleonore Dermy (AFP) – Oct 11, 2009

OSTROGOZHSK, Russia — For years, foreign investors have been attracted by the gleam of Russia's vast reserves of crude oil.

But deep in the quiet, rolling landscapes of southwest Russia, it is not the seductive power of black gold that has brought foreign money into the country.

It is the more mundane appeal of black earth, millions of hectares of ultra-fertile agricultural land that foreign companies hope will provide the ideal answer to the world's changing food needs.

Swedish company Black Earth Farming (BEF) since 2006 has bought 300,000 hectares (740,000 acres) of Russian farmland after the government finally allowed land to be privatised after decades of state ownership.

"In Europe the price of land is very high," BEF chief executive Sture Gustavsson said as he surveyed the newly acquired lands in the Voronezh region some 600 kilometres south of Moscow.

In Russia, a hectare of land can still be acquired for several hundred dollars.

"It is a great challenge. But we are loving it," Gustavsson said.

Russia has tens of millions of hectares (acres) of chernozem, or black earth, considered a dream soil because of its richness in humus, which is formed by the decomposition of plant matter by micro-organisms.

The high humus content gives the soil an ability to retain moisture that makes it perfect for farming. The famous Black Earth region of Russia and Ukraine covers an area approximately half the size of Germany.

Yet while Russia has become one of the world's main grain exporters, the full potential of its vast agricultural lands remains unfulfilled, with vast tracts of arable land going fallow after the collapse of the Soviet Union.

As a result, the modern techniques that foreign firms can bring to the most traditional of industries are essential if Russia is to fully realise its potential.

"The foreigners have brought us innovative technologies and jobs," said the head of BEF's local subsidiary Agro-Invest Ostrogozhsk, Alexander Averyanov.

"When we arrived in 2006, just 30 percent of the land in the region was being cultivated while 70 percent had been fallow for five, seven, even 12 years," he added.

"We have worked for two-and-a-half years and now we have been able to start cultivation."

Other investors in Russian agricultural land have ranged from investment funds to foreign governments.

In April 2009, South Korean shipbuilder Hyundai Heavy Industries took a majority stake in Khorol Zerno, a firm which owns 10,000 hectares of farmland in Russia's Far East.

"The world needs grain more and more," said Dmitry Katalevsky, a financial analyst with Deloitte, pointing to a shift in Asian diets towards wheat, the development of bio-fuels and the rising global population.

"The surge in agriculture prices has prompted investors to become more interested in these goods, when before they had invested more in oil, metals and gas."

Russia has set ambitious targets to fulfill the export potential of its agriculture industry. [and these goals can only be reached by attracting foreign capital]

Agriculture Minister Elena Skrinnik has said Russia could raise its annual grain production to 120 million tonnes in the next 10-15 years, allowing it to roughly double its exports to 50 million tonnes annually.

This year the total grain harvest is expected to be 90 million tonnes, down from last year's bumper figure of 108 million.

Gustavsson admitted that the challenges remain enormous as the yield from the land being cultivated by BEF remains relatively weak and it will take years of investment to harvest the full benefits of the company's investment.

Meanwhile the price of grain has fallen after a spike in 2007 and foreign investors still have to cope with the hurdles of Russia's notorious bureaucracy.

And because of the lack of rural infrastructure -- a major problem for the Russian agriculture industry -- BEF is this year spending tens of millions of dollars on new silos to keep the grain harvests.

Such investment can only be welcome for Russia and President Dmitry Medvedev admitted last week that billions of dollars of investment were needed to expand storage facilities that currently hold only 30 percent of the harvest.

"Over the past 10 years we have understood that agriculture is not a black hole where money is lost and brings nothing for the state," Medvedev said.

Agweb reports that global farmland disappearing.

Global Farmland Disappearing
10/13/2009

An investment tip from Mark Twain: "Buy land. They're not making it anymore."

Farmland is disappearing across the world at an alarming rate. Hundreds of thousands of acres across the globe are disappearing due to climate change, erosion, and urban development. The American Farmland Trust estimates that farmland is disappearing at a rate of 2 acres per minute.

The National Soil Tilth Laboratory in Ames, Iowa, highlighted, “Each human on earth lives off the farming equivalent of about a third of a football field today. Population growth and urbanization will shrink that available land base in half by 2050.”

African farmland disappearing

Africa could lose 247 million acres of farmland by 2050 due to climate change according to Environment Science and Policy. This potential loss of farmland is substantial as the U.S. has approximately 246 million acres that support the top eight producing crops.
…
The study claims that if proper action is taken this far in advance, small farm communities can still be saved. Philip Thornton, co-author of the paper, noted “Though unsuitable for crops, the land could still sustain livestock, which are more tolerant to heat and drought.”

Although the African farmland can still be used as pasture, the farmland will no longer be fertile and be able to produce crops. This will significantly reduce the global production of grains and throw a curveball for the supply and demand of farmland globally.

U.S. farmland disappearing

Farmland has also been disappearing in the U.S. due to urban development. Farmland has been used to create new highways, industrial parks, and housing developments. The American Farmland Trust estimates that between 1992-1997, more than six million acres of agricultural land, an area the size of Maryland, was used for urban development.
…
The global land grab

Developing nations have begun to reconsider their future “food security." By 2050, the world will have to feed 3 billion more humans with significantly less farmland. To solve this dilemma, countries such as China, Saudi Arabia, South Korea, and United Arab Emirates have purchased farmland across the globe to ensure a consistent availability of grains. The countries have sent expatriate farmers who will harvest the crops and directly export the grain back to their home country.

Saudi Arabia has spent $100 million to lease land in Ethiopia to raise wheat, barley, and rice. In Sudan, South Korea has signed deals for 690,000 hectares, the United Arab Emirates for 400,000 hectares, and Egypt has secured a similar deal to grow wheat. Private companies are also acquiring land. Sweden's Alpcot Agro bought 128,000 hectares of Russian farmland, South Korea’s Hyundai Heavy Industries acquired 10,000 hectares of eastern Siberia, and Morgan Stanley, an American bank, bought 40,000 hectares of farmland in Ukraine.

How is farmland going to be affected by this?

With this much farmland now at risk of being taken out of production, the demand for farmland will undoubtedly be affected. Farmland is a natural resource with no substitute and cannot be replenished. No more land is being made.

Whenever supply and demand curves become distorted, an investment opportunity can arise. The growing importance of farmland and the limited supply provides farmland the potential to become one of the best investments available over the long-term.

The USDA reports on the decline in sown area.

The Decline in Sown Area in Russia

According to data from the State Statistical Committee, total sown area in Russia slid from 117.7 million hectares in 1990 to 76.4 million in 2007. The decline is attributed in large part to a coincident drop in livestock inventories and a resultant decrease in the sown area of feed grains and other forage crops.

…

My reaction: The appeal of black earth farmland is attracting investors to Russia.

Black Earth Farmland Attracting Investors

1) Russia’s tens of millions of hectares (acres) of chernozem or black earth is considered a dream soil because of its richness in humus (see Pictures From Visiting Russian Farmland)

2) Foreign farmers, ranging from investment funds to foreign governments, have established successful, long-term agricultural enterprises in Russia

3) Russia has set ambitious targets for its agriculture industry, including raising annual grain production to 120 million tons in the next 10-15 years and doubling its exports to 50 million tons annually. These goals can only be reached by attracting foreign capital

4) In Russia, a hectare of land can still be acquired for several hundred dollars ($450 - $750 per ha depending on soil quality and soil/field condition. See Acquiring Black Earth Farmland).

Global Farmland Disappearing

1) Farmland is disappearing at a rate of 2 acres per minute.

2) Africa could lose 247 million acres of farmland by 2050 (See *****Disaster Feared As Desertification Spreads*****)

3) Between 1992 and 1997, over six million acres of agricultural land, an area the size of Maryland, was lost to US urban development.

4) Farmland is a natural resource with no substitute and cannot be replenished.

5) To deal with the farmland shortage, countries such as China, Saudi Arabia, South Korea, and United Arab Emirates have purchased farmland across the globe to ensure a availability of grains. Expatriate farmers are being sent to harvest crops for direct export back to their home country.

Russian agriculture’s untapped potential

The enormous untapped potential of Russia’s vast agricultural land stands in stark contrast with the overused farmland and desertification occurring in other parts of the world. As I reported before, Russia's agricultural sector is enormously underdeveloped.

Approximately 7% of all arable land on the planet is owned either by the Russian state or by collective farms. Of that, roughly 35 million pristine hectares lies uncultivated. (A hectare is about two and a half acres.) To put that into perspective, Britain has 6 million hectares of cultivatable land.

The land under till coughs up tiny yields due to poor work ethics and antiquated technology. The average Russian grain yield is 1.85 tons a hectare - compared with 6.36 tons a hectare in the U.S.

Russia is the only place on Earth that has significant amount of farmland which is not in use. As uncultivated land comes back into production, Russia will become an agricultural powerhouse (a Saudi Arabia of wheat).

