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I have been wondering how the price of commodity futures affect the price of the groceries we buy. I just saw that orange juice and pork belly futures are way up does that mean that orange juice and ham at the grocery store are going up in price? And if so how long does it take once the future prices go up for it to affect the prices at walmart? Any smart people out there want to help me out?:)
 

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The prices of wheat and fuel for example have dropped way down from last year but the price of a loaf of bread in the store has gone way up. Currently there is a log jam of wheat at the mills. The mills around here at least are not accepting any wheat at all until sometime next year which means that the supply of flour is from last years crops at last years prices. It remains to be seen if the prices drop after last years supply of high priced wheat is used up. I don't know about the orange juice and pork. Around here pork usually is cheaper in the fall and winter months.
 

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You can be sure the farmer isn't going to see any of the increase. Yes, crop prices now are higher than they have been but input prices are much higher and the cost of living has gone through the roof. Many farmers are making less profit that they were when crop prices were lower because costs have skyrocketed.

The agrigiants and food companies will make money, the consumer will pay more but the farmer won't see any of it.

Truth be told given the price of inputs and inflation, grain prices probably aren't a fraction of what they should be.

I'm trying more and more to buy my food products from local farmers before they get to the middle men. Hopefully this becomes more widespread. If I can't grow it myself, I'd rather buy my beef from the guy down the road than pay an agrigiant beef processor for it. I'd rather grow my own chickens and eggs but if I can't I'd rather give my money to my neighbor than to tyson or the corporate egg producers. The farmer makes more money and I choke the agrigiant of money which he uses to destroy my community.
 

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I'm trying more and more to buy my food products from local farmers before they get to the middle men. Hopefully this becomes more widespread. If I can't grow it myself, I'd rather buy my beef from the guy down the road than pay an agrigiant beef processor for it. I'd rather grow my own chickens and eggs but if I can't I'd rather give my money to my neighbor than to tyson or the corporate egg producers. The farmer makes more money and I choke the agrigiant of money which he uses to destroy my community.
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Respect The Cactus!

This is something that our local community is doing. We have started a local farmers market that is going to run year round and have members who sell winter veggies, eggs, chickens, meats, milk, butter,breads and flours, jams, jellies and baked goods. We are indoors in the winter and as this is the first year we are doing this it is a trial, but we have regular customers now that come every week to get their groceries from our group. We hope to expand this coming year.
 

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I'll try to give an explaination of the future markets. I've posted all this before but I'll do it again.

Futures are nothing more then promises to sell you something some time in the future at a set price.

To bring it closer to home. You agree to buy 10 feeder pigs from a farmer in 3 months at $10 each. You have just bought a feeder pig future and the farmer sold one.

Now say the farmer isn't sell his pigs in 5 or 10 pig lots but 1000+ lots. A speculator will come in look at how many people might be buying pigs in 3 months and the factors that could cause the price of pigs to go up or down between now and then. He then offers to buy so many pigs in 3 months for so much per pig. Just like you but on a larger scale.

It gets a little fuzzy here. The speculator can do a couple of things. What usually happens is pays the farmer right now for those pigs. This gives the farmer money today to buy the feed and other supplies he needs to raise the pigs. But he can also just promise to pay an agreed price upon delivery. Or he can pay the farmer part of the money now and the rest when the pigs are actually sold. Either way its to the farmer's advantage because he knows exactly how much money his pigs are going to bring and can adjust his budget accordingly.

Now speculator has a bunch of pigs bought but he doesn't want the pigs and would have no place to put them nor does he have any use for them. He is speculating that he can sell these pigs for more then he paid for them w/o ever touching them.

Out there somewhere there is another farmer who sells hogs to a processor. He needs to know how much to tell the processor he will be selling his next batch of hogs for. To do this he needs to know how much money he will have to spend. One of those cost is the price of pigs. So by buying a 'future' he knows that cost and can set a budget and set a price. An advantage for him.

But speculation can not push prices up unless the future buyers thinks the prices will be HIGHER than the price they are paying today. After all who is going to pay more for something today which they won't need for a while if they think they can get it cheaper tomorrow or the next day?
 

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Speculating in a market (buying grains for example on the idea they will be worth more in the future, so buy low now...) does influence the price you pay in the store, but we are _much_ better off with speculation than without it!

