Friday, November 16, 2012

$9.00 Corn; Almost Half of US Corn --> Burned In SUVs; Let Them Eat Cake


November 20, 2012: why Deere leapt into Buffett's headlights, WSJ.

Original Post

I don't know if folks saw this yesterday, all the hand-wringing over "$9 corn." Apparently this is unheard of, $9 for a bushel of corn. I don't follow corn, but the hand-wringing was quite remarkable. I forgot where I heard it. It was not on television. But apparently $5 corn is high; $9 corn is unthinkable. Again, I don't follow corn, so I don't know. But more to follow, I'm sure.

Now I see that the president won't ease mandate on corn --> ethanol rules.  But this is sheer craziness:
This year’s U.S. corn harvest is forecast at 10.725 billion bushels, the smallest in six years because of the drought. About 4.5 billion bushels will be used to make ethanol in the year starting Sept. 1, or about 42 percent of the 2012 crop, the USDA estimated on Nov. 9.
I believe they feed corn to chickens, but I could be wrong. With genetic engineering, maybe chickens only need steroids. Be that as it may, my hunch is that the price of chicken will go up a bit next year, so much for a chicken in every pot. Unless, of course, the Great Recession of 2013 holds prices down.

Mr Buffett saw this coming. Mr Buffett lives in the heart of corn country. Mr Buffett bought a bit of Deere this past quarter (reported earlier):

Here are two recent catalysts for Deere:
  • Warren Buffett's Berkshire Hathaway took an almost 4-million-share stake in this agricultural equipment maker in the third quarter.
  • The worst drought in 50 years has led to predictions of the poorest corn crop in over a decade. There are increasing predictions of $9 to $10 a bushel of corn for those farmers who have product to deliver (the rest will get crop insurance, so it's a win/win situation). This should bode well for tractor demand.
The article was written before the author had knowledge that the government had no plans to ease up on corn --> ethanol --> SUV support program, and so you might as well add that as another bullet.  (GM makes a lot of SUVs, doesn't it?)

What a great time to be a farmer. 

Oh, some back of the envelope calculating:

$337 million / $35 billion market cap: 1 percent of John Deere bought by Mr Buffett

4 million shares bought / 400 million shares outstanding --> 1 percent of John Deere.

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