--------------------------------

Investing In Black Earth Farmland

Regia Russia Agro Investment Ltd (the fund I am starting to invest in Russian agriculture) is up and running and ready to receive subscriptions. Please, Email me for a copy of PPM.

With Black Earth farmland available at $670 per hectare, now is the time to act. Already, three other Ag funds have appeared on the horizon in Russia, and it is only a matter of time before money flows into the market and drives up prices.

Charles Bausman

I will be working with Charles Bausman to acquire Russian farmland. Charles is a Russia-based American with experience in Russian agribusiness who will run the fund’s operations on the ground (with my participation after I move to Moscow). Charles Bausman has great deal of experience (18 years) in working in Russia and speaks fluent Russian. Charles will identify, do due diligence on, and acquire properties, and then be responsible for setting up efficient management on the properties. He has already identified a number of properties for potential acquisition, and he is also a director of the fund.

I encourage you to contact him directly with any question about Russian agriculture or Regia Russia Agro Investment Ltd. Charles also has extensive experience in fund management and should be able to answer all your questions.

Regia Fund Strategy

The Regia Fund will make value acquisitions of prime Black Earth farms, farmland, and associated infrastructure (buildings, grain storage facilities, equipment). The Fund will acquire land both in long term leases and as property. The fund will further install high quality efficient management of these farms and provide them with the necessary financing to operate efficiently with the goal of owning producing farms generating positive cash flow and net income.

Local Government Support. The fund will work closely with local and regional administrations to ensure government support for its projects. Local government encourages high-quality, long-term investors, including foreign investment, which can increase production, improve know-how and technological efficiency and employment. The fund will make use of the 15+ years experience and broad contacts of its executive management in Russia and the Black Earth region to facilitate these governmental relationships.

Legal Due Dilligence and Support: The fund will undertake extensive legal due diligence on the security of title on the land it acquires. The fund will retain a reputable European legal firm to provide written opinions as to quality of land title and to advice on other relevant legal issues regarding the operations of the fund.

Legal Structure: The fund will register and own a Russian legal entity which will be the operating company. Leaseholds, equipment, and property in title may be in the name of this entity or in other entities onshore or offshore, as is deemed advisable by fund management, pursuant to Russian legal requirements and the recommendations of the fund’s legal advisor.

Farm Management: The fund will seek to retain the best possible agronomic talent, relying primarily on Russian agronomist, while also retaining international agronomists where this is productive, to develop the best possible operations strategy for the farms it controls. The fund will use employee ownership plans to align the interests of shareholders and farm management.

Management Strategy: The fund will pursue a decentralized management method, viewing each operating farm as a separate operating unit, with its own management and oversight needs. Farm sizes can range from approximately 3000 to 7000 ha. The fund will seek to support individual farm management with professional expertise in accounting and financial control, human resources, receipt of government subsidies, acquisition and sharing of equipment, construction and or otherwise securing storage facilities, crop sale and hedging, agronomic expertise, and adequate funding for operations.

Operations Location: The fund plans to acquire properties in the Central Black Earth region of European Russia. The fund will seek to acquire farms in close proximity to each other to maximize management efficiency.

Executive Management Location: The fund’s executive operations management will be based in the Black Earth region, to maximize hands-on management of its operating units. Location will be determined depending on where acquisitions are initially made. The fund will not seek to manage operations from Moscow as is common with other large agro-holdings, because this has proven to negatively impair operating efficiency.

Equipment: The fund will purchase modern, efficient machinery (combines, tractors, etc.) to make its farms as efficient as possible.

Main Crops: The main crops grown will be those typical for the Black Earth Region; wheat, rye, barley, sunflower, potatoes, beets, among others. The fund will also explore introducing soy cultivation, which is a less common crop in these regions. The fund will also consider fruit cultivation – primarily apples and cherries. Final decision on which crops to produce will depend on local and market factors to be decided opportunistically. The fund will not engage in dairy or livestock as a major activity, however might do so in order to meet local government requirements or requests.

Markets: Produce from the farms will be sold primarily to internal markets, either directly to processors or to Russian grain brokers. Transport infrastructure in this region of Russia is well-developed relative to world standards.

Other investments: The fund will reserve the right to make selective, non-primary investments in non-cropping activities, most likely in on-site food processing, if the fund management determines these projects to have a high likely return on investment.

Land Speculation: While the fund anticipates that land values will increase, it will not engage in pure land speculation, as this is discouraged by Russian authorities. This means that it will operate the land that it acquires with the goal of generating profitable revenue.

Identifying Acquisitions: Quality of farms in the Black Earth Region can vary significantly from property to property depending on soil quality, proximity to transport (rail and road), availability of storage, and quality of local management, and attitude of local government. Strong local contacts and connections can yield very advantageous acquisition opportunities. Fund management possesses these contacts and will make use of them.

Minimum size: The fund estimates that the minimum capital needed to acquire and operate an adequately funded farm is $US 3 million. This would allow for the initial acquisition and operation of a 3000 ha farm, and access to Russian farm credit and subsidies.

Target Size: The fund will seek to increase the quantity of land under its control to the maximum which is realistic to manage and farm productively, subject to availability of future funding. Experience of other investors shows that it becomes progressively more difficult to manage farms as they grow over a certain size, and that properties over 100,000 ha begin to present management challenges which can reduce efficiency, however there are exceptions to this. The fund will grow to as large a size as possible given management and other constraints. It is estimated that the land under control could end up being between 100,000 and 500,000 ha. The fund will seek to grow in size organically, i.e. at a rate at which it can properly operate land under its control. It will seek to avoid the experience of other investors, both Russian and foreign, of acquiring large amounts of land without having the management systems in place to operate them, which then resulted in low-quality management and large operating losses.

Funding and Subsidies: The fund will make full use of available government sponsored Russian farm credit, with a rough goal of a debt to equity ratio of about 50%. The fund will also make full use of any available Russian government subsidies, both federal and local.

Exit Strategies: The fund will aim for exit strategies that optimize investor value. Possible strategies are future round private placements, an IPO, SPOs, opportunistic sale of assets to other operators, strategic investors, etc. Anticipated time horizon for full or partial exits such as these is from 3 to 5 years. The fund has no fixed time frame for exits, and will pursue them on an opportunistic basis.

Dividends: The fund will initially reinvest profits into attractive acquisition opportunities which are expected to likely continue for 2-3 years. As the fund matures, if it is in the interests of shareholders, the fund will distribute dividends.

Fund’s Structure

*** Private equity fund
*** Fund name: Regia Russia Agro Investment LTD
*** Fund administrator: Cortland Fund Services LLC
*** Fund location: British Virgin Islands (with Russian subsidiary)
*** Management fee: 2 percent per year paid quarterly
*** 20% performance fee paid on exit (profits measured in gold)
*** 1% placement fee
*** 10% discount (.9 grams of gold per share) for first 100,000 grams of gold invested
*** Quarterly net asset valuations (with updates via blog and email)

Term

The Fund's initial term is five (5) years although this is subject to additional one/two year periods of extension at the sole discretion of the Board of Directors.

Close-ended fund

The Fund is a close-ended fund and, as such, its Shareholders do not have the right to request redemption of their Shares. However, where the Fund’s terms is extended beyond five (5) years, the Fund intends (but is not obliged) to offer shareholders the option to redeem some or all of their Shares on the 5^th anniversary of their initial subscription.

Goldmoney Subscriptions

Regia Russia Agro Investment Ltd is using Goldmoney to receive subscriptions. GoldMoney is a digital gold currency founded in 2001 by James Turk which allows the instant transfer of gold, silver and platinum between user holdings.

Subscriptions are in gold (1 gram of gold per share), and the minimum subscription amount is 3500 grams of gold, which is about $122,500 right now ($35 per gram). As gold appreciates, the minimum investment will be lowered as appropriate.

There is a 10% discount to the Offering Price (.9 grams of gold per share) for first 100,000 gram of gold invested in fund.

Here is the link for opening a Goldmoney account. The process is simple and transparent

Gold Appreciation To Create Tremendous Inflation In India

2009-11-03T19:57:00.000-08:00

Gold-eagle explains why Indians love gold.

(emphasis mine) [my comment]

Why Indians Love Gold

…
From time immemorial Indians have been in love with Gold. The predominant Hindu population finds mention of gold as a commodity of immense value in their religious books. Some of these religious books like the "Vedas, Puranas, Upnishads" are believed to date back a few hundred thousand years. The revered "GITA" is believed to be a sermon by Lord Sri Krishna given more than 5000 years back. In most religious books there is mention of gold as a metal of immense value. Hindus believe that Gold is a metal of demi-Gods and monarchs.

From ancient times Gold (and gold jewelry) has enjoyed safe-heaven status. In India Gold continues to enjoy safe heaven status even today. Gold jewelry is worn by all women irrespective of their religious beliefs. A large number of Indian men also wear Gold jewelry as neck chains, bracelets, and rings (on fingers). Gold jewelry is popular among Indians for the following reasons.