Over time, speculators make & lose money. The smart ones take some home, the not so good ones lose money, and it evens out. One year you might end up paying more; but another you will pay less. It averages out, even if it seems unfair for a time. You don't realize the times you are saving money because the speculators lost out.

The real benifit of speculators is 'buying a supply'.

For example, right now corn prices have really dropped in value. However Fertilizer prices have _not_ dropped much to us farmers - and likely won't as it is produced 6 months ahead, already priced. Honestly, we face a shortage of corn in early 2010 because of this.

Farmers will not buy much fert at these prices of corn & fert. With less fert, we will get lower corn yields or plant other crops, like soybeans in 2009.

When we harvest the 2009 crop, less corn, and in mid 2010, we will run out of corn. Of course we will have too much soybeans, and that market will go to heck. A really bad rollercoaster for farmers & food buyers alike. You will have shortages in the store.

Speculators see these trends, and will likely bid up the price of corn this winter - assuming that it will be in short supply in 2010.

As the price of corn goes up, we farmers can afford more fertilizer, & plan properly to plant more corn. Then corn futures will not be worth so much, and the price of corn will drop again.

So in 2010, there will be enough corn, and not too much soybeans. The markets will be in proper supply, and your food costs will be steady & 'normal'.

Without the speculators bidding up the price of corn this winter, your ecconomic future in 2010 will be real bad - corn products will be horribly expensive, and bean meal products will be so oversupplied it will wreck them too.

By 2011 markets will be so messed up, everything will be high priced, and running out of supply at any price.

Speculators do us a real service by keeping the supply of products in balance and at a level price. They do take a small net profit from the market, but so does everyone else, and they _do_ provide a good service of keeping us well supplied with the different grains we need all the time.

You know the food shortages, remember the lines in USSR for bread & other staples? They ran out of things? That is what happens without speculators. We get big spikes & shortages of different crops because farmers have no option to grow a crop that is worthless. Do you remember the USA ever running out of a staple food in the past decades? A big part of that is because speculators (futures trading) keeps our supplies & our prices from the huge roller coaster spikes.

The past 18 months have been very unusual for world trading of anything, as we had inflated ecconomies for all sorts of things - housing, etc. Now we are reversing to 'realistic' values of things. So, food prices went along for that absurd rollercoaster ride, and for a time speculators pulled money out of stock market, housing, etc & placed it in grains. This made a rather odd bubble in grain prices.

That has corrected itself, and grain prices are returning to normal highs & lows.

I can understand if you are questioning that odd bubble we had the past 18 months, and yes specuating had a lot to do with it.

But over the long haul, and even during the odd bubble, speculation in grain prices has been better for us all than no speculation. The world was going through a lot of growth & adjustment and crop issues (3 years of wheat failure in Australia, etc) and the grain price spike was needed to get the world back on track. Really.

Without speculation, we face grain shortages. That is not good at all!

With speculation, the grain supply corrects itself to the proper amount of various crops, for a very small net fee given to the speculators.

As my example above, we need to plan right now, for our grain supplies in 2011. Speculators help us get the right amounts of food products that far out. Without this planning so far into the future we could face some real hard times. That is worth the small amount the speculators take out of the market price.

imho

--->Paul
 

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Very good input given, but said 1000% times better than I could have explained it.

I would like to add, even though I am going to stumble thru this, is that the commodities markets are sometimes a big guessing game about future supply and the prices.

For instance, corn skyrocketed in price this past year. This encouraged, at least all the farmers I know, to rush out and plant every available acre in corn. Because of the huge harvest, corn prices have fallen dramatically. Demand for corn has dropped as the supply has increased.

If you are a manufacturer, like Kelloggs, you are probably going to be very concerned with keeping at least a supply of your main ingredient available. Yes, you may hedge, and buy one contract at $10 to guarantee supply, but will also buy 5 more contracts at $2 when the price drops.

The way I see it, there is alot of 'theory', for lack of a better term, in the macro view of the commodity markets. You could argue that commodities and futures are bad for the small farmer, depressing prices in the nation below what he can afford. At the same time, you can argue that commodities and futures are good for the small, local farmer because it gives him a bottom platform and price for a products he grows.

I may be mistaken, but one reason the commodities markets were set up were to help give even pricing and a even market value to goods. It is my understanding that farmers in Kansas were selling corn for 50 cents a bushel, but the same corn in Maine was selling for $4.

