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Losthwy
04-28-2011, 10:17 PM
I'm just now hearing about Contango and Dodd Frank. Who is up to speed on this?

A commodity market is said to be in “contango” when demand is expected to outstrip supply and future prices are expected to rise. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. Sort of like the Wal-Mart of Wall Street.
What most people do not know, however, is that Koch Industries occupies a unique role in manipulating the oil market and is one of the top five largest distributors of gasoline and oil that engages in the practice. Koch Industries, unlike well-known oil companies, has little involvement in the extraction process of procuring crude oil. Instead, the conglomerate focuses on shipping crude oil, refining it, speculating on the future price, and then distributing it to retailers.



In 2008, David Chang from Koch Industries drew attention among clients by bragging that falling crude prices in 2008 provided an opportunity to remove oil from the market for future delivery. He said:
The drop in crude oil prices from more than US $145 per barrel in July 2008 to less than US $35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery. Koch Industries, like Enron, created a number of derivatives in order to leverage its privileged position in the energy industry. With control of every part of the market, the Koch brothers are not only able to bet on future oil and gasoline prices with privileged information, but also are able to procure and withhold enough supply from the market to influence the future price.
In December of 2008, Koch Industries leased (http://money.cnn.com/2008/11/26/news/economy/oil_speculation.fortune) “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply back then, Fortune magazine writer Jon Birger noted (http://www.fortunesmallbusiness.com/2008/11/26/news/economy/oil_speculation.fortune/index.htm?postversion=2008120109) they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Prices went up far more than that in recent months.
The American public knows very little about the oil speculation industry because our corporate media tells next to nothing about it and because a conservative majority on the CFTC (http://wonkroom.thinkprogress.org/2011/03/21/crude-oil-profiteering/feed) has refused to implement a mandate from the Dodd-Frank Wall Street reform bill to provide more transparency.
Meanwhile, Republicans are pushing drastic budget cuts (http://wonkroom.thinkprogress.org/2011/03/18/gop-speculation-cuts) to the CFTC and the Securities and Exchange Commission (SEC), thereby hampering any new regulations on oil commodity speculation. Watch for these agencies to be targeted on the list of budget cuts in the coming months.
A recent presentation from Koch Supply & Trading, the Koch unit devoted to selling financial products, confirms that Koch has taken advantage of a lax regulatory environment to aggressively trade on future oil prices. “The return of speculators to Oil, the ‘macro trade’ is alive and well,” reads slide 36. The entire presentation can be viewed on slide share here: Koch Supply & Trading Risk Management (http://www.slideshare.net/oraevel/kstprice-risk-management).
examiner.com

Roger Perry
04-29-2011, 06:16 PM
Koch brothers huh???? Wonder where I heard that name before???????????:rolleyes:

Gerry Clinchy
04-29-2011, 09:42 PM
What conditions enable Koch to make money this way? The unstable supply of oil?

Marvin S
04-29-2011, 10:16 PM
To single out the Koch's is disingenious, there was a segment on 60 minutes about (Goldman Sachs) & the tank farms they owned. Anyone can do it, just buy 500 gallons when the price is down.

But those who chirp about this are not that far sighted, as those who make the money are :o. You don't have to buy the fuel, ride your bicycle, grease it with veggy oil :-P.

JDogger
04-29-2011, 11:40 PM
To single out the Koch's is disingenious, there was a segment on 60 minutes about (Goldman Sachs) & the tank farms they owned. Anyone can do it, just buy 500 gallons when the price is down.

But those who chirp about this are not that far sighted, as those who make the money are :o. You don't have to buy the fuel, ride your bicycle, grease it with veggy oil :-P.

You heard it here. Marvin watches 60 Minutes.:shock: JD

Hell. next we'll hear he sneaks a peek at MSNBC

caryalsobrook
05-01-2011, 08:48 AM
I'm just now hearing about Contango and Dodd Frank. Who is up to speed on this?

A commodity market is said to be in “contango” when demand is expected to outstrip supply and future prices are expected to rise. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. Sort of like the Wal-Mart of Wall Street.
What most people do not know, however, is that Koch Industries occupies a unique role in manipulating the oil market and is one of the top five largest distributors of gasoline and oil that engages in the practice. Koch Industries, unlike well-known oil companies, has little involvement in the extraction process of procuring crude oil. Instead, the conglomerate focuses on shipping crude oil, refining it, speculating on the future price, and then distributing it to retailers.



