Mar

31

 There's an interesting exercise in cobweb economics setting up in grains.

The idea being that farmers plant for next year based on this year's crop. And when this years price is high, they increase the supply for next year. Thereby lowering the price for the next year. Then they plant less. Prices move in cobweb.

Lorie wrote his PHd thesis on this. Wanted most of all to be a cattle rancher. May corn this year at 6.93 a bushel limit up but December 2012 corn at 5.77.

I took a speculation in honor of Lorie and Watson in the cobweb yesterday and today.

Gary Rogan writes:

Palindrome is taking charge: George Soros making a move to control food and grain production:

Financier and progressive activist George Soros is formulating a move to control food and grain production by purchasing grain elevators in late March in several parts of the United States through his Soros Managment Fund's backed Gavilon Grain . With purchases made in March, Gavilon Grain will become the third largest grain company behind Cargill, and Archer-Daniels Midland.

With strong ties to the Obama administration, Soros now has both the economic, and political clout to begin consolidation of purchasing and shipping domestic agriculture around the world.
U.S. grain firm Gavilon Grain said on Thursday it will buy Union Elevator and Warehouse's 16 grain elevators in the Pacific Northwest , the company's second big purchase of U.S. grain facilities in the last six months.

The purchase of 16 elevators at 12 locations in eastern Washington will expand Gavilon's grain capacity by 8.4 mbu.

"The addition of Union Elevator's grain facilities and origination capabilities position us well to support the growing Pacific Northwest export wheat market and serve the Columbian Basin feed grain market," Greg Konsor, VP and GM of Gavilon Grain, said in a statement. The PNW is the No. 1 wheat export terminal in the United States. - Reuters
When food brokers consolidate into just a few large companies controlling the majority of a market, then prices can be set not by supply and demand, but by corporate decisions and manipulation of supply. If the price for food is too low in the United States, then grain can be shipped to other markets for sale, causing then an artifical supply problem in the country that produced the grain itself.

With George Soros's making this move in backing Gavilon Grain's purchases to control food and grain distribution in the United States, and becoming the third largest grain company in the country, it will lead to the same results that we see in the energy markets as oil is controlled by a small group of corporations, and the price can be dictated by an artificial control over its supply.
 

Jeff Watson comments:

Gavilon Grain is just the latest resurrection of Peavey Grain. I expect them to have a big presence in the grain markets as they are true "Grain People." Still, being third place IN THE US behind C@rgill might as well be 50th place. I would not expect the Palindrome to make a dent in C@agill's action, as C@rgill is as politically well connected as anyone. The grain companies were always small in number, and historically were known as the "Big 5." The Big Five were, until the 80's, C@rgill, Continental, Louis Dreyfus, Bunge, and Andre with those companies controlling 75%+ of the world's grain trade and food supply. The big companies still control 75-90% of the grains and food supply, not caring what the prices are as long as they make the deal and don't lose market share. Until recently, most large grain companies were private, family owned corporations. The aforementioned five companies are still private, and huge, but companies like ADM, Ralston Purina, Conti-Commodies, General Mills, Pillsbury, Ralston-Purina, etc are all part of or are public corporations. Despite the small number of grain companies, the profit margins are microscopic, the business is cutthroat, and there is healthy competition between companies, without meaningful quid pro quo's between them. One overlooked aspect of the grain elevators and warehouses is that they are a license to print money if run correctly , which is a reason the big grain companies prefer to remain private, obscure, and below the radar. If C@rgill was a public corporation, it would easily rank in the top ten of the Fortune 500 companies and this is the scale of most of the really big grain companies operations.


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