About a week ago, the WSJ had an article on oil futures. I guess oil is still higher down the road than it is today. If supply continues to increase, and demand drops or stays the same, whoever is holding those contracts is going to lose a bundle of cash. But if there is a cut in oil supply caused by OPEC, or a war with Iran, the price of oil will probably skyrocket, and the said contract holders will profit handsomely.

So, in a nutshell, high futures prices could be an indicator of things to come, but often, it is not.

Okay....enough of my ramblings.

Clove
 

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And if so how long does it take once the future prices go up for it to affect the prices at walmart? Any smart people out there want to help me out?:)
I believe it can be a difficult guessing game on how quickly prices will show up at the grocery store.

Lots and lots of products, that once were perishable, can now be frozen or stored. Even with sudden price hikes in the commodity markets, it might take some time for those prices to reach the consumer. My guess is that short spikes in commodity futures will not have a major effect on grocery prices, at least for the most part.

A massive sized food manufacturer like Kellogg's most likely has enough supply on hand to outlast short spikes in corn prices.

A wise and powerful food manufacturer will always push to get a higher price for their product, especially with the excuse of the commodities prices. A 2 cent price hike per box on Pop Tarts would mean millions more in profits. (On the other hand, a manufacturer might cost average from the supply they have on hand, and keep their product cost down to appeal to consumers.)

It is very similiar to your local gas station raising their gas price 30 cents when their cost only went up 10 cents.

The bottom dollar to this arguement is that you never know how much supply is in the system being stored, what the philosophy of the manufacturer is, or how they buy their supply.

A juice company I called on once held over a years supply of grape juice concentrate, and had another 9 months supply at their immediate disposal, even though the new grape harvest was nearing. Their normal supply to have on hand was 6-9 months.

So, in theory, a hard freeze could kill every orange growing in Florida, but the price of orange juice, could, in theory, drop at the grocery store. All this could happen while the commodities in oranges were going crazy and doubling in price every day.

Here is a true story, and I hope I don't butcher it too bad: The Russians for years have bought direct from the commodities markets in the US to maintain their food supply. In short, they bought from us what they could not grow. So many years ago, the price of corn went up, probably by speculators, in anticipation of what and how much the Russians would purchase each fall. So, in a brilliant stroke of genius, the Russians announced in Chicago they would not be buying much, if any grain supply this year. They said their grain storage was plentiful, and that they had record harvests in their own country. The markets plunged in prices. At the same time, Russian buyers were snapping up all the grain contracts they needed at very depressed prices, down the Mississippi river at other grain ports. Lots of interesting lessons to be learned from that story.

I think the main lesson is that we will never know the how/what/when/why until we actually see the price at the store.

The real important point, at least in my opinion, is the more we can grow ourselves, or buy locally, the better off we are.

BTW....you said "smart people" in your OP...I am not that smart, but I hope I have helped.

Clove
 

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Discussion Starter · #9 ·
Wow! Thanks so much, I just had a crash course in commodities. Who needs college.:rock: You guys are awesome. I never factored in the point of the manufacturers storing the commodities, freezing etc.
Isn't what the Russians did illegal? Lying about not buying lots of grain? Or am I just to naive?
 

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Isn't what the Russians did illegal? Lying about not buying lots of grain? Or am I just to naive?
Well - you can bring it up as a protest the following year at the WTO meetings. Get several other countries to agree with you (China, etc also probably gained a lot by buying the cheaper grain, so will they be on your side or USSR's side????). Then, get a hearing on the deal & work it through all the different political angles. Then you get a judgement. Maybe it's in your favor. The WTO says yea, USSR was wrong!

Cool. What do you get to collect 2 years later? You got a nice piece of paper to hang on the wall, saying you were right.....

'Tis better to just play the game wiser the next year, and learn from the lesson you got handed. It _is_ horse trading, if you play the game you got to be a better horse trader; not rely upon rules & regulations across the world to save you.

China very often sells soybeans from their northern regions - put the beans on ships, and hauls it south to their suthern ports, where they 'buy' their own beans back. All it is is shipping within their own country, but on the world market it shows up as a big trade order, & the large 'sale' of soybeans will lower the price of beans a little. They get to pick up some cheaper beans from Brazil or USA at the same time. You & I do too, really, so - who complains, who do you complain to? My soybeans in the bin get hurt a little bit, but - that is really the game of futures trading. Be aware of what is going on in the world, and guess better than anyone else. Folks don't notice much any more if China announces seasonal bean sales....