In 2008, David Chang from Koch Industries drew attention among clients by bragging that falling crude prices in 2008 provided an opportunity to remove oil from the market for future delivery. He said:
The drop in crude oil prices from more than US $145 per barrel in July 2008 to less than US $35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery. Koch Industries, like Enron, created a number of derivatives in order to leverage its privileged position in the energy industry. With control of every part of the market, the Koch brothers are not only able to bet on future oil and gasoline prices with privileged information, but also are able to procure and withhold enough supply from the market to influence the future price.
In December of 2008, Koch Industries leased (http://money.cnn.com/2008/11/26/news/economy/oil_speculation.fortune) “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply back then, Fortune magazine writer Jon Birger noted (http://www.fortunesmallbusiness.com/2008/11/26/news/economy/oil_speculation.fortune/index.htm?postversion=2008120109) they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Prices went up far more than that in recent months.
The American public knows very little about the oil speculation industry because our corporate media tells next to nothing about it and because a conservative majority on the CFTC (http://wonkroom.thinkprogress.org/2011/03/21/crude-oil-profiteering/feed) has refused to implement a mandate from the Dodd-Frank Wall Street reform bill to provide more transparency.
Meanwhile, Republicans are pushing drastic budget cuts (http://wonkroom.thinkprogress.org/2011/03/18/gop-speculation-cuts) to the CFTC and the Securities and Exchange Commission (SEC), thereby hampering any new regulations on oil commodity speculation. Watch for these agencies to be targeted on the list of budget cuts in the coming months.
A recent presentation from Koch Supply & Trading, the Koch unit devoted to selling financial products, confirms that Koch has taken advantage of a lax regulatory environment to aggressively trade on future oil prices. “The return of speculators to Oil, the ‘macro trade’ is alive and well,” reads slide 36. The entire presentation can be viewed on slide share here: Koch Supply & Trading Risk Management (http://www.slideshare.net/oraevel/kstprice-risk-management).
examiner.com

I saw your post when it first came out but as a response will be quite long and my being busy, I just now have nad time to respond. My response is personal only to those who wrote the article and not to anyone on this forum.

To be clear immediately, whoever wrote this is either incredibility lacking in the value and use of the futures market or just plain liars.

I had never heard of the Koch brothers until they were mentioned on this forum. I suspect those who criticize them do so because they have been successful businessmen or that they supported Gov. Walker in Wisconsin. How much influence do they have on the price of oil? Let's see. Compared to the governments of the US, China, and the european community and compared to OPEC, they are 2 mice and the rest are eliphant.You don't think so? Take this as an example. If President Obama released the oil of the US from the Stratigic Reserves, you would see a drastic drop in the price of oil futures price not to mention the spot price which is the current price.If OPEC were to announce a large drop in the production of oil, there would be a corresponding rise in price of oil in the market. The oposite is also true. There have been times when individuals have tried to corner the market, the most recent to my memory was the Hunt's attempt to corner the silver market. It almost broke them and probably had the long term effect of holding down prices of silver in the long run. To my knowledge has anyone successfully cornered a market and succeeded. The market and only the market corrects such an attempt. Not convinced? Lets go even further.

Do you believe that the Koch brothers have manipulated the price of oil to a level much higher than if they did notparticipate in the futures market?? Then let't take a look at other basic commodities, corn, wheat, silver, steel, aluminum, copper, cotton, soybeans just to name a few. Has the price of oil futures gone up significantly more than any of these? Are the Koch brothers also manipulating these markets also?? Do they have a conspiricy among other usiness people to corner all these markets when noone has successfully corner even one of them? I think not.Silver was about $13/ounce when Obama took office. It is now over $45/ounce. Cotton reached over $2/lb when I had never seen it over a dollar.

Futures markets actually tend to maintain a stabile price of commodoties and alow business to determine their cost of production and look at the market and predict the price of the sale of their product. Actually everyone is most happy during times of relatively stabil prices which makes business decisions much less risky. Times of large change in the price of commodities makes business decisions much more risky and the inclination to make them in a positive manner less.

If you remember nothing else in this post, remember this. FOR EVERY DOLLAR INVESTED IN THE PURCHASE OF A COMMODITY IN THE FUTURE(CALLED GOING LONG), THERE IS ALSO A DOLLAR INVESTED IN THE SALE OF THE COMMODITY IN THE FUTURE(CALLED GOING SHORT) Taking a commdity whose price is rising rapidly, those going long ahave made an economic decision that the price of the commodity will go higher, and conversely those who feel that the rise in price is to rapid and too high are going short as a result.

Take a farmer for example(I choose this because of my farming background). He will look at the futures price of those commodities that he grows and sells and decide how of his land he will didicate to each commodity. If he is a total gambler, he will grow that commodity thathe feels will return the greatest profit at the maturity of his crop. Most if not all are not such total gamblers but devides his land among the comodities for insurance against change in the futures price. In reality, farmers are among those speculators who go long but can go shory. Now take kellog's Cereal. They buy corn on the futures market so that their cost of corn used for making corn flakes is predictable and the price they must sell it for is predictable.

