The wave of selling fear and forced liquidation has sent grain prices along with everything else plunging to impressive lows. Grains prices as measured by the DJ-AIG sub index are now over 50% off their highs from just a few months ago. At this time most investors are running for the streets in panic calling for all markets to return to prices not seen since the ice age. However, those investors who have the nerve to position themselves over the next couple of months will probably be handsomely rewarded over the next couple of years.  

 It is often said that if you hear a lie enough times, you will eventually believe it. If you watch “Bubble Vision,” everyday you will hear the term “Global Demand Destruction!”  People are returning to pre-historic times and will soon live in caves again. They will no longer drive, fly, eat, heat their homes, and use electricity.  They are primarily focused on demand here in the United States, and continue to ignore the 685 billion people on the other side of the planet. They fail to realize that demand is merely slowing at a time when production and inventories of most commodities are falling off a cliff. You will continue to hear that the Federal Reserve can bail out institution after institution. They can print trillions and trillions of dollars and they can do all of this without impacting the credit worthiness of the U.S. government and value of the U.S. Dollar.   

Thanks to the global credit crisis, farmers around the world are having trouble getting the credit they need for next year’s crop. They do not have the financing they need to for the land, fuel, equipment, fertilizer and labor. Furthermore, input costs are still relatively high. Farmers need grain prices to come up just to break even.   Marino Colpo, a large soybean producer in Brazil said that they require at least $10.50 soybeans to break even.  He also said that production in Brazil is likely to drop this coming season because farmers are unwilling to plant at a loss.   Thanks to the plunging grain prices induced by the credit crisis, we will see farmers around the world cutting back on production.  This is at a time when global grain inventories are already near historic lows.  William Doyle, president of Potash says that even with slowing demand growth they will need to produce record crops just to maintain adequate stocks.

Global grain inventories will get tighter as farmers are unable and unwilling to produce grains at a loss.  This could eventually send grain prices higher and switch the attention of the mainstream media from the credit crisis to the food crisis and famine.  

Feel free to contact me for information and research to help you invest in commodity futures and options including the grain markets.  I can be reached at 1-877-377-7936 or you can email me at jared.irish@archerfinancials.com .

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