Don't rely on having a level playing field......

China, Russia, USA, Europian Union all like to play political games with grains, for their short term gain - depending on who is selling or buying.

One of the worst deals was the embargo of grain to the Soviet bloc during the Olympics during the Carter administration. We were supposed to hurt the USSR for various things by not shipping grain to them, & no athletes to go there.

So, a few Soviet folks went a little hungrier for a year. It depressed world grain markets, so other countries could buy real cheap grain - some of which went to USSR through 'other' channels anyhow - but the USA didn't get any income for it. The rest of the world that imports grain realized the USA could use food as a weapon, and China & Japan especially spent a lot of money to develop farms in Brazil & Argentina. Basically starting cutting down the rainforest. The USA became a choice of last resort for buying grain. No one wanted our high-priced stuff, when they could buy from the people they financed in South America first (work with their own people), with cheaper shipping & other prices (few environmental rules/ costs from these new sources....). The USA farmer has suffered for that for decades. It is one of the resons for the big grain subidies in the USA - farmers were going broke because of the political games of holding grain hostage for political use.

It is interesting that Carter, a farmer himself & supposed to be liberal & in tune with environment & caring about others - is kinda responsible for a lot of deforestation & so forth in the southern world.

Yes, this is a _very_ simple look at a complex issue, and I don't mean to make it a dire case against Jimmy or others - just an interesting view of how the world's problems intermingle & play against each other. Nothing is ever as simple as a 45 second news headline.

--->Paul
 

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So the speculator is one more middle man jacking up the price of food to take his profit without actually doing any work. Like the farmers market example, it is best to cut out the middle man and have the finisher farmer buy piglets directly from the farrower farmer. I knew there was I reason I didn't like or trust Wall Street and its ilk.
 

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So the speculator is one more middle man jacking up the price of food to take his profit without actually doing any work. Like the farmers market example, it is best to cut out the middle man and have the finisher farmer buy piglets directly from the farrower farmer. I knew there was I reason I didn't like or trust Wall Street and its ilk.
No, not quite. Say you know you are going to need 100 bales of hay next winter so you go to a farmer and tell him if he agrees to sell you 100 bales next October you will pay him X dollars a bale for them. To lock this price in you will pay him a percentage of the amount today. You now are the proud owner of a hay future. You can budget how much you are going to have to pay for hay and the farmer can budget knowing how much he will get paid.

Let's jump to next October. After a really dry year hay prices have shot through the roof and if you had not already bought your hay you'd be paying 2X dollars per bale. But if there was a bumper crop of hay this year you could have bought hay at 1/2X per bale.

Now in either of these cases did you buying your hay months before you needed it have any effect on the going price of hay?

If all the hay buyers were thinking there would be a drought and started trying to buy hay today for next year then prices would go up. But wouldn't this also happen if there were a drought?

There are people now who are upset because they bought home heating oil 'futures' (aka locked in a price) back when oil prices were shooting up. They gambled the price would keep rising and loss.
 

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Not really. I call the farmers I buy hay from, or just speak with them last year when they dropped it off, and let them know how much I want. Then last week the first one dropped off hay and I handed him his check. That was a direct sale with no middleman and no hay futures involved.

He knows I'll take what I said and I know he'll deliver. Not much more one can expect in life. He does find it funny that our pigs eat hay for the winter but after a few years he got used to it. :)

Getting someone else involved in the transaction would just complicate matters and increase the price I pay or decrease the money John received for his hay. No need for that. I still fail to see any value in the stock market, commodities markets, 'futures' and speculation. More importantly, if those people make a bet and lose they certainly should NOT be bailed out. This $700,000,000,000 waste of our money, er, bailout, is a travesty. It just proves that the whole system stinks and does not work. If The stock market, commodities, futures and all that were real then we wouldn't be doing this bailout. Those investors would just have to eat their losses. They gambled, their loss.
 

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Getting someone else involved in the transaction would just complicate matters and increase the price I pay or decrease the money John received for his hay. No need for that. I still fail to see any value in the stock market, commodities markets, 'futures' and speculation.
That can work for you, and no need for you to involve others. That's cool.

Other folks, it is not so simple or easy. The world is a little bigger than you make it out to be. :) When there are several 100 million people to feed in this country, and 6 billion to feed around the globe - then it gets a little more complicated.

