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Input Prices Rise As Commodity Markets Fall

posted on October 24, 2008


Hello, I'm Mark Pearson. Sales numbers from the beleaguered housing sector offered a glimmer of hope this week that the worst slump in decades could be nearing an end.

According to the National Association of Realtors, sales of existing homes rose 5.5 percent in September, marking the largest monthly gain in more than five years.

Existing real estate values, however, continued to fall. The median sales price of $191,600 is down 9 percent from a year ago.

But the housing data wasn't enough to stop the freefall on Wall Street. The Dow Jones Industrials declined more than 300 points Friday to wrap up a volatile week of trading.

Meanwhile, crude oil prices plunged to their lowest levels in more than a year, amidst weakening global demand for crude.

Even gold, the traditional "safe haven" in times of panic, traded briefly on Friday at its lowest level in nearly three years.

Underpinning all of the market uncertainty are growing fears that governments, central banks and financial policy makers seem to be powerless in preventing a global recession.

Thanks, in part, to a boom in renewable fuel production, rural America was enjoying a time of rapid economic growth over the past few years. But now, with commodity prices falling in-step with global equity markets, these are uncertain times in farm country.

Input Prices Rise As Commodity Markets Fall The old adage "the cure for high prices is high prices" has failed to be true during the past few harvest seasons. The combination of high prices and record crops has been good for rural America. But this peculiar combination of events may no longer be true in farm country.

Heavy rains and floods at the beginning of the planting season fueled mid-July commodity market highs. But as the harvest gets into full-swing, and the possibility of bringing in the second largest corn crop and the fourth largest soybean crop on record looming,, many experts believe the bull market is over.

Bob Young, Chief Economist, American Farm Bureau Federation: "Pretty much all of the commodity markets are off pretty hard. Part of the reason for that is because, again, now we know what the crop is and we can kind of move that kind of speculation out of the system. But also we've had a fair amount of, kind of, fund money, uh; hedge funds and things of that nature that have needed to get out of markets and actually get turned back into cash. And so, when you get all that money leaving the market that does put some downside pressure on prices as well."

Until a few years ago, even today's lower prices would have been welcomed but the equation has changed. Input costs have increased in the wake of the bull market. The price of everything from land to fuel has risen. A few farmers have even reported paying double what they paid last year for fertilizer despite a tremendous drop in the price of crude oil and natural gas.

Bob Young, Chief Economist, American Farm Bureau Federation: "I think one of the bigger concerns is, though, that we have not seen those lower energy costs reflected yet in fertilizer prices. Fertilizer prices moved down off their highs but they have not moved down anywhere near the same extent that oil prices and other energy costs have moved down yet."

Some farmers have begun to express concern that this season may be harder to endure, because the old routine of higher input costs and lower crop prices appears to be returning.

Bob Young, Chief Economist, American Farm Bureau Federation: "...one needs to talk about the margin, the difference between those input costs and the output price that farmers receive, and that margin is certainly going to shrink in 2009..."


Tags: agriculture housing markets news