They 2 most important things is a market economy in determining the price(not counting government POLICY) are large change in production and the amount of dollars chasing the comodity. No more than a year ago, many including some on this forum were advocating QE1, then QE2 and also proposting a QE3 (quantitative easing and increasing the money supply). They advocaated this as necessary to guard against devaluation of the price of goods and services. They were saying inflation was not the problem, deflation was the problem. Would anyone in their right mind believe today that they were correct?? I hope not.

As a last thought, go look at ALL COMMODITIES FUTURES and come back and tell me if you look at the activities of the Koch brothers and the substance of this article in a different light.

caryalsobrook
05-03-2011, 09:48 AM
I'm just now hearing about Contango and Dodd Frank. Who is up to speed on this?

A commodity market is said to be in “contango” when demand is expected to outstrip supply and future prices are expected to rise. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. Sort of like the Wal-Mart of Wall Street.
What most people do not know, however, is that Koch Industries occupies a unique role in manipulating the oil market and is one of the top five largest distributors of gasoline and oil that engages in the practice. Koch Industries, unlike well-known oil companies, has little involvement in the extraction process of procuring crude oil. Instead, the conglomerate focuses on shipping crude oil, refining it, speculating on the future price, and then distributing it to retailers.



In 2008, David Chang from Koch Industries drew attention among clients by bragging that falling crude prices in 2008 provided an opportunity to remove oil from the market for future delivery. He said:
The drop in crude oil prices from more than US $145 per barrel in July 2008 to less than US $35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery. Koch Industries, like Enron, created a number of derivatives in order to leverage its privileged position in the energy industry. With control of every part of the market, the Koch brothers are not only able to bet on future oil and gasoline prices with privileged information, but also are able to procure and withhold enough supply from the market to influence the future price.
In December of 2008, Koch Industries leased (http://money.cnn.com/2008/11/26/news/economy/oil_speculation.fortune) “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply back then, Fortune magazine writer Jon Birger noted (http://www.fortunesmallbusiness.com/2008/11/26/news/economy/oil_speculation.fortune/index.htm?postversion=2008120109) they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Prices went up far more than that in recent months.
The American public knows very little about the oil speculation industry because our corporate media tells next to nothing about it and because a conservative majority on the CFTC (http://wonkroom.thinkprogress.org/2011/03/21/crude-oil-profiteering/feed) has refused to implement a mandate from the Dodd-Frank Wall Street reform bill to provide more transparency.
Meanwhile, Republicans are pushing drastic budget cuts (http://wonkroom.thinkprogress.org/2011/03/18/gop-speculation-cuts) to the CFTC and the Securities and Exchange Commission (SEC), thereby hampering any new regulations on oil commodity speculation. Watch for these agencies to be targeted on the list of budget cuts in the coming months.
A recent presentation from Koch Supply & Trading, the Koch unit devoted to selling financial products, confirms that Koch has taken advantage of a lax regulatory environment to aggressively trade on future oil prices. “The return of speculators to Oil, the ‘macro trade’ is alive and well,” reads slide 36. The entire presentation can be viewed on slide share here: Koch Supply & Trading Risk Management (http://www.slideshare.net/oraevel/kstprice-risk-management).
examiner.com

Still wondering if you looked at other commoities and have changed your mind abot the Koch brothers and the rise in the price of oil?:)

caryalsobrook
05-07-2011, 09:30 PM
I'm just now hearing about Contango and Dodd Frank. Who is up to speed on this?

A commodity market is said to be in “contango” when demand is expected to outstrip supply and future prices are expected to rise. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. Sort of like the Wal-Mart of Wall Street.
What most people do not know, however, is that Koch Industries occupies a unique role in manipulating the oil market and is one of the top five largest distributors of gasoline and oil that engages in the practice. Koch Industries, unlike well-known oil companies, has little involvement in the extraction process of procuring crude oil. Instead, the conglomerate focuses on shipping crude oil, refining it, speculating on the future price, and then distributing it to retailers.



In 2008, David Chang from Koch Industries drew attention among clients by bragging that falling crude prices in 2008 provided an opportunity to remove oil from the market for future delivery. He said:
The drop in crude oil prices from more than US $145 per barrel in July 2008 to less than US $35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery. Koch Industries, like Enron, created a number of derivatives in order to leverage its privileged position in the energy industry. With control of every part of the market, the Koch brothers are not only able to bet on future oil and gasoline prices with privileged information, but also are able to procure and withhold enough supply from the market to influence the future price.
In December of 2008, Koch Industries leased (http://money.cnn.com/2008/11/26/news/economy/oil_speculation.fortune) “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply back then, Fortune magazine writer Jon Birger noted (http://www.fortunesmallbusiness.com/2008/11/26/news/economy/oil_speculation.fortune/index.htm?postversion=2008120109) they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Prices went up far more than that in recent months.
The American public knows very little about the oil speculation industry because our corporate media tells next to nothing about it and because a conservative majority on the CFTC (http://wonkroom.thinkprogress.org/2011/03/21/crude-oil-profiteering/feed) has refused to implement a mandate from the Dodd-Frank Wall Street reform bill to provide more transparency.
Meanwhile, Republicans are pushing drastic budget cuts (http://wonkroom.thinkprogress.org/2011/03/18/gop-speculation-cuts) to the CFTC and the Securities and Exchange Commission (SEC), thereby hampering any new regulations on oil commodity speculation. Watch for these agencies to be targeted on the list of budget cuts in the coming months.
A recent presentation from Koch Supply & Trading, the Koch unit devoted to selling financial products, confirms that Koch has taken advantage of a lax regulatory environment to aggressively trade on future oil prices. “The return of speculators to Oil, the ‘macro trade’ is alive and well,” reads slide 36. The entire presentation can be viewed on slide share here: Koch Supply & Trading Risk Management (http://www.slideshare.net/oraevel/kstprice-risk-management).
examiner.com

