Expectations 2008

     The seats were still warm on the Board of Governors chairs at the FED as they arose to announce their last interest rate cut this month when the DOW plummeted over 200 points.  The past two cuts were met with at least momentarily rising markets but now the expectation is that the FED will need to be much more aggressive in 2008, perhaps one large interest rate cut or two moderate ones to stem the tide of the economic slow down which seems to be appearing (but has not actually arrived in any benchmark statistics yet)..

     Explaining the big drop, commentators pointed out the huge role expectations have in markets.  If you expect more and bigger cuts, these incremental quarter and half percent moves are just delays in the inevitable and investing will have to wait until the big one comes (and lowers the cost of investing even more).  This is the same pattern that is well documented in inflationary times.  If you expect prices to rise, you buy now and that drives up the cost of goods.  If you expect prices to fall, you delay purchases and collectively, that results in a price decline to move building inventory.

      Expectations are running wild in the corn, wheat and soybean markets and therefore in the pork business too.  Credible sources forecasting corn above $5.00 as a real possibility and beans almost to $13 has engendered a lot of strategizing among our fellow crop producers.  Unfortunately they almost always make the wrong decision (at least in terms of their interests: the famous fear and greed thing seems to always intervene to thwart sales at market highs etc.). 

     Hopefully, the price expectation game will result in another record harvest.  Those that can double crop are looking at near $1,000/acre gross with soybeans following wheat if everything works just right and fear and greed don't play too heavily on the marketing.

     That leaves us with feed prices for pork production that will no doubt drive COP to record levels (at least in terms of duration).  Never has it been more important to manage risk with every available tool than it will be in 2008. 

     Expecting a wild ride....Happy New Year!