1) Jewelry is worn for ornamental value on all social functions, festivals and celebrations.

2) At one point in time there was 97% income tax in India. This resulted in large scale tax evasion. Large population spread over a significant area and lack of adequate computerization are some other reasons for tax evasion. The tax reforms of the last several years have indeed reduced the level of evasion. Still a lot remains to be done. It is believed that there is a parallel economy running in the country. The cash component of the unaccounted wealth can not be kept in Banks (if kept in Banks it would have to be accounted). This unaccounted wealth can not be kept in safe deposit vaults as it has to be hidden from the tax authorities. Gold jewelry is the most convenient option as it occupies very little space (so easy to hide) and does not have the risk of being damaged during storage.

3) The Indian rupee is not convertible on capital account. This means that it is illegal for an Indian (resident in India) to keep any foreign currency in his possession or in his portfolio. Foreign exchange regulation act (FERA) and conservation of foreign exchange and preservation of smuggling activities act (COFEPOSA) prescribe deterrent punishments for violators (including detention for long periods without bail or trial). It is also illegal to keep Gold in unworked form (pure gold). As a result, in the prevalent scenario, Gold jewelry is the only way to protect against depreciation of Indian rupee against US$.

4) A large population in India lives in villages. A large number of very poor people do not have proper houses to live. These poor people have very little assets. Whatever little they have they must keep in their possession 24 hours a day (as they do not even have a house to keep their belongings). Gold jewelry worn on their self is the only option. When in crisis they mortgage it or sell it. Floods and drought force many people living in villages to flee to a safer place. It is easy to carry gold jewelry while fleeing in distress.

5) In the long term the Indian rupee price of Gold has been in an up-trend. Inflation has continuously, year after year, eroded the value of currency. Real estate has been the best bet. Gold jewelry has been the next best option. Despite the fact that $ price of Gold has been in a bear trend, Indians continue to believe that Gold is a hedge against inflation. The following is the Indian rupee Gold price chart from 1993 onwards. The downward price movement from 1996 has been for two reasons. Firstly, $ price of Gold has gone down by 25% in the same period. Secondly, the Indian Gold import regulations have been liberalized. Some benefits of liberalization have been passed on to the consumers in the form of lower rupee prices.

6) Due to import duty and other limitation on imports, the price of Gold in India is always higher than the international price. Therefore, India continues to import Gold year after year.

Yearly Indian Gold imports

India as a country is heavily long gold

Based on India’s yearly gold imports, there should be over 10,000 tons of gold circulating in India in the form of jewelry. These 10,000 tons of jewelry is worth about $381 billion at $1080/oz. This huge supply of gold jewelry acts as a second unofficial currency in India.

The appreciation of gold will create tremendous inflation in India!

When global gold prices soar, gold owners in India (nearly the entire population) are suddenly going to find themselves much richer. With their new found wealth and greatly increased purchasing power, they will be willing to pay a lot more for what they want (food, clothes, etc…). So rising gold prices are going to result in out of control inflation in India, with will lead to a surge of raw material imports (as is already happening in China).

Implications are staggering

Consider these two facts:

1) Both gold and the yuan are undervalued by over 40%.
2) China's population is 1.3 billion and India's population is 1.2 billion. Together, China and India make up 38.5 percent of the world’s 6.5 billion people.

As the dollar collapses and gold/yuan appreciate, India’s and China’s enormous populations are going to start sucking up the world’s raw goods (food, energy, metals) with their increased purchasing power.

India buys 200 tons gold from IMF

2009-11-03T19:54:00.000-08:00

The Times of India reports that India buys 200 tons gold from IMF.

(emphasis mine) [my comment]

Full circle: India buys 200 tons gold from IMF
Chidanand Rajghatta & Prabhakar Sinha, TNN 4 November 2009, 12:47am IST

WASHINGTON/NEW DELHI: More than 18 years after New Delhi pawned 67 tons of gold to tide over a balance of payments crisis, the Reserve Bank of India has bought thrice that amount of gold from the International Monetary Fund to diversify its assets.

The IMF on Monday announced the sale of 200 metric tons of gold to the RBI, saying it represented almost half of the total sales volume of 403.3 metric tons that was approved by the Fund's Executive Board in September.

Welcoming the purchase of 200 metric tons of gold by India's RBI, IMF MD Dominique Strauss-Kahn said, "I strongly welcome this transaction with RBI."

"It is an important step toward achieving the objectives of the IMF's limited gold sales program, which are to help put the Fund's finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries."

For India, the purchase, apart from signaling that its economy has come full circle, is a way of spreading its assets which are said to be currently over-weighted with foreign currency, mainly in the form of sovereign US Treasury bonds. In other words, it is a hedge against a falling dollar.

India is the world's largest private gold consumer, but the government's holding of gold as an asset is modest. Even so, the latest purchase puts it at Number 10 among the list of top 10 gold-holders in the world.

Of India's current foreign exchange reserves of nearly $285 billion, foreign currency assets account for more than 90% ($268.3 billion), followed by gold ($10.3 billion), IMF's Special Drawing Rights ($5.2 billion) and a reserve position in the IMF of $1.59 billion.

While India's current gold holdings, accounting for just 3.7% of assets, are said to be historically low, buying 200 tons in addition to the 358 tons it already holds is expected to bump up the gold reserves to more than 6%. The dash to gold is prompted by the unsteady dollar and countries such as China, Russia and Brazil have already gone this route.

…
Officials said the total sales proceeds are equivalent to US$ 6.7 billion at an average gold price of $ 1045 per ounce.

My reaction: India has bought 200 tons gold from IMF.

1) The IMF on Monday announced the sale of 200 metric tons of gold to the RBI, almost half of the total sales volume of 403.3 tons.

2) For India, the purchase is a hedge against a falling dollar.

3) China, Russia and Brazil are also shifting their reserves to gold.

4) The total sales proceeds were equivalent to US$ 6.7 billion at an average gold price of $ 1045 per ounce.

Conclusion: This is more evidence that the world is losing faith in the dollar.

2009/10 Food Crisis

2009-11-03T03:06:00.001-08:00

Below is another section from the major article. This section is not completely finished, but is fairly close (needs another 2 or 3 hours of work).

--------------------------------

1) Chinese demand driving commodity prices

I have been predicting hyperinflation would start in China, leading to the dollar's collapse. Now it is happening. Chinese efforts to boost domestic consumption while supporting exports with its dollar peg and adopting loose monetary policy are creating enormous demand for raw materials. As a result, China is sucking up the world's supply of raw goods, putting massive upwards pressure on commodity prices, especially soybeans.

The dollar peg fuels demand from Chinese export sector

Since the dollar September last year, the yuan has been hovering around 6.83, as shown in the chart below.

As the Chinese yuan has been pretty much pegged to the US dollar and the dollar has been quickly losing value, the yuan has depreciated 6.9 percent since February this year, greatly helping China’s export sector. September's month-on-month import and export numbers showed the seventh consecutive month of positive growth since March. While China's exports have dropped significantly, its market share has not, and its trade surplus keep growing.

The dollar peg, by subsidizing China's export sector, is creating tremendous demand for raw materials.

China’s exploding money supply driving up demand

As I explained in my article on Hyperinflation in China, China’s dollar peg and trade surpluses fuel monetary inflation.

The US's trade deficit requires China to print money!

The little discussed downside of the dollar peg is all the money China has to print to maintain it. China's Central Bank puts the extra dollars it receives from its trade surplus into its growing foreign reserves and then prints yuan to pay Chinese exporters. This results in an increase in China's base money supply by an amount equal to the increase in its foreign exchange reserves. While China's ability to keep accumulating US reserves is endless, its ability to keep its money supply under control is not.

China’s money supply has exploded since China re-pegged. Beijing has scrapped lending quotas, adopted a loose monetary policy, and kept interest rates at four-year lows to bolster liquidity and promote growth. The policy has obviously worked: Chinese banks have extended a massive 8.67 trillion yuan ($1.27 trillion) in new loans this year. To put this lending in context, consider the following:

A) 8.67 trillion yuan far exceeding the China’s initial full-year target of 5 trillion yuan.
B) New bank lending in the first nine months of this year is up 250 percent from the same period last year.
C) China has lent out more money in the first four months of this year than in the whole of 2008.

The effects of all this overextension of credit can be seen in the graph of Chinese money supply growth below.

China’s increasing supply of Yuan means that a lot more money is chasing its domestic supply of commodities, and bank lending is multiplying the effect of the government's spending. As a result, the prices of commodities in China are higher than the rest of the world, and this price imbalance is leading to record commodity imports (Chinese producers are buying commodities abroad rather than pay higher domestic prices).

China has no plans to abandon its loose monetary policy.