You still haven't responded. I guess the facts don't jive with your preconceptions so your preconceptions take precidence.

1tulip
05-08-2011, 12:08 AM
Couple of naive questions.

Doesn't the United States buy up oil when the price is low to add to the Strategic Petroleum Reserve? And there are always talks at times like these of the Govt releasing oil to drive the price down on a temporary basis to help consumers. (I've never seen them do it, mind you. But you always hear folks proposing it.)

So the Government openly takes advantage of the market, and manipulates it (I'm not complaining... just an observation.) Right?

Second: These speculators look at the price of oil/commodities in the very long run. So, if they knew there was a US policy to open leases widely and drill off shore and in shore and all over the place, then the FUTURE value of their hoarded commodity would drop like a rock.

I don't think the market is a bad thing and it can be used to drive costs up and down.

So, if what the original poster wrote is true, and if the Koch Bros. were such a plague on the country, the administration could ruin them financially by promoting more drilling and production right here in the U.S. AND IT WOULD PUT THOUSANDS OF AMERICANS TO WORK!!! Then the Democrats would be assured of an almost indefinite run of power in Washington and everyone would love them.

What are they waiting for?

Uncle Bill
05-08-2011, 11:39 AM
Couple of naive questions.

Doesn't the United States buy up oil when the price is low to add to the Strategic Petroleum Reserve? And there are always talks at times like these of the Govt releasing oil to drive the price down on a temporary basis to help consumers. (I've never seen them do it, mind you. But you always hear folks proposing it.)

So the Government openly takes advantage of the market, and manipulates it (I'm not complaining... just an observation.) Right?

Second: These speculators look at the price of oil/commodities in the very long run. So, if they knew there was a US policy to open leases widely and drill off shore and in shore and all over the place, then the FUTURE value of their hoarded commodity would drop like a rock.

I don't think the market is a bad thing and it can be used to drive costs up and down.

So, if what the original poster wrote is true, and if the Koch Bros. were such a plague on the country, the administration could ruin them financially by promoting more drilling and production right here in the U.S. AND IT WOULD PUT THOUSANDS OF AMERICANS TO WORK!!! Then the Democrats would be assured of an almost indefinite run of power in Washington and everyone would love them.

What are they waiting for?


And you expect their "environmental whackos" to buy into that? Only the 'right' minded understand that philosophy, but the nuetral...that is the ignorant...have been so brainwashed by the MSP that follow the liberal message of the environmentalists/socialists, they will vote against what is in their best interest...they just plainly don't know any better.

UB

Uncle Bill
05-08-2011, 11:53 AM
I saw your post when it first came out but as a response will be quite long and my being busy, I just now have nad time to respond. My response is personal only to those who wrote the article and not to anyone on this forum.

To be clear immediately, whoever wrote this is either incredibility lacking in the value and use of the futures market or just plain liars.

I had never heard of the Koch brothers until they were mentioned on this forum. I suspect those who criticize them do so because they have been successful businessmen or that they supported Gov. Walker in Wisconsin. How much influence do they have on the price of oil? Let's see. Compared to the governments of the US, China, and the european community and compared to OPEC, they are 2 mice and the rest are eliphant.You don't think so? Take this as an example. If President Obama released the oil of the US from the Stratigic Reserves, you would see a drastic drop in the price of oil futures price not to mention the spot price which is the current price.If OPEC were to announce a large drop in the production of oil, there would be a corresponding rise in price of oil in the market. The oposite is also true. There have been times when individuals have tried to corner the market, the most recent to my memory was the Hunt's attempt to corner the silver market. It almost broke them and probably had the long term effect of holding down prices of silver in the long run. To my knowledge has anyone successfully cornered a market and succeeded. The market and only the market corrects such an attempt. Not convinced? Lets go even further.