If your friend quites raising hay, you can perbably find 100 bales someplace else. You & he are working with average prices.

In the bigger world, when fertilizer prices double in a year's time, someone needs to get commodity prices to match up, or we end up with drasticly lower production. That leads to real problems.

I would not say they are worthless middle-men. For your simple transaction, no need for them, and that is cool.

For the world at large, & for people living in cities & no hope of personal transactions with individual farmers - speculators are what keeps food on their tables.

As with many things, room for both ways of doing things. Your way works for you in your location. Very cool.

For many people, your way would be the way to the poor house - or hungry house. Be good if you worked on understanding the bigger world, and not make fun of or poo-poo them. You sure don't need to join them! :) But - understanding is good.


Bailouts is another topic entirely. Can end up between a rock & a hardplace. I agree with you in principle, entirely. When it comes down to collapsing our ecconomy & all - then it becomes a more difficult question. The problem is how much it hurts other people to let a part of the ecconomy sink. Which is the worse evil, to bail out the big cats, or less the small individuals sink along with them?

Very grey question, if you look at all the people that get hurt along the way.

Principles & standing for what is right is all well & good, but you do have to look at everyone who gets hurt along the way. You do care about people somewhat, don't you? Or only looking out for yourself and don't care about anyone else?

Becomes grey to most people when you put faces & names to those who get hurt along the way, no matter how black & white our principles seem.

--->Paul
 

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Lets say I'm running a sawmill and produce 10,000bft each day. There are 20 guys buying standing timber and selling logs to me. I pay $100 a cord for logs. We are having a wet fall season slowing cutting and hauling, some guys have gone hunting. I start running low on logs but have made deals to sell 500,000bft of lumber by the end of the year. I have signed contracts agreeing to sell at a set price. To increase the delivery of logs, to meet my needs, I offer $200 per cord. That jump increases my supply, but I can't make money if my finished product price is locked in, but my input costs double.
So, the next year, I try to get a whole year's worrth of wood bought during the summer, but the bank won't give me such a large amount of working capital. I can't keep orders filled if I don't know what the logs are going to cost me. So I agree to buy a months worth of logs from the 12 lowest bidders, to be delivered and paid for on the first of the month. Now I don't have to worry about weather or their hunting. With a set price locked in, I can set the price of my lumber on into the future. If one of the guys that holds a month's contract has a breakdown, he may have to get logs from someone else and he may have to pay a lot more for those logs. But that's his worry, not mine. I'm willing to pay a bit more for logs on a future contract than what I was paying before, but I've eliminated the ups and downs in my availability and price. The guys selling logs can get loans on equipment based on contracts they have sold.

In the hay example, what do you do when the guy you spoke with last year tells you that half his hay got rained on and a hay broker offered him $3.00 a bale for the rest of his crop? Makes you wish that last year you'd had a solid agreement on this year's hay. You can go right on with your cozy "understanding", but all to often we eventually get stung. We can't always "lock in " a price a year in advance, but if you know how many bales and at what price, the supplier can be sure of a market for his hay crop, everyone wins.
If I thought there would be a shortage of hay in your area, I could agree to buy up 10,000 bales for $3.00, next year. Then the farmers would see an up coming shortage in supply and only sell this years hay for $3.00, up from the normal $2.00. Buyers, like yourself, would move to buy hay ahead of time next year. This "stock-piling" creates an even bigger shortage. People, unable to buy hay at $3.00 a bale, start running adds looking for hay for next year. I offer ten lots of 1000 bales at $4000 each lot. Once I've got it sold, I'm out of it. I haven't had to stack one wagon, but I've made $10,000. The farmer didn't make any extra money on this deal, the fertilizer company didn't make anything extra, the trucking company gets the same. You add your feed cost increases into the cost you charge for pork. You add in a bit more so you can start buying your own hay equipment. Then the pork buyer complains about how much money you and the hay farmer are profitting on their need for pork. That's what just happened in the oil market.
Hilery Clinton had a Futures Company "invest" $10,000 in cattle futures. The price goes up and down every day. They managed to sell hers when the price was up and buy them back when the price was down, over and over. In a years time, she had $100,000. Simply amazing woman.
 