Chinese Working To Boost Domestic Consumption

China is turning to its poorer residents to help revive growth instead of Western consumers. It is dismantling all the measures it put in place over the years to suppress demand to fight inflation. It has dropped restrictions on purchasing property, eliminated price controls, got rid of loan quotas, lowered interest rates, ceased its sterilization efforts, etc… China has also been speeding up economic and political reforms to boost domestic consumption. A few of the measures include:

1) Raising subsidies for auto replacements from 1 billion yuan to 5 billion yuan.
2) Allocating 2 billion yuan to encourage home appliance upgrades.
3) Allowing non-deposit-taking institutions to offer consumer loans to Chinese citizens
4) Slashing the minimum financial requirement for commercial property investments for the first time in 13 years (from 35 percent to 20 percent).
5) Earmarking 6 billion yuan (878 million dollars) for low-rent house building projects across the country.
6) Issuing new rules to allow insurers to invest in corporate bonds without bank guarantees and allow smaller insurers to trade stocks directly.
7) Creating its own "NASDAQ" (the ChiNext).
8) Encouraging the creation of new commodity derivatives (trading in steel futures, rice futures, and polyvinyl chloride (PVC) futures have been launched this year).
9) Promoting Shanghai as a global financial center and a major gold trading market.
10) Supporting eleven national research programs with at least 62.8 billion yuan.
11) Quickly expanding its social security net and allocating 728 billion yuan ($106 billion, a 29.4 percent increase from prior year) for education, medical and health care, social security, employment, low-income housing and culture.
12) Developing its own credit rating agencies and sovereign credit rating standards
13) Opening its capital markets and currency to the world.

China’s efforts are working. Domestic consumption has become the driving force of the nation's growth. China has already surpassed the United States last January to become the world's largest auto market based on monthly sales. Chinese web shopping is reaching record highs. Additionally, with a significant part of China's population at the age of peak consumer spending, domestic consumption holds the potential for a period of extremely rapid growth over the next decade.

China's efforts to boost consumption (economic liberation, massive government spending, etc...) are hugely inflationary, creating tremendous hunger for raw materials.

Chinese demand driving commodity prices

Strong Chinese demand for the raw material is driving up commodity prices across the board. China is importing record quantities of everything from wood to sugar. The price of copper, used for autos and construction, had its biggest six-month gain in 22 years as Chinese buyers boost imports to records to replenish stockpiles. Chinese demand has also been a key driver of US soybeans prices this year. First quarter imports alone were up an incredible 31% from the same period in 2008. The Chinese government has been purchasing soybeans to protect the interests of domestic peasants and encourage them to keep planting. This is forcing China to import more soybeans from America.

Eventually Chinese demand will drive up commodity prices to an extent which forces it to drop the dollar to contain domestic inflation. Judging by its incredible levels of commodity imports, this event will happen in the very near future.

2) Just-in-time inventory system facing collapse

Since 1980, a combination of oversupply, ultra high interest rates and new business practices quickly turned the idea of owning extra inventory into financial heresy of the highest order, leading to just-in-time inventory management. Just-in-time inventory management means that everything is delivered just as it is needed or nearly so, which lowers inventory levels and frees up cash for other purposes. The last two decades of low inflation have lulled purchasing managers into believing that needed materials would be cheaper tomorrow than today, leading to the widespread use of just in time systems. In almost every corner of the globe and in almost every organization, spartan inventories have become an essential cost-cutting measure to remain competitive.

Users of commodities and manufactured goods today have business models that rely on weekly, or even daily, calculations to determine their inventory needs. For example, Wal-Mart tries to keep much of its inventory on the road in trucks to maintain low costs and flexibility.

Unfortunately there is a problem: just-in-time inventory is COMPLETELY DEPENDENT ON A STABLE DOLLAR. In a high inflation environment, every act of restocking inventory becomes a painful experience, destroying the just in time management’s cost saving justifications. If the dollar goes into a freefall, the entire global just-in-time system will collapse.

3) Catastrophic fall in global food production

*****Catastrophic Fall in 2009 Global Food Production*****

Water shortages

Of all the environmental trends that are shrinking the world's food supplies, the most immediate is water shortages.

[unfinished]

Longer term, the water situation is even scarier. Two billion people face acute water shortage this century as Himalayan glaciers melt. The Tibetan plateau (The glaciers of the Himalayas) is the faucet for much of Asia's drinking water, and the melting glaciers of the Himalayas feed the major rivers of China, India, Pakistan, Nepal, Bhutan, Bangladesh, Myanmar, Thailand, Vietnam, Laos and Cambodia. The shrinking Himalayan glaciers, which could melt entirely by 2035, will turn Chinese and Indian rivers like the Ganga and the Yangtze into seasonal rivers that dry up in summers, when irrigation needs are greatest. The countries dependent on the glaciers of the Himalayas contain 85 percent of the people in Asia and nearly half the world's population. The situation is an international political time bomb.

Australia's Food Bowl, Like The World's, Is Drying Up
This year thousands of acres went unplanted by Californian farmers coping with drought
Cities Are Running Out Of Water

Desertification

Desertification refers the spread of existing deserts and the creation of new ones. desertification isn't the result of global warming (thought it is possible global warming is making it worse). It is the result of reckless and extensive overuse of drylands around the world.

1930's Dust Bowl is a perfect example of desertification. When the United States entered an economic recession in the 1920s, farmers in Western states tried to raise profits by plowing and planting more acreage with new mechanized farming methods. Within a decade, a massive drought hit the entire country. Strong winds swept across the Great Plains, stirring up loose topsoil that had been displaced by overplowing and overgrazing of cattle. The results were dozens of epic dust storms that swallowed whole cities in black clouds and turned day into night.

Today, the UN is warning that parts of the world could become 'economic deserts', unviable for people or agriculture, and may have to be abandoned. Even in rich countries, people are hitting the limits of what can be done with money and infrastructure because there simply isn't enough water anymore. Disaster is feared as desertification spreads.

1) In China's northwest, desertification has escalated from 1,560 sq km annually in the 1970s to 2,100-2,400 sq km in the 1990s. Dust storms from the Gobi desert regularly blow through Beijing, and the government's response is getting more desperate: Chinese authorities have begun telling hundreds of villagers that farming will cease and that they will have to give up their animals.

2) Strong desertification processes have been developing in Latin America with several countries of the region, as well as significant sectors within some countries, in a state of water stress. This situation is projected to worsen significantly over the medium term.

3) Decades of war and mismanagement, compounded by two years of drought, are wreaking havoc on Iraq's ecosystem, drying up riverbeds and marshes, turning arable land into desert, killing trees and plants, and generally transforming what was once the region's most fertile area into a wasteland.

4) The Sahara desert is encroaching into the Nigerian landmass at the speed of 600 meters per annum, thereby threatening the country's food base. Most villages in the northern states have already been overtaken by sand dunes.

5) 90 percent of the water in Lake Chad, which is considered to be the sixth largest in the world and is bordered by four countries (Chad, Niger, Nigeria and the Cameroon) has been lost to the adverse effects of climate change. Lake Chad served as source of fresh water to the more than 30 million people living around its bank.

6) The Sahara Desert is crossing the Mediterranean, and the livelihoods of 6.5 million people living along its shores could be at risk.

7) 74 million acres of fertile land along the Mediterranean is turning to desert, giving rise to the term Sahelisation (ie: becoming part of the Sahara desert).

8) In Egypt, brackish groundwater has already compromised half the country's farmland.

9) Aquifers around the Po Delta in northern Italy are also showing signs of saltwater contamination.

10) Spain has implemented its first Program of National Action against Desertification after recognizing that 37 percent of the country is at risk from desertification and is in danger of becoming "eroded forever".

11) A new desert is forming 250 km from the 'Garden City of India', Bangalore. This new desert is the result of continued indiscriminate water use by village inhabitants even as sand from floods and wind started covering the region. Now thousands of acres of land are covered by sand dunes.

12) This September, Sydney residents woke to scenes from a Hollywood apocalypse movie as the worst dust storm in 70 years, carrying an estimated 5 million tons of soil from drought-ravaged farmland, turned the sky blood red.

Save for the Antarctica, desertification affects all continents. New deserts are growing at a rate of 20,000 square miles (51,800 square kilometers) a year. More than 70 percent of drylands in Africa, Asia and Latin America that are being used for agricultural purposes are already experiencing the effects of desertification. Desertification leads to famine, mass starvation and unprecedented human migration.

Low commodity prices

Recession Compounds World Food Crisis
Across the nation, farmers are making plans to cut their production of corn, wheat, rice, peanuts, beef, pork, poultry and milk.

The low prices at the end of 2008 discouraged the planting of new crops in 2009. In Kansas for example, farmers seeded nine million acres, the smallest planting for half a century. Wheat plantings this year are down about 4 million acres across the US and about 1.1 million acres in Canada. So even discounting drought related losses, the US, Canada, and other food producing nations are facing lower agricultural output in 2009.