Do you believe that the Koch brothers have manipulated the price of oil to a level much higher than if they did notparticipate in the futures market?? Then let't take a look at other basic commodities, corn, wheat, silver, steel, aluminum, copper, cotton, soybeans just to name a few. Has the price of oil futures gone up significantly more than any of these? Are the Koch brothers also manipulating these markets also?? Do they have a conspiricy among other usiness people to corner all these markets when noone has successfully corner even one of them? I think not.Silver was about $13/ounce when Obama took office. It is now over $45/ounce. Cotton reached over $2/lb when I had never seen it over a dollar.

Futures markets actually tend to maintain a stabile price of commodoties and alow business to determine their cost of production and look at the market and predict the price of the sale of their product. Actually everyone is most happy during times of relatively stabil prices which makes business decisions much less risky. Times of large change in the price of commodities makes business decisions much more risky and the inclination to make them in a positive manner less.

If you remember nothing else in this post, remember this. FOR EVERY DOLLAR INVESTED IN THE PURCHASE OF A COMMODITY IN THE FUTURE(CALLED GOING LONG), THERE IS ALSO A DOLLAR INVESTED IN THE SALE OF THE COMMODITY IN THE FUTURE(CALLED GOING SHORT) Taking a commdity whose price is rising rapidly, those going long ahave made an economic decision that the price of the commodity will go higher, and conversely those who feel that the rise in price is to rapid and too high are going short as a result.

Take a farmer for example(I choose this because of my farming background). He will look at the futures price of those commodities that he grows and sells and decide how of his land he will didicate to each commodity. If he is a total gambler, he will grow that commodity thathe feels will return the greatest profit at the maturity of his crop. Most if not all are not such total gamblers but devides his land among the comodities for insurance against change in the futures price. In reality, farmers are among those speculators who go long but can go shory. Now take kellog's Cereal. They buy corn on the futures market so that their cost of corn used for making corn flakes is predictable and the price they must sell it for is predictable.

They 2 most important things is a market economy in determining the price(not counting government POLICY) are large change in production and the amount of dollars chasing the comodity. No more than a year ago, many including some on this forum were advocating QE1, then QE2 and also proposting a QE3 (quantitative easing and increasing the money supply). They advocaated this as necessary to guard against devaluation of the price of goods and services. They were saying inflation was not the problem, deflation was the problem. Would anyone in their right mind believe today that they were correct?? I hope not.

As a last thought, go look at ALL COMMODITIES FUTURES and come back and tell me if you look at the activities of the Koch brothers and the substance of this article in a different light.


Good post. My only addition or correction to your "farmers" example is that they can't follow that practice for ALL commodities due to the ASCS limitations on what they can plant. They can't just decide to plant their entire cultivatable acres into wheat, as an example. That's under the 'gubmint' control.

Where they can 'bet' on the futures is by contracting their crops with the elevators. In essance, the principles in the elevators are the real 'gamblers' of the commodities. They set the prices they will pay at a given date for a given amount. That has it's good and bad sides to it also.

Several Ethanol plants have gone under because of their speculations and contracts. One of my farmer friends contracted several thousand bushel of corn at almost $7 a bushel a few years ago. He made the delivery on time, but by then the price of corn had dropped to under $4. That ethanol plant couldn't cover his check for a long time. I think he eventually settled for
another amount. That plant is now closed, BUT are hopeful the Obama administration will come to their aid and send them some huge infusion of taxpayers money so they can re-open.

Always more than one way to skin a cat eh?

UB

caryalsobrook
05-08-2011, 10:11 PM
Good post. My only addition or correction to your "farmers" example is that they can't follow that practice for ALL commodities due to the ASCS limitations on what they can plant. They can't just decide to plant their entire cultivatable acres into wheat, as an example. That's under the 'gubmint' control.

Where they can 'bet' on the futures is by contracting their crops with the elevators. In essance, the principles in the elevators are the real 'gamblers' of the commodities. They set the prices they will pay at a given date for a given amount. That has it's good and bad sides to it also.

Several Ethanol plants have gone under because of their speculations and contracts. One of my farmer friends contracted several thousand bushel of corn at almost $7 a bushel a few years ago. He made the delivery on time, but by then the price of corn had dropped to under $4. That ethanol plant couldn't cover his check for a long time. I think he eventually settled for
another amount. That plant is now closed, BUT are hopeful the Obama administration will come to their aid and send them some huge infusion of taxpayers money so they can re-open.

Always more than one way to skin a cat eh?

UB
I can only speak for soybeans, cotton, corn and wheat. Some years back you are correct that tthe amount of a particular crop you planted was based on what was called your "basis". If you had a basis of 100 acres of coton then all ou could plant of coton was 100 acres, additionally you had to lay out a certain percentage of land that you planted and plant nothing. That is not true today. You an plan as many acres of any of the crops mentioned. The subsity is based on the basis and the current price of the commodity. The higher current price of the commodity, the less subsity. But itl is still based on the basis you have. Crazy and complicated system. Short and simple is that I can plant as much or none of a particular crop and still get the same subsity if any based on the current market price. The fact is that it is so complicaed that vey few people can understand it much less than I. To be practical, you take the check that the government sends you and you cash it, no questions and don't try to understand why.. What else would you expect from the government. Do I agee with this, hell no. Would I much rather see a free market system without rediculous intervention, HELL YES!!. Realism is that you can't compete with those that take the subsity unless you take the subsity also. You subsidize electric cars to the tune of $7000 dollars then you can't build gas cars and compete.