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In the hay example, what do you do when the guy you spoke with last year tells you that half his hay got rained on and a hay broker offered him $3.00 a bale for the rest of his crop? Makes you wish that last year you'd had a solid agreement on this year's hay. You can go right on with your cozy "understanding", but all to often we eventually get stung.
It's not a cozy 'understanding' its an agreement to each do our best. It is as locked in as is possible. Adding a middleman to the equation won't lock it in any more. Paper contracts won't lock it in any more. Paper contracts are broken left and right. You can sue but they can just close up their business and you're just as stuck.

The protection is having alternatives. I never single source my inputs nor do I sell to a single source my production. To single source either, to depend on just one seller or one buyer, would be folly. There are several farmers that I buy hay from. I never give anybody 100% of my business because I want to maintain a relationship with all of them. This way if John doesn't have as much hay as I want this year I call Ray and get extra from him, or Brad, or Jen, or... That is smart and simple. No need for a middleman.

Buyers, like yourself, would move to buy hay ahead of time next year. This "stock-piling" creates an even bigger shortage. People, unable to buy hay at $3.00 a bale, start running adds looking for hay for next year. I offer ten lots of 1000 bales at $4000 each lot.
Bad move. Don't buy hay years ahead and stockpile it. Hay loses quality in time.

Hilery Clinton had a Futures Company "invest" $10,000 in cattle futures. The price goes up and down every day. They managed to sell hers when the price was up and buy them back when the price was down, over and over. In a years time, she had $100,000. Simply amazing woman.
That is about the most perfect example I have ever seen of why futures trading, stock markets and commodity markets are BAD. She did nothing. She produced nothing. She added no value. She was the classic middleman stealing her little bite of pie as she passed it down the table over and over. That is such rude behavior. What she did do is simple gambling. And then these people who've gambled and lost big time are now expecting the rest of us to bail them out to the tune of $700 Billion and rising. I STRONGLY object to my money being redistributed to these investors. They gambled. They lost. They deserve the fruits of their gamble - to lose their shirts. To protect them and give them the candy because they scream and carry on in a temper tantrum is sending exactly the wrong message, teaching exactly the wrong lessons. Now as a result we have the auto industry, the airline industry, the home heating fuel industry and others all demanding that they get bailouts too. This is very bad.
 

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Other folks, it is not so simple or easy. The world is a little bigger than you make it out to be. :) When there are several 100 million people to feed in this country, and 6 billion to feed around the globe - then it gets a little more complicated.
But does it really need to be so complicated. I argue that the cities are making it far more complicated than it should be. That's part of the whole buy local issue. This points out just how unsustainable cities are.

Fortunately it is a somewhat free country and you can do it which ever way you want. The trouble is I should not have to bail you out when your investments fail. That is my objection. So the banks / investors made bad choices. They gambled. They lost. Tough. They should not get any bailout. They should take the hit and if it puts them out of business that is their problem. I object that $13,500 of my money, plus interest, has been redistributed to the rich fat cat investment bankers in this $700 Billion dollar bailout. It is that simple.

If your friend quites raising hay, you can perbably find 100 bales someplace else.
Yes, I never single source. I have multiple farmers that I buy hay from. I never give any of them 100% of my business because I want to maintain a relationship with all of them. This way if John doesn't have as much hay as I want this year I call Ray and get extra from him, or Brad, or Jen, or... That is smart and simple. No need for a middleman.

Likewise I never sell to just one buyer. I sell our pork to many different customers. If one customer goes out of business, as has happened, it is not going to hurt me too much. There are other buyers or I'll just adjust my production down a little.

Single sourcing is foolish, on the buy or sell end of things. There is no need of commodity futures or middlemen sticking their fingers in the pie. More importantly, if they are there they are gamblers who should take their losses just like they demand their winnings. Chin up and all that.

For the world at large, & for people living in cities & no hope of personal transactions with individual farmers - speculators are what keeps food on their tables.
Well, that rather proves my point. I've been saying all along that this whole bailout, market crashes and economic recession is a city problem not a rural problem. City people made the problem and they're the ones who are going to suffer the most, as it should be. The middlemen are part of the problem. I object to bailing them out. They gambled. They lost. They should take the hit.

Bailouts is another topic entirely. Can end up between a rock & a hardplace. I agree with you in principle, entirely. When it comes down to collapsing our ecconomy & all - then it becomes a more difficult question.
Perhaps it is time for 'collapse' of those elements that are inefficient like the middlemen, investors and huge banks. If GM can't produce better cars its time to let them fold or change. There are other car manufacturers, in this country and elsewhere, who do produce better cars and do it at a profit. Actions like the bailout protect bad elements so they can continue. Evolution and improvement won't happen if the government keeps blocking out this culling of the weak. Change can be necessary to survival.