Falling Milk Prices Kill Cows

Lack of credit

A lack of credit for farmers curbed their ability to buy seeds and fertilizers in 2008/2009 and will limit production around the world. The effects of droughts worldwide will also be amplified by the smaller amount of seeds and fertilizers used to grow crops.

prices may rise because a lack of credit for farmers curbed their ability to buy seeds and fertilizers and may limit production

Adverse weather conditions

[unfinished]

Middle East and Central Asia suffering worst droughts in recent history

Texas Drought Conditions Becoming Historic
The Texas drought continues

*****Torrential Rains Devastate India's Wheat Crop*****

an "UN-FREAKIN-BELIEVABLE" Harvest

*****Rains Swamp Crops And Wash Away Any Hope Of A Decent Harvest*****

Disaster in the making: the 2009/10 food crisis

If you are keeping track, so far we have:

1) Increased demand
2) Decreased supply
3) No buffer inventory

Sounds bad like a pretty bad situation right? Well, it gets worse. To "keep everyone calm" and "prevent panics", governments are lying about the looming food crisis.

… some experts and governments, in full cognizance of the facts, want us not to create panic and paint a picture of parched crops and a looming food crisis. This, they say, would push up food prices unnaturally, lead to hoarding and ultimately result in a situation where many more millions across the world would go hungry. And whether it is the developing world or the developed, it is those at the bottom of the pyramid who are the most affected in such scenarios.

This leads to a confusing divide between reality and government pronouncements, or even between the perspectives of government departments.

The food crisis should have started Last June

At the beginning of last June, concerns were mounting over the sharp rise in food costs. Faced with the terrible outlook for 2009 global wheat output, agricultural markets were getting fairly nervous about the tightness in food stockpiles. China was chewing through US old-crop soybeans with month after the month of record exports. Hedge funds and other big institutional investors had begun to pour money into the agricultural market, helping to drive commodities prices higher against the weakening dollar.

Against this backdrop, the USDA began a campaign to suppress rallying food staples. To start off, the USDA magically discovered an extra 113 million bushels of soybean supply within its “residual use” accounting column to ensure soybean end stocks would not slide below 100 million bushels. Even worse, the USDA began releasing production estimates which were pure madness. For example, despite a 40% drop in planted acreage, The USDA left their production estimate for Argentina's wheat crop unchanged at 11 MMT, a stunning 33% higher than last season’s 8.3 MMT (The Buenos Aires Grain Exchange Argentine was predicting a 6 MMT wheat crop at the time). The USDA also announced that wheat ending stocks would increase in 2009/10 and that world wheat stock to use ratios would climb to a comfortable 28.5pct. The media became filled with bearish stories based on the USDA’s bearish propaganda: the US will not run out of beans, prices will ration demand, China have more than enough and will go away, etc. Rumors of cancelled soybean exports sales were widespread (these cancellation never happened). To culminate everything, on June 30^th the USDA shocked the trade with estimates showing record soybean and near record corn plantings. Somehow, the USDA found a million more wheat acres, one and a half million more soybean acres AND two million more corn acres than they had in March!

Given the stark contrast between USDA numbers and reality, there is no way that the flawed data released last June was an innocent mistake. The USDA deliberately mislead investors about the true state of the world's food supplies.

The August 2009 Soybean Crisis

While the USDA might have successfully changed perceptions about the food supply, it could not alter the reality. With Brazilian soybean supplies on the open market having all but ran out, the US was left as the only shop in town, resulting in monstrous soybean sales to China. By the end of August grain movement in the US came to a virtual standstill, with farmers are mostly sold out of soybeans. Those few soybean end-users (ie: feedmakers and poultry producers) were caught short, and were forced to pay prices as high as they paid at the very height of the bull market a year ago in 2008.

Soybean shortage causes intense backwardation

The struggle to secure quick-delivery soybeans in the US cash markets sent soybean futures into intense backwardation (backwardation is when cash prices are higher than future prices). Desperate Midwest crushers were bidding up to $2.72 a bushel over CBOT September futures contracts to acquire scarce soybean supplies. Some processors in the heart of the Midwest soy belt grew so desperate for soybeans to crush that they paid to transport some of the early harvest from the Mississippi River Delta northward to Illinois.

The chart below shows the backwardation of soybean futures on August 28. Notice the huge price gap between promises to September and November contracts. Notice the even larger gap between cash prices and September futures.

The threat posed by soybean backwardation

Futures markets are dependent on confidence in the same way as banks. Futures markets offer promises to deliver commodities on specific dates (commodity IOUs) and Bank offer deposits, which promises to deliver cash on demand (dollar IOUs). Futures markets and banks issue far more IOUs then they have cash and commodities on hand to make good on these promises. For both futures markets and banks, a loss of faith in the ability to make good on these IOUs is fatal. Had the backwardation in soybeans continued into September, a panic could have quickly developed, spreading other agricultural commodities.

New wave of USDA propaganda

The intense backwardation in soybeans did not last. In the first week of September, the US launched a new attack on soybean markets which included:

1) More insane production estimates predicting a record breaking soybean crop.

Estimates for US soybean production

Aug-11	USDA	3.199	billion bushels
Sep-1	FCStone	3.266	billion bushels
Sep-3	Informa	3.372	billion bushels
Sep-4	Allendale	3.309	billion bushels

2) Rumors that China was planning on unilaterally terminating OTC soybean derivative contracts (ie: more rumors about China cancelling outstanding export sales).

3) Rumors about a huge supply of old crop soybeans that were going to be dumped on the market to make way for the “record” 2009 corp.

4) The sale of 104.5 million bushels of soybean futures to reinforce the idea that soybean prices were headed for collapse.

5) Helpful news stories warning farmers about a imminent price collapse and suggesting they sell before its too late.

Below is a good example of what this USDA propaganda looked like:

PRICE COLLAPSE LOOMS

Despite the strength of the current market, observers said prices could easily plunge as the Midwest soybean harvest finally gets rolling in late September or early October.

Barring an early freeze that could cut yields, U.S. farmers are expected to bring in a bumper crop. The U.S. Department of Agriculture has projected U.S. soybean production at 3.199 billion bushels, an all-time high.

Export buyers and crushers may find themselves awash in soybeans, triggering a collapse in the cash market.

"When it breaks," the eastern soymeal broker said, "it's going to be swift and violent."

The USDA’s scare tactics worked and pressure in the soy cash market eased as. Soybeans trickled into grain terminals and processors in Nebraska, southern Illinois and Iowa as farmers sold their stocks before the “price collapse”. Old crop sales saw net cancellations of 58.8 TMT as buying switched to the cheaper new crop with 1.11 MMT export sales. Exporters backed off their spot soybean bids. Crushers decided to shut down for two weeks and wait for new-crop beans to be available. Soybeans on the Chicago Board of Trade fell to a five-month low.

The consequence of USDA propaganda

Despite what the USDA wants us to believe, the food situation hasn’t improved. There is no bumper US harvest bail the world out. Asian demand for US soybeans is surging. The reality of food shortages in 2009/10 remains unchanged.

On the other hand, USDA propaganda has succeeded in making the situation much worse.

1) Waiting for new crop has created a lot of pent up demand

Many US processors extended their plant downtime maintenance in July due to both weaker profit margins and the unwillingness to outbid exporters for spot soybeans.
As a result, US soybean consumption has plunged in the last three months, as seen in the graph of monthly US soybean crush data below.

All the soybean crushers who shutdown production waiting for the new crop will be crushing far more soybeans than normal to make up for lost time, which means there is a lot of pent up demand.

An insane amount of outstanding export sales for US soybeans

Below is a graph of total outstanding export sales for US soybeans going back ten years (data straight from the USDA’s website). As of October 16, the US has already committed to exporting 19,716,862 Metric Tons (724 million bushels) of soybean from the 2009 crop. The United States has never had a backlog of exports sales this size. If the USDA’s record harvest never comes in, things are going to get ugly real fast!

Everyone is waiting for the record harvest that doesn't exist!

2) Low prices are causing to overconsumption and underproduction

New crop of soybeans is already being rapidly consumed: early harvest from the Mississippi River Delta is being shipped to desperate Midwest crushers.

Even governments are being duped by the USDA production estimates, with grain exports pouring out of desperate Ukraine. Despite is 20% fall in grain production, cash-starved ukraine continues to export grain ahead of even last season's record pace. Because they are unaware of the food shortage facing the world, distressed sellers like Ukraine are mismanaging their grain supplies, and will have little grain available for export during the second half of 2009/10 (when global food shortage will be at its worse).

Meanwhile, farmers are allowing millions of bushels to rot in the rain because it is too expensive to harvest and dry them at current prices. Acres of spring wheat are going unplanted because

3) The USDA’s false estimates will lead to panic

USDA estimates have NO CREDIBILITY

Below are the latest USDA estimates for soybean production, imports, and exports. I highlighted in red the numbers that are worth noticing.