Now for my pet pieve. the CRP program called the crop reduction program. What a joke. here (West Tennessee that is), it is not a Crop Reduction Program, it is actually a wildlife habitat program. Let me explain from a personal perspective. About 3 or 4 years ago I bought a farm of about 175 acres which was in the CRP program. The farm was devided into 2 tracts, one tract of 100 acres is in the CRP program until Oct. 2012, the other 75 acres was in the CRP program until 2016. Not only did I want the farm out of CRP but I had to pay a little more than $18,000 to get the 75 acres out of CRP so I could plant it. The amoount consisted of the amount paid for all the years (2) rent but also interest and penalty. I had to do this or leave it in CRP until 2016 which was less attractive than payng the $18,000. Based on the years in CRP, the other 100 acres' buyout was prohibitive and comes out in 2012 anyway. CRP program??? BS, It is a wildlife program that actually at the farmers' expense but only now do they realize it. The real change that has made the change is no-till farming. the restrictions of what you can do the land and the requirement of what you must do make the program in the farmers' eyes equilivant as what soe call a lease fleese car program.

Again this is just another way of the government justifying central planning which was the downfal of the Soviet Union. A system that made them inefficient and non competitive. Sound familar??

I'm certainly no expert on farm policy but if any of you either conservative of liberal, Ask your federal representatives to allow farmers to withdraw from the CRP program immediately without such draconian penalty. I assure you I would. If I know the answer then I will be glad to answer any question you or anyone may have. I rather that makes me unique to many on this forum.

wayne anderson
05-09-2011, 12:12 AM
Actually, the CRP is Conservation Reserve Program, started back in the mid-1980s, as I recall, to help farmers during a time of low commodity prices and a need to take low-production ("hills-and-valleys") land out of crop production. Farmers could bid land into the program at $XX per acre per year for a set number of years. CRP has been a boon for wildlife over the years, but now with much higher corn/soybean prices, much CRP land is being taken out by farmers to be farmed again. Supply/demand, regards... But one must expect farmers to pay a penalty to take land out of CRP after they have been paid to keep it in CRP for a contacted period of time. For what this is worth...

caryalsobrook
05-09-2011, 08:25 AM
Actually, the CRP is Conservation Reserve Program, started back in the mid-1980s, as I recall, to help farmers during a time of low commodity prices and a need to take low-production ("hills-and-valleys") land out of crop production. Farmers could bid land into the program at $XX per acre per year for a set number of years. CRP has been a boon for wildlife over the years, but now with much higher corn/soybean prices, much CRP land is being taken out by farmers to be farmed again. Supply/demand, regards... But one must expect farmers to pay a penalty to take land out of CRP after they have been paid to keep it in CRP for a contacted period of time. For what this is worth...

The program was designed to create wildlife habitat. It was not then nor is it now a program that ever helped the farmer. Logic says that if the object was to help the farmer then there would be no penalty to take it out. I have no roblem with the obligation to honor the contract. What i do have a problem with is the perception that it is a farm subsity to help the farmer.

The very type of land you mention is that which I am quite familiar with. I could write quite a bit abot the rules required in the lease. You cannot even practice good soil conservation practices on the land. the requirements wwhen you can and must bushog it are prohibitive. Great for wildlife havitat but terrible for good soil conservation. When land that I speak of comes out in 2012, the first thing I will do is establish a long term program to protect the land and practice no till farming. I am the 1st generation in my family that was not a full time farmer. I was taught that my great grandfather left it to my father in better shape than he got it. My father left me part of it in better shape than he got it. I intend to leave it to my son in better shape than he gets it. I think I have made the picture clear. Most farmers attempt to do the same- not always successful. The more control of the government, the more central planning they attempt. Will we ever learn that IT DOES NOT WORK!!
I was surprised that when I googled my name, I found a site that lists "subsity payments to me over the years. Included in them was the CRP lease money as a subsity. What a joke. As i said I could go on a long time about the various farm programs. But hopefully I have made my point.
Any other questions, if I know the answer, I will be glad to.

Buzz
05-09-2011, 10:36 AM
They 2 most important things is a market economy in determining the price(not counting government POLICY) are large change in production and the amount of dollars chasing the comodity. No more than a year ago, many including some on this forum were advocating QE1, then QE2 and also proposting a QE3 (quantitative easing and increasing the money supply). They advocaated this as necessary to guard against devaluation of the price of goods and services. They were saying inflation was not the problem, deflation was the problem. Would anyone in their right mind believe today that they were correct?? I hope not.