Which is the worse evil, to bail out the big cats, or let the small individuals sink along with them?
It is not an either-or situation. There are better alternatives. Let the big cats and any other speculators fail. Let them lose their shirts. They gambled. If they had won they would have wanted to keep as much of those winnings as possible. If they lose they should take the hit.

The problem is the government has said that they are going to concentrate the bailout on helping the few biggest ripoff artists, er, I mean investors and won't bother to help the many of those that are too small to 'bother with'. If you're "too small to save" then tough luck. The government has ruled that the bailout money can be used by these fat cats to buy other businesses, for employee bonuses, to pay stock dividends. That is a travesty. It's just handing over my money to the fat cats. This isn't about saving the economy or country, it's about keeping a small class of wealthy people in money. Let them sink in the morass of their making.

It is unreasonable to demand that working families come up with $13,500 each to pay these fat cats. There are better ways to spend $700 Billion dollars that would help our economy. The bailout as they are doing it is evil.
 

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Not really. I call the farmers I buy hay from, or just speak with them last year when they dropped it off, and let them know how much I want. Then last week the first one dropped off hay and I handed him his check. That was a direct sale with no middleman and no hay futures involved.

He knows I'll take what I said and I know he'll deliver. Not much more one can expect in life. He does find it funny that our pigs eat hay for the winter but after a few years he got used to it. :)

That works fine for small transactions. What if you were spending hours each day dealing with dozens of suppliers to buy 10,000 bales of hay each and every month? How much would it be worth to be able to call one person?

The you have the budgeting factor. The more you know how much things are going to cost its much easier to budget. How much easier would it be for you if you knew how much you were going to spend to raise your hogs and how much you were going get when you sold them? You'd know if you could afford to buy. . .say new work boots or if you were going to need to have the old ones resoled.


Getting someone else involved in the transaction would just complicate matters and increase the price I pay or decrease the money John received for his hay. No need for that. I still fail to see any value in the stock market, commodities markets, 'futures' and speculation.
Yes and no. It may add some to the cost but most companies see the extra cost as worth it in other ways. I've been checking out your blog watching the progress on your greenhouse. Why did you spent the extra money to buy ready mix concrete rather than make your own? How much money could you have saved by cutting out the middle man and buying your own cement, sand and gravel, supplying your own water and mixing it yourself on site? I'm willing to bet you did a cost vs benefits analysis and decided the extra money spent was offset by the time and labor saved.


More importantly, if those people make a bet and lose they certainly should NOT be bailed out. This $700,000,000,000 waste of our money, er, bailout, is a travesty. It just proves that the whole system stinks and does not work. If The stock market, commodities, futures and all that were real then we wouldn't be doing this bailout. Those investors would just have to eat their losses. They gambled, their loss.
On this I fully agree. This is like a parent who bails his kid out of jail time and time again. The kid never learns as long as the parents do this. One of the things my kids hear and have heard over and over is; Actions have consequence.
 

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That works fine for small transactions. What if you were spending hours each day dealing with dozens of suppliers to buy 10,000 bales of hay each and every month? How much would it be worth to be able to call one person?
Then I would produce my own hay. Vertical integration. We're already working on that for about three to five years from now. I'll continue to buy other people's hay but I also want hay under my own control.

The you have the budgeting factor. The more you know how much things are going to cost its much easier to budget.
That is a fallacy of price locks being so good keeps popping up. With this line of thinking someone loses when prices go up but there is a price ceiling at the other end. That can drive that person out of business which puts people out of work, etc. Someone suffers with this system of futures and there is a middleman in the the middle taking a bite of the pie so everyone suffers just a little bit more.

A current example of this is the people complaining about having locked in fuel back in June for home heating. Now prices are lower and they want to get out of their contracts. Open a newspaper. Read all about it. The home heating suppliers are now asking for a federal bailout too. This bailout mentality has given people the idea that the nolonger are taking any risks yet they'll still want the rewards. Bad. Very bad.