Thousand Metric Tons
Date Created 10/9/2009 8:44:57 AM

	2006/07	2007/08	2008/09	2009/10
Production
United States	87,001	72,859	80,749	88,454
Brazil	59,000	61,000	57,000	62,000
Argentina	48,800	46,200	32,000	52,500
China	15,967	14,000	15,500	14,500
India	7,690	9,470	9,100	9,000
Paraguay	5,856	6,900	3,900	6,700
Canada	3,460	2,700	3,300	3,500
Other	9,337	8,004	9,090	9,413

Total	237,111	221,133	210,639	246,067

Imports
China	28,726	37,816	40,700	39,500
EU-27	15,291	15,123	13,000	12,400
Japan	4,094	4,014	3,450	3,950
Mexico	3,844	3,614	3,100	3,535
Taiwan	2,436	2,149	1,830	2,250
Thailand	1,532	1,753	1,500	1,705
Indonesia	1,309	1,147	1,200	1,600
Turkey	1,268	1,277	950	1,280
Egypt	1,328	1,061	1,200	1,230
Korea, South	1,231	1,232	1,130	1,200
Other	8,003	8,976	7,175	7,494

Total	69,062	78,162	75,235	76,144

Exports
United States	30,386	31,538	34,836	35,516
Brazil	23,485	25,364	29,986	23,650
Argentina	9,559	13,837	5,885	9,700
Paraguay	4,361	5,400	2,400	4,900
Canada	1,683	1,753	1,975	2,000
Other	1,836	1,627	1,845	2,085

Total	71,310	79,519	76,927	77,851

Some of the glaring problems with these estimates for 2009/10:

1) The USDA expects the United States to harvest a record breaking 88.454 MMT (Million Metric Tons). With soybean fields buried in snow across the Midwest, this seems highly unlikely.

2) Despite predicting that Chinese soybean production will drop by 1 MMT in 2009/10 (from 15.5 MMT to 14.5 MMT), the USDA is also predicting China will import 1.2 MMT less (from 40.7 MMT to 39.5 MMT). That makes absolutely no sense! If Chinese demand for soybean is soaring (see above) and Chinese production is down, for what possible reason would the USDA predict China’s soybean imports to be less in 2009/10?

3) India is suffering from the worst drought in over forty year, yet the USDA is expecting Indian soybean production to fall only 1% in 2009/10!

4) The USDA is predicting a 2% increase in soybean exports for 2009/10! In light of surging Asian demand for soybeans and the huge amount of export sales outstanding, predicting that the US will export only 35.5 MMT of soybeans is simply ridiculous.

The USDA's numbers don't add up. The shortages of wheat, soybean, sugar, etc will soon reach the point where no about of spin can hide them. As the world will realize there are a few a few months food supply missing, faith in the USDA will crumble, and panic will start. Prices of virtually all agricultural commodities will double or triple (sending the dollar into a freefall).

The world is heading towards a complete disaster

As a result of governments covering up about the looming food shortage over the last few months, there has been no stockpiling (which would have help ease the crisis). Worse, with the USDA predicting record crops for everything under the sun, end users were convinced to shift demand from 2008/09 (when world had a bumper harvest) to 2009/10 (which saw a catastrophic fall in production).

Food Shortages Driving Inflation Out Of Control In India

2009-11-02T07:36:00.000-08:00

Nogger reports that Indian Wheat Sets More Contract Highs.

(emphasis mine) [my comment]

Friday, 30 October 2009
Indian Wheat Sets More Contract Highs

Indian wheat futures have posted another day of fresh contract highs this morning, with front-month November hitting Rs 1,421.10/100kg, that's just over USD300/tonne.

Wheat prices have now risen almost 12% this month. Despite protestations to the contrary, maybe that's what the government really want with planting about to begin for the 2010 crop.

There's six months to go before that arrives on the market however, so what is going to happen in the meantime?

Inflation is surging out of control, rising 1.51% during the week ended October 17, up from the previous week’s annual rise of 1.21%. The Reserve Bank of India (RBI) now predict that wholesale price inflation will reach 6.5% by the end of March, 2010, a significant increase from the previous forecast of 5% and well above its target inflation rate of 3%. Some private forecasts are that Indian inflation will hit 8% by the end of March. [My bet? India will wish it only had 8% inflation]

Meanwhile consumer price inflation is running at over 10%, with staple foods such as potato prices almost double what they were a year ago, and sugar up by almost 50%.

India, typically amongst the world's top three or four rice exporters, is now looking to actively import rice. The government announced a scrap on import tariffs on certain types of rice this week, in an effort to boost supplies after summer drought slashed production. Three state-run agencies have wasted no time in announcing tenders to import 30,000 MT this weekend.

It might only be a matter of time before something similar happens with wheat.

My reaction: Food shortages are driving inflation out of control in India. This is the beginning of the 2009/10 food crisis, and the situation will continue to worsen until it turns into a global panic.

--------------------------------

I am still working on putting major article together.

I will publish something today, either the entire article or the sections I have finished (as I did with Gold Market Reaching The Breaking Point)

Check back around the end of the day.

Everything Continuing As Expected

2009-11-01T03:18:00.000-08:00

The Wall Street Journal reports that Bets Yuan Will Go Higher Make Bond a Blockbuster.

(emphasis mine) [my comment]

OCTOBER 22, 2009
Bets Yuan Will Go Higher Make Bond a Blockbuster
By CHESTER YUNG

HONG KONG -- The Chinese government's first yuan bond sale in Hong Kong met strong demand as investors bid for three times the amount of debt on offer amid hopes for a stronger Chinese currency.

The six billion yuan ($879 million) offering, Beijing's first yuan deal outside the mainland, attracted 18 billion yuan worth of subscriptions since Sept. 28, the Ministry of Finance said.

"The subscription result is very satisfactory as yuan-denominated bonds are increasingly seen as investment products in Hong Kong," said Midas Chu, a fixed-income dealer at Bank of Communications Co. "This would encourage China to issue more on a regular basis."

China's onshore sales of government bonds typically have subscription rates of 1.5 to two times, although this isn't directly comparable to the Hong Kong sale given the different investor bases.

The sovereign offering is the latest in a slew of measures by Beijing in recent months aiming to internationalize the yuan. China has allowed the yuan to be used to settle cross-border trade with Hong Kong and some countries.

Carlos Cheung, the chief foreign-exchange dealer at Bank of East Asia, said the Chinese government's yuan bond issue in Hong Kong is more attractive than Hong Kong dollar-denominated bonds because of expectations of yuan appreciation.

"It's almost certain that the yuan will continue to appreciate given the positive China economic outlook, while the Hong Kong dollar bond is less appealing as the Hong Kong dollar is pegged to the U.S. dollar. Purchasing the yuan bond is basically a risk-free deal," he said.

Beijing's yuan bond sale in Hong Kong will also help establish a benchmark for other financial institutions if they plan on issuing yuan bonds in the city, said Daniel Chan, a senior investment strategist at DBS.

Investor response to the issue will determine whether the Chinese government issues more yuan-denominated sovereign debt in Hong Kong, Vice Finance Minister Li Yong said last month.

Mr. Li said the outlook for more corporate yuan bond sales in Hong Kong is "very good," adding that he expects more mainland financial institutions to issue bonds in the city in response to rising demand.

Beijing offered the bonds in tranches with maturities of two, three and five years.

The three billion yuan in two-year bonds, primarily targeting Hong Kong retail investors, carry a coupon of 2.25%. The 2.5 billion yuan of three-year bonds, aimed at retail and institutional investors, carry a coupon of 2.70%. The 500 million yuan of five-year bonds, primarily for institutional investors, carry a coupon of 3.30%.

Reuters reports that Chinese September M2, loan growth beats forecasts.

Thomson Reuters
INSTANT VIEW 5-China Sept M2, loan growth beats forecasts
10.14.09, 06:26 AM EDT

BEIJING, Oct 14 (Reuters) - Chinese money supply and lending growth was surprisingly strong in September as the central bank, wary of the solidity of the economic recovery, kept to the moderately loose monetary policy it has been following for nearly a year.

KEY POINTS:

-- M2 up 29.3 percent from year earlier vs forecast 28.4 percent.
-- Yuan lending up 34.2 percent year on year vs forecast 34.0 percent.
-- New loans in September alone hit 516.7 billion yuan.
-- Q3 FX reserves up $141 billion to $2.27 trillion.

COMMENTARY:

ZHAO QINGMING, AN ECONOMIST WITH CHINA CONSTRUCTION BANK IN BEIJING:

'Loan growth is strong but within expectations. Economic activity, especially in the corporate sector, has picked up. You can see that exports are recovering. And bank loans to small and medium-sized enterprises are on the rise.

'Looking forward, new lending is likely to ease in coming months as more loans are paid back at the end of every year.

'It's too early to expect China to raise interest rates, despite the move by Australia earlier this month. Economic indicators are good at the moment, but time will tell whether the positive trend can be sustained.

'The possibility of China raising interest rates in 2009 is very small.

'As for the rise in foreign exchange reserves, it's hard to tell right now what the specific reasons are. But I believe the dollar's weakness in recent months was an important reason. Appreciation of the euro and the yen can have a significant effect on the numbers.'