I know you can't stand Krugman. I was wondering if you consider Greg Mankiw a serious economist or not. I'm thinking if you did, you'll be rethinking that assessment after seeing this...

http://gregmankiw.blogspot.com/2011/05/i-agree-with-paul-krugman.html


I agree with Paul Krugman


As my regular blog readers know, Paul Krugman and I often do not see eye to eye. So, once in a while, it might be useful to point out those times when we actually agree.

In a recent post on commodity prices, Paul says, "Volatile prices are volatile, which is why they shouldn’t be used to determine monetary policy." I agree, and I suspect many other macroeconomists would as well.

I once wrote a paper on this topic with Ricardo Reis, called "What Measure of Inflation Should a Central Bank Target?" ( http://www.economics.harvard.edu/faculty/mankiw/files/target.pdf ) Here is the abstract:

This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector’s characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages.
As the graph below illustrates, the price of labor does not show any significant inflationary pressures right now:

http://3.bp.blogspot.com/-djUgfW7MSbs/TcVTo9eTLqI/AAAAAAAABPA/9lrsYqk70j4/s1600/compensation+per+hour.png

For more on this topic, see a recent post by MIT grad student Matt Rognlie.

http://mattrognlie.com/2011/05/01/why-target-the-cpi/

Why target the CPI?

Most discussions of monetary policy take for granted that if the Federal Reserve has an implicit inflation target, it’ll follow some variant of the Consumer Price Index.

But the CPI isn’t the only price index: there’s also the GDP deflator (the price index for final output produced in the US) and the Producer Price Index (the price index for costs faced by producers). It isn’t obvious, a priori, that we should be tracking one index or the other.

Mankiw and Reis provide an elegant framework for thinking about this question in their 2003 paper, What Measure of Inflation Should a Central Bank Target? They consider a central bank attempting to construct a “stability price index”: the price index that, if targeted, leads to the greatest possible stability in economic activity. The criteria they derive are pleasantly intuitive, and they include:

1. The more responsive a sector is to the business cycle, the more weight that sector’s price should receive in the stability price index.
2. The greater the magnitude of idiosyncratic shocks in a sector, the less weight that sector’s price should receive in the stability price index.
3. The more flexible a sector’s price, the less weight that sector’s price should receive in the stability price index.
4. The more important a price is in the consumer price index, the less weight that sector’s price should receive in the stability price index.
5. There’s a tremendous amount of insight here. Prices are partly responsible for their signaling value: if a sector is more responsive to the business cycle, its price conveys more information about the macroeconomy and deserves a larger place in the index. By the same token, if a sector is constantly hit by shocks unrelated to macroeconomic fundamentals, it’s tough to extract a meaningful signal about where the economy is headed.

Point #3 is a classic: all else being equal, you should target less flexible prices. Aoki (2001) proves a special case of this result, showing that in an economy where one sector has sticky prices and the other has perfectly flexible prices, the optimal policy is to target sticky-price inflation. Why? From a stabilization perspective, monetary policy doesn’t matter for goods with flexible prices: if the prices are free to move around, they’ll adjust to their equilibrium values no matter what the Fed does.

But the real shocker is #4: all else being equal, prices that are more important to the consumer price index should be less important to the stability price index. In other words, the optimal index for stabilizing macroeconomic activity is in some sense the opposite of the optimal index for measuring the cost of living. Mankiw and Reis explain the intuition as follows:

What is the intuition behind this surprising result? Under inflation targeting, undesirable fluctuations in output arise when there are shocks to equilibrium prices, which the central bank has to offset with monetary policy. The effect of a shock in sector k depends on its consumption weight. The greater is the consumption weight, the more the shock feeds into other prices in the economy, and the more disruptive it is. Thus, to minimize the disruptive effect of a shock, a central bank should accommodate shocks to large sectors. Under inflation targeting, such accommodation is possible by reducing the weight of the sector in the target index. Hence, holding all the other parameters constant, sectors with a larger weight in the consumption index should receive a smaller weight in the target index.

It’s instructive to consider how energy prices fare under these criteria. They do well under #1: they’re very responsive to changes in the business cycle. Unfortunately, they’re horrible on #2: energy prices (and natural resource prices more broadly) are subject to more idiosyncratic shocks than prices in virtually any other sector. Unlike most prices in the US, they reflect the highly volatile and unpredictable shifts of a global market. And if we consider #1 and #2 jointly, thinking about the signal/noise ratio of energy prices, it’s clear that we have much better ways to gather information about the domestic economy.

Meanwhile, energy prices are the canonical example of flexible prices: the gas station is possibly the only place that a typical consumer sees price updates over the course of a day. Certainly, then, energy prices don’t merit much emphasis under criterion #3 either.