Yes and no. It may add some to the cost but most companies see the extra cost as worth it in other ways. I've been checking out your blog watching the progress on your greenhouse. Why did you spent the extra money to buy ready mix concrete rather than make your own?
You're confused. That choice has nothing to do with futures. I bought truckloads because of the volume. For that job I buy ready mixed concrete by the truck load because they have a bigger mixer. Other times I buy the cement, also from the same company, and mix it with sand and gravel (from our land and from a different pit) to make smaller batches of concrete. I pay cash. No middleman. No future commodity brokerage. Simple purchase.

How much money could you have saved by cutting out the middle man and buying your own cement, sand and gravel, supplying your own water and mixing it yourself on site? I'm willing to bet you did a cost vs benefits analysis and decided the extra money spent was offset by the time and labor saved.
Yes, and that had nothing to do with commodity futures and neither the concrete company nor I am looking for a government bailout when poof, the weather turned colder, they need to add hot water and charge me $6 more per cubic-yard to cover the cost of heating the water. We simply do business. It's that simple.

On (the bailout) I fully agree. This is like a parent who bails his kid out of jail time and time again. The kid never learns as long as the parents do this. One of the things my kids hear and have heard over and over is; Actions have consequence.
Glad to hear that. Sadly, now that the government has bailed out one group we have half a dozen other industries demanding bailouts. I foresaw that and it is one reason I wrote my congresscritters and asked them to oppose the bailout. There will now be an endless cycle of demand for the new entitlement of being bailed out. They are producing a zero risk society.

Cheers

-Walter
Sugar Mountain Farm
in the mountains of Vermont
http://SugarMtnFarm.com/blog/
http://HollyGraphicArt.com/
http://NoNAIS.org
 

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It is not an either-or situation. There are better alternatives. Let the big cats and any other speculators fail. Let them lose their shirts. They gambled. If they had won they would have wanted to keep as much of those winnings as possible. If they lose they should take the hit.
I agree. We are not very far apart in our thoughts in all this. :)

So, AIG is about to fail. They have 1/40th cash, the rest is just notes. If those big cats fail, that little bit of cash will not protect your, my, & our neighbor's investments. Us little fellas will be holding worthless paper. You & I (if neither of us has any stocks, we do agree a lot of 'little people' have retirement investments socked away in all sorts of funds that these big cats hold?) can easily lose more than $1300 a piece......

GM, Ford, & Chrysler say they are ready to fold up. At the least, they will need to reorganize. Should we let them? Let those fat cats hang themselves? But - they will close up manufaturing, re-invent themselves over in China importing cheaper cars from there. Instead of the big 3 manufaturing companies, we will have the big 3 import shops. They are heading in that direction slowly as it is. This ecconomy could make that a 2 year deal. 100's of thousands of us little guys will get laid off.

Who gets hurt - the big fat cats, or the little guy like you and me?

The little guy has gotten $600 from the govt, sounds like that will happen again. A lot of morgages have been re-written. Energy, phone, & other bills are routinely forgiven to the little guy. So, the little guy gets a lot of handouts too - might be small individual $$ amounts, but to large numbers of people it amounts to a lot of handouts.

When the chips are down, what do we do? Who really gets hurt if we let the fat cats die off?

We would need to change our whole society to make your principles work. And I _like_ your principles, I agree with the ideals you have.

But here we are in 2008, with the ecconomy & workforce & fat cats we have.

What do we do today?

Let the fat cats fall down - and watch everyone become unemployed, everyone's retirement wiped out, all jobs going to other countries?

What do we do today? I suppose you say we need to start sometime. :) Can you see my point tho - the little guy gets hurt worse when the fat cats fall down in our current acconomy?



Your business with hay & hogs and how you do buisness is about perfect. No critisizm from me. You are basically doing the same thing the fat cats do. They have much more volume and area to cover, and so they use middle men to help them make it all work. You are small enough to do it all on your own.

Same business model, you are a loaner, fat cats use a group of people to do the same things.

Nothing to disagree on there. What you do & what fat cats do is the same thing. Sounded like you were arguing against their ways, but it's the same thing, only different size is all.


Well, I have 5 acres of corn to harvest yet, and it is raining on frozen ground here. Miserable. I spent 2 hours yesterday chipping frozen ice/snow out of my picker & elevator to unload the few wagons I had picked at noon, so I could pick another round of wagons after sundown when the ground froze.

Get to do that all over again this morning, with freezing rain falling on me. I'm _so_ ready for harvest to be over this year. ;)

--->Paul
 
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