XUE HUA, ANALYST AT MERCHANTS SECURITIES IN SHENZHEN:

'New yuan loans in September show that credit is still increasing from the year-earlier period; M2 in September was also very strong.

'But the fact is that there is already plenty of liquidity available to support the economic recovery, given the burst of credit in the first half, so there is actually no need for banks to lend as much as they did in September.

'I think M1 rather than M2 has become the most important indicator to keep a close eye on. M1 showed really robust growth in September. It shows enterprises have become very active in their businesses, another sign that the economy is recovering.

'We expect M1 growth will accelerate in the coming six months and will reach 30 percent in the fourth quarter.

'I don't think the central bank will take aggressive action to control loan quotas, although it has already leaned on banks to be more ration in extending loans.

'And the central bank won't take measures such as hiking interest rates or reserve requirements, because it needs to be in line with the State Council, which is still circumspect about the economic recovery.

'I think China's forex reserves will continue to increase in the coming months, as there is mounting anticipation among international funds that the yuan will appreciate.'

China View reports that China's new loans rise to 516.7 bln yuan in September.

China's new loans rise to 516.7 bln yuan in Sept.
www.chinaview.cn 2009-10-14 16:44:28

BEIJING, Oct. 14 (Xinhua) -- China's new yuan-denominated loans in September rose to 516.7 billion yuan (75.68 billion U.S. dollars) from August's 410.4 billion yuan, the People's Bank of China, the central bank, said Wednesday.

New yuan-denominated loans in the first nine months stood at 8.67 trillion yuan, 5.19 trillion yuan more than the same period last year.

China's foreign exchange reserve hit a new high of 2.2726 trillion U.S. dollars at the end of September, according to the central bank.

China's monthly new loans had slowed from June's high of 1.53 trillion yuan to 355.9 billion yuan in July as a result of bank contracting credit and the central bank's open market operations. The figure rose to 410.4 billion yuan in August and then to September's 516.7 billion yuan.

The broad measure of money supply, M2, which covers cash in circulation and all deposits, was up 29.31 percent from a year earlier to 58.54 trillion yuan at the end of September.

The narrow measure of money supply, M1 (cash in circulation plus current corporate deposits), was up 29.51 percent to 20.17 trillion yuan.

China View reports that China's retail sales up 18 percent during National Day holiday.

China's retail sales hit 570 bln yuan during National Day holiday
www.chinaview.cn 2009-10-09 22:54:06

Customers are seen at a shopping mall in Shanghai, east China, Oct. 8, 2009.(Xinhua/Chen Fei)

BEIJING, Oct. 9 (Xinhua) -- China's retail sales of consumer goods totaled 570 billion yuan (about 83.5 billion U.S. dollars) during the National Day holiday, with average daily sales up 18 percent compared with the same period of last year, the Ministry of Commerce said Friday.

Sales of household appliances soared during the eight-day holiday which started from Oct. 1. Among them, high-definition flat screen TV sets, digital cameras, side-by-side refrigerators and 3G mobile phones are consumers' favorites. In the case of Kaiyuan Mall in Xi'an, capital of Northwest China's Shaanxi Province, sales of household appliances gained by 34.7 percent year on year.

Jewelry and cars became hot sellers as well. The sales of jewelry of Caishikou Department Store in Beijing topped 100 million yuan, up 30 percent year on year [gold demand up in China]. Car sales of major car-selling companies in Southwest China's Chongqing Municipality increased by 71.7 percent year on year.

Rebel Traders reports that china's growth does not abate as power consumption goes up.

China’s Growth Does Not Abate – Power Consumption Goes Up
by Free Mind on October 20, 2009 at 9:34 am

Despite what is habitually said of Chinese stats, some elements seem to indicate that “growth” is not abating in the Chinese economy. Electricity consumption is generally considered as the most reliable indicator to check the reality of Chinese production.

According to power usage stats, the September rise was the strongest Y/Y, and October and November energy consumption should also rise strongly to 15 and 20 % according to projections.

China’s power consumption in September rose 10 percent year-on-year to 322.4 billion kilowatt hours, the fastest pace of growth since June last year, the China Electricity Council said on its Web site on Oct. 15.

The increase followed 8 percent growth in August and indicated continued economic recovery, it said.

Power generation in August gained 9.3 percent year-on-year to a record 344 billion kWh, as demand from manufacturing plants soared in line with rising consumption fueled by the government’s stimulus spending. The council did not provide output figures for September.

Power consumption in the first nine months rose 1.4 percent year-on-year to 2.7 trillion kWh, it said.

Grid operators sold a combined 2.2 trillion kWh of electricity in the first nine months, up 3.2 percent year-on-year, it said.

A total of 199.7 billion yuan was spent on construction of power plants in the first three quarters, 83.2 billion yuan of which went on coal-fired projects.

China added 49 million kWt of generating capacity in the first nine months, comprising 32.9 million kWt of thermal power, 12.1 million kWt of hydropower and 4 million kWt of wind power, the council said.

A total of 219.2 billion yuan was spent on grid construction and upgrades, it said. [This is where all of China’s copper imports are going]
…
Power consumption began falling year-on-year last October amid the global downturn. It began to grow again in June, when it expanded 4.3 percent. Growth rose further to 6 percent in July and 8.22 percent in August.

Corn and Soybean Digest reports that China is planning to continue stockpiling grain, soybeans.

China to Continue Stockpiling Grain, Soybeans
Oct 20, 2009 11:57 AM, Source: Brock Associates

China will continue to purchase grains and soybeans from farmers in 2010, raising its minimum purchase prices for some crops in an effort to protect farmers' interests and stabilize grain output, the country's State Council said on Monday in a statement published on the central government's Web site.

The government said it will raise its minimum purchase prices for wheat by 60 yuan (CNY)/metric ton, or 3.4%, next year to CNY1,720-1,800/ton, according to a report posted after Monday's meeting chaired by Premier Wen Jiabao.

Minimum prices for rice will be increased accordingly, and the government will continue to purchase corn, soybeans and rapeseed from farmers to protect their interests, it said.

The government did not say at what prices it will stockpile soybeans. Last year's soybean purchases were made at above-market prices and helped lead to a surge in lower priced imports.

Traders told Reuters News Service the government was likely to offer prices higher than last year, when it bought more than 6 million metric tons (mmt) of soybeans at CNY3,700/ton and 36 mmt of corn at CNY1,500/per ton for state reserves.

China's national grain stocks have been growing since the 2008 harvests due to the government's large volume of purchases, and as a result, grain prices so far this year have been mostly decided by the government's policies.

The country completed a nationwide inventory of grains recently, showing that its state-owned enterprises held a total of 225.4 mmt of raw grain as of the end of March 2009.

Grain stocks at state-owned enterprises and in farmers' hands account for the main part of China's total grain stocks.

Vice Premier Li Keqiang said recently that China will increase its grain storage capacity by another 15 mmt by the end of 2010.

Reuters reports that China is sticking to loose monetary policy.

China sticking to loose monetary policy - c.bank head
Fri Oct 30, 2009 9:00am IST

BEIJING (Reuters) - China will stick to an appropriately loose monetary policy, central bank governor Zhou Xiaochuan said on Friday.

Zhou was speaking in Shenzhen at the launch of China's ChiNext stock market, a long-awaited Nasdaq-style second board.

His remarks were relayed by several Chinese news portals.

The State Council, China's cabinet, earlier this month reaffirmed China's moderately accommodative monetary stance and active fiscal policy even though it said the economy was now on a more solid footing.

Contre Info reports that the renminbi has depreciated 6.9 percent since February 2009.

Only the Chinese renminbi remained unchanged against the dollar in the second quarter. This lack of movement of the renminbi has contributed to upward pressure on more flexible currencies in the region. Several emerging markets in the region have intervened in the foreign exchange market to slow the pace of appreciation. [Get it? Emerging markets are buying dollars because they don’t want their currencies to appreciate against the yuan. If China drops its dollar peg, these emerging markets will stop buying dollars]

Although China's overall policies played an important role in anchoring the global economy in 2009 and promoting a reduction in its current account surplus, the recent lack of flexibility of the renminbi exchange rate and China's renewed accumulation of foreign exchange reserves risk unwinding some of the progress made in reducing imbalances as stimulus policies are eventually withdrawn and demand by China's trading partners recovers.

On an effective basis, the renminbi has depreciated 6.9 percent since February 2009. From the end of February through June, China’s reserves increased both as a result of valuation changes and additional purchases associated with intervention. Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy

China Stakes reports that pressure for RMB to appreciate is increasing.

October 12,2009
US Dollar Depreciation May Force RMB Appreciation
By CSC staff, Shanghai

The US dollar has been depreciating a bit of late, and as the Chinese RMB yuan is pretty much pegged to the US dollar, it has been depreciating right along, notably against the euro and the Japanese yen. This is causing a lot of pain in those areas, so much so that there is talk of resorting to protectionist measures. It looks as though China may have to adjust its policy and increase the flexibility of RMB, with the almost inevitable appreciation of the yuan.