The lessons here, of course, apply to questions much broader than the inclusion of energy prices. We typically construct our price indices based on some kind of basket of goods: either a basket of consumption goods (the CPI), a basket of intermediate goods used in production (the PPI), or a basket of final goods produced (the GDP deflator). These baskets are supposed to accurately represent the relative weight of each good in consumption or production. But this goal has absolutely nothing to do with the goal of designing indices that provide effective targets for stabilization. And if we use an index that wasn’t designed for monetary policy, we shouldn’t be surprised when it doesn’t work so well.






PS: The bird hunters here in South Dakota absolutely hate to see land being pulled from the CRP program in order to grow corn for ethanol. And many farmers pulling land out are being reminded with poor yields of why some of those lands were put into CRP in the first place. The pheasant population in South Dakota is projected to see a major fall in the coming years as a result.

caryalsobrook
05-09-2011, 12:55 PM
[QUOTE=Buzz;798397]I know you can't stand Krugman. I was wondering if you consider Greg Mankiw a serious economist or not. I'm thinking if you did, you'll be rethinking that assessment after seeing this...

http://gregmankiw.blogspot.com/2011/05/i-agree-with-paul-krugman.html

You are right, I have no use for Krugman. First, I never have said that comodity prices should be use to determine monetary policy. What I have said is that comodity prices are actually a result of monetary policy. In the case of the current situation, comodity prices indicate the drastic increase of the money supply as a result of eq1 and qe2.

I'm sure you are aware that Milton Friedman was an economist who I did respect, his basic thesis is that when you try to manage the economy through the FED with monetary policy, you see that the FED invariably comes up with the wrong policy at the time. His arguement is based on past efforts of the FED and results obtained. Instead he advocated a steady but consistant growth in the money supply consistant with a healthy economy. In other words, no one is smart enough the manage the economy with monetary policy. I agee with his facts and his conclusions.

As for phesents, I am sure those farmers in your state will be happy to maintain ideal habitat for pheasent if those hunters are willing to pay them the market price for the use of the land. Ethanol fuel from corn as a result of government central planning and monetary policy are both GREAT examples of it's success or could both be of their FAILURE?

caryalsobrook
05-10-2011, 07:45 PM
I'm just now hearing about Contango and Dodd Frank. Who is up to speed on this?

A commodity market is said to be in “contango” when demand is expected to outstrip supply and future prices are expected to rise. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. Sort of like the Wal-Mart of Wall Street.
What most people do not know, however, is that Koch Industries occupies a unique role in manipulating the oil market and is one of the top five largest distributors of gasoline and oil that engages in the practice. Koch Industries, unlike well-known oil companies, has little involvement in the extraction process of procuring crude oil. Instead, the conglomerate focuses on shipping crude oil, refining it, speculating on the future price, and then distributing it to retailers.



In 2008, David Chang from Koch Industries drew attention among clients by bragging that falling crude prices in 2008 provided an opportunity to remove oil from the market for future delivery. He said:
The drop in crude oil prices from more than US $145 per barrel in July 2008 to less than US $35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery. Koch Industries, like Enron, created a number of derivatives in order to leverage its privileged position in the energy industry. With control of every part of the market, the Koch brothers are not only able to bet on future oil and gasoline prices with privileged information, but also are able to procure and withhold enough supply from the market to influence the future price.
In December of 2008, Koch Industries leased (http://money.cnn.com/2008/11/26/news/economy/oil_speculation.fortune) “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply back then, Fortune magazine writer Jon Birger noted (http://www.fortunesmallbusiness.com/2008/11/26/news/economy/oil_speculation.fortune/index.htm?postversion=2008120109) they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Prices went up far more than that in recent months.
The American public knows very little about the oil speculation industry because our corporate media tells next to nothing about it and because a conservative majority on the CFTC (http://wonkroom.thinkprogress.org/2011/03/21/crude-oil-profiteering/feed) has refused to implement a mandate from the Dodd-Frank Wall Street reform bill to provide more transparency.
Meanwhile, Republicans are pushing drastic budget cuts (http://wonkroom.thinkprogress.org/2011/03/18/gop-speculation-cuts) to the CFTC and the Securities and Exchange Commission (SEC), thereby hampering any new regulations on oil commodity speculation. Watch for these agencies to be targeted on the list of budget cuts in the coming months.
A recent presentation from Koch Supply & Trading, the Koch unit devoted to selling financial products, confirms that Koch has taken advantage of a lax regulatory environment to aggressively trade on future oil prices. “The return of speculators to Oil, the ‘macro trade’ is alive and well,” reads slide 36. The entire presentation can be viewed on slide share here: Koch Supply & Trading Risk Management (http://www.slideshare.net/oraevel/kstprice-risk-management).
examiner.com

Still no answer so I assume you are one of those who revile the Koch brotheers because they are either successful businessmen or because they supported Walker for Govener of Wisconsin.:)