Wednesday, August 26, 2015

Where my money is going: Corn prices and the stock market

The recent stock market disruptions have caused the usual purchases of corn for export to be disrupted.  The corn crop was pretty good this year, but corn is not being purchased for export as it has been in the recent past.

Right now the sale price of corn is about the cost of production, or maybe a little bit below the price of production.  So farmers across the midwest are scratching their heads and trying to figure out how to make a profit.

Which is where my pig operation comes in.  When corn prices are high, the price of pigs (and cattle) goes down.  the basic idea is that if you have a pile of corn you can decide to sell the corn as corn, or to sell the corn as meat.  If the price is high, the corn is worth more in front of the animal.  If corn prices are low it's worth more behind the animal.

So with lower corn prices I'm seeing higher prices for pigs, which is what I'd expect, and then I see lower prices for pigs, and the lower prices seem to be based partly on the panic of the stock market, particularly the financial trouble that china is going through right now.   I like it when pigs get cheaper.

I saw this sort of stuff in 2008 and 2009 -- and taking the long view, I expect people to still want pork chops and bacon next year, but the markets seem to forget that from time to time.  So I'm buying pigs right now when the price dips.

I'm not buying beef cattle (although normally i might buy a few head) because I think that beef cattle are very, very expensive right now.  I'm selling steers at prices that I've never, ever seen.  Now I've only been in the market for 8 years, so I don't have much experience, but I just can't figure out how people are going to make a profit when they pay $2 to $3/lb live weight.  Unless steak goes to $12 a pound and stays there.  And it may, but I don't know enough about the beef market to trust that.

On another front, I am buying some stock.  I'm buying Potash Corp because I think that it's a good time to buy.  I don't have any connection to them other than as a stockholder.  They are the lowest cost producer of fertilizer components, and when corn prices are down, people aren't buying much fertilizer.  It depresses the stock of companies that supply it, but I view this as a problem this year, or maybe next; my intention is to hold the stock for a few years and see how it goes.  I like this company in particular because they've just spent billions upgrading their operation, and they pay a 6% dividend right now; so you do get a return even if the stock doesn't appreciate much.  

I'm not an investment adviser.  You should do  your own research and figure it out.  I'm just saying what I'm doing right now:  buying pigs and fertilizer stocks, selling steers.

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