Meanwhile, industrial action in other areas is underway. On October 6, the EU trade body ruled that seamless steel pipes imported from China pose a threat to the EU and it will begin levying anti-dumping duties of 17.7-39.2%. The following day, the US Commerce Department announced it would also conduct anti-dumping investigations on seamless standard pipes, pipelines and pressure pipes.

Chinese Ministry of Commerce statistics show that, from January to August this year, 17 countries and regions have initiated 79 trade remedy investigations against China, involving a total amount of about $10.035 billion, up 16.2% and 121.2%, year-on-year, a trend that looks likely to continue to spread. In mid-July, the WTO predicted the number of global anti-dumping cases in 2009 will reach 437, an historical high.

China worries about the depreciation of the dollar, for its huge foreign exchange reserves, largely dollar-denominated, may shrink. In the recent G20 meeting, China asked the US to maintain the stability of dollar, for the purpose of keeping the stability of RMB against other major currencies. The devaluation of RMB and US dollar together will also provoke a strong protectionist backlash. Although China's exports have dropped significantly, its market share has not and its trade surplus keep growing.

Since the dollar hit a low of 6.8009 against the yuan on September 23, 2008, it has been hovering around 6.83 for nearly 10 months, a situation China finds congenial. …

The global economy is still out of whack and the basis for economic recovery remains fragile. Unemployment in Western countries continues to rise, and China's trading partners are not going to be satisfied merely with protectionist measures. Look for increased pressure for RMB to appreciate.

China Stakes reports that hot money is flooding back into China.

October 15,2009
Trade Rebound and Expected RMB Appreciation Have Hot Money Flooding Back In
By CSC staff, Shanghai

China's exports are rebounding somewhat better than expected, and bringing with them sudden market expectations for RMB appreciation.

…
In the spate of economic data released this week, trade numbers for September bettered expectations, with exports amounting to $115.938 billion, down 15.2%, year-on-year, but the smallest drop this year, and imports reaching $103.006 billion, down 3.5%, year-on-year, but breaking the $100 billion line for the first time since last October. After seasonal adjustment, September's month-on-month import and export numbers show the seventh consecutive month of positive growth since March. Analysts deem China's rising foreign trade trend as basically established, and even predict, optimistically, that year-on-year import and export figures will resume positive growth by the end of the year.

But contrary to market beliefs, a Bank of China report claims there is no condition in the next year for RMB appreciation against USD. The report stresses the resistance to international pressure for any substantial RMB exchange rate changes. It states that measured by nominal effective exchange rates, RMB is already one of the few appreciating currencies since the onset of the financial crisis. The normal effective RMB exchange rate in August 2009 increased by 10.7% compared to that at the end of 2007.

But the enthusiasm of international capital for China assets has begun to rise again. By the end of September, the foreign exchange reserves balance totaled $2.2726 trillion, up 19.26%, year-on-year, with September's newly added reserves totaling $61.8 billion, third this year only to $80.6 billion in May and $74.5 billion in April.

The Business Mirror reports on the dying dollar.

More on the dying dollar
Written by John Mangun / Outside the Box
Monday, 19 October 2009 22:34

[confidence in the dollar is under attack in the Philippines (one of the emerging markets that has been buying dollars)]

If there was a deadly disease outbreak someplace in the world, you would want to be informed. If a major natural disaster hit 10,000 miles away, you would still want to know about it. If a breakthrough scientific discovery were announced, you would expect the local media to tell you about it.

You may be getting bored with this column continuing to talk about the breakdown of the dollar, but if you are not aware of what is happening, you are going to be submerged by a financial flood that is going to make Ondoy seem like a summer shower. [Ondoy? What is that?]

In yesterday’s newspapers the Bangko Sentral ng Pilipinas (BSP) reported that so-called “hot money” net inflow to the Philippines was $47 million in September, reversing the $443 million in net outflows recorded in the same month last year. That is a $500-million reversal of fortune.

While the local “experts” are worried about the recent storms hampering the economy and the President is asking for damages from the other nations because of the myth of global warming, money around the world is scrambling for a safe haven from the dollar.

Also in yesterday’s newspapers was a ridiculous comment. From the Philippine Star: “The Bangko Sentral ng Pilipinas has vowed to contain excessive volatilities in the foreign-exchange market in order to ‘smoothen’ the movement of the peso against the dollar. BSP Governor Amando M. Tetangco Jr. said it is necessary to contain such volatilities to help business and consumers plan more effectively.”

To the BSP: If you really want businesses and consumers to plan more effectively, tell the truth that you know: The dollar is headed to historic low levels and there is nothing that you can do about it.

While the BSP has stated publicly that it is concerned about the financial affairs of our export sector with a falling dollar, there is nothing that can or should be done about the appreciation of the peso.

Trying to do anything in the face of incredible downward pressure on the dollar is both useless and dangerous.

Over this last weekend, another bullet was fired into the body of the dying dollar, unreported here in the Philippines, of course. In effect, the countries of South America have created their own currency similar to the euro. At the Bolivia Summit, leaders agreed to create a regional currency, the sucre. The exchange rate and trading of the sucre will begin in 2010. South America will no longer rely on the dollar for their internation settlement of trade. Bye-bye, US dollar.

Last week Russia and China agreed to billions of dollars worth of economic contracts to be settled in either China’s yuan or the Russian ruble. Bye-bye, US dollar.

The Canadian dollar is nearly at par with the US dollar, which will make it more attractive for US companies doing business with Canada to accept payment in Canadian dollars for goods and services, not with the US dollar. Even Americans are going to be using non-dollar currencies.

Every one of these events are of crucial, even earth-shaking, importance, and they are not being reported here in the Philippines probably due to a continuing colonial mentality in the financial community.

It is unfortunate that Southeast Asian countries through Asean have their collective heads stuck in the sand, or someplace else, about this dollar-depreciation tsunami. This is perhaps the result of none of the Asean members having anything in common with each other except geography. No common language, no common religion, no common heritage unlike Europe and South America. Asean, and maybe the Philippines also, needs leadership that is more comfortable on the streets of Kuala Lumpur, Manila and Bangkok than New York, Rome and London.

The fact that significant amounts of foreign-investment funds are moving into the Philippines is a clear indication that this money expects the peso to appreciate as the dollar falls. All the talk about the supposed potential of poor economic fundamentals does not outweigh the reality of a dying dollar. A dying dollar by definition, along with the proof of history, demands that the peso strengthen. For the BSP to give any indication that this is not going to happen does a disservice to the nation.

The dollar is going to fall like a rock. The peso is going to appreciate beyond the expectations of the “experts” and you must be prepared.

The export sector is going to be hurt, no doubt about that. What the government should be doing is to prepare this sector to move markets from the US to other countries, and it should be done now. While all the newspapers care to talk about is the electronics market, electronics are only a portion, and not the most profitable portion of our export industry. Relying on America for our future export business is the same as betting on a horse with a broken leg; you can’t win.

My reaction: The above news stories are all important pieces of the dollar’s collapse.

Internationalizing the yuan

1) The Chinese government's first yuan bond sale in Hong Kong met strong demand.

Chinese money supply and lending growth

1) Chinese money supply and lending growth was surprisingly strong in September.

2) Chinese M2 (cash in circulation and all deposits) was up 29.31 percent.

3) Chinese M1 (cash in circulation plus current corporate deposits) was up 29.51 percent.

4) Chinese M1 growth expected to accelerate in the coming six months and reach 30 percent in the fourth quarter.

5) China is sticking to loose monetary policy.

Chinese demand continues to grow

1) China's retail sales up 18 percent during National Day holiday.

2) China's power consumption in September rose 10 percent year-on-year to 322.4 billion kilowatt hours, the fastest pace of growth since June last year, showing that "growth" is not abating in the Chinese economy.

3) China is planning to continue stockpiling grain, soybeans.

The death spiral of the dollar continues

1) The renminbi has depreciated 6.9 percent since February 2009.

2) Pressure for the RMB to appreciate is increasing.

3) Hot money is flooding back into China.

4) Confidence in the dollar continues to take a beating.

Conclusion: Everything is continuing exactly as expected.

1) China continues to take important steps to internationalize the yuan.

2) China’s money supply continues to explode out of control.

3) Chinese demand continues to grow as a result of government stimulous.

4) Confidence in the dollar continues to fall.

Market Skeptics

Harvest From Hell VS USDA's "Biggest Crop Ever"

*****Investing In Black Earth Farmland*****

*****Gold Appreciation To Create Tremendous Inflation In India*****

India buys 200 tons gold from IMF

2009/10 Food Crisis

Food Shortages Driving Inflation Out Of Control In India

*****Everything Continuing As Expected*****

Investing In Black Earth Farmland

Gold Appreciation To Create Tremendous Inflation In India

Everything Continuing As Expected