Posted on 12/10/2014 2:39:09 PM PST by thackney
This past year many grain farmers only sold as needed to get by.
The remainder is in storage; awaiting a better price.
We as individuals can’t print money like our government does but we do spend we don’t have through the undisciplined use of our credit cards. Eventually real earnings have to pay for all the things we buy. Same thing with countries because eventually money printing leads to hyperinflation.
As someone wisely said, you can avoid reality but you cannot avoid the consequences of reality.
A couple of months ago the Saudis suggested they were OK with oil prices around $80, for a year or two. Current price is about 25% below that number so if you apply that percentage to their projected timeframe, you get 9 months to 1.5 years. So its reasonable to assume it would be even less given a further price drop down to $50.
That said they clearly see ISIS as an existential threat so maybe they’re willing to extend this game a little more. The Saudis are well heeled, and they’d like to stay that way. So its not an open ended game for them.
Farmers can and do quit when farming becomes uneconomical.
I think SA is making a virtue out of necessity. I think it would take a cut of 3 MBD to bring the market back, and it wouldn't be immediate.
Practically speaking they can't do that. They have a longer time horizon than the next 12 months.
I also suspect geopolitical factors are at play.
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