Thursday, January 24, 2008

When Is a Bubble Not a Bubble?

I've taken the position that farm prices will dive as they have done in the past. The counter position is that the new market for corn for ethanol, which has the side effect of driving up soybean prices, changes economic fundamentals.

Bruce Babcock, as summarized here, seems to agree with me.

I'd add, in view of the last few days, a widespread economic slowdown means a softer market for feed grains (remember the Asian recession of the late 90's). It also means lower oil prices, which means less of a bonus for ethanol. Finally, I noticed somewhere the idea that Russians found US-made farm machinery very good. That's a turnaround from the 90's, when Russian tractors were being sold in the U.S. But more importantly, it means that Russian farmers have the money to invest in modern machinery, which means more production there.

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