The Perfect Storm...

2016 Producer Survey Perfect Storm | Biomassmagazine.com

50 Minutes from here, one of our local producers. Sad to say for me not an option, their softwood pellet for bedding is only pick up at the factory...in July.

So all those bring fossil fuel this season are helping to hurt the bottom line of these small time producers.

Thoughts?

 

It's not our fault they tried to match prices with the big oil co.
Now they're seeing the bottom line evaporate just as fast as the others.....
Maybe Chinese pellets will be the norm as from this day, just saying. At least prices are falling which are very reluctant to do so here

 

Agree.

Per some sales rep last year was a great time to be in the pellet business. When oil was high they were pushing the price as far as they could. Now with the oil price where it is. They need to fall back just the same. If not they will be toast.
People burn pellets to save money, those that do so for other reasons are not enough to keep anyone in business.
Like every industry during these downturns. Some will survive and be stronger than ever. And some will perish. Just like some of the oil and gas companies that missread the future. Such is life.

 

I am not falling into that trap.

Lower prices are not bad for the economy in the long haul. It is perhaps bad for those holding and owing loans based on high prices as well as for those who own the industries potentially effected by deflationary pressure. It is not a long term problem for consumers or businesses who have been severely impacted by price run-ups.

It MAY contribute to a recession but a recession is simply an airing out of an economy gone awry. They are necessities in free markets

 

I'm with you Spartan.

Effectively there is no Chinese pellet industry as they have little feedstock. Other Asian countries, primarily Vietnam, have large "cottage industry" pellet production with large outputs. These pellets are only (just) suitable for industrial use. They will not make it to the US but they do keep a lid on the industrial pellet price and keep more US production in the US.
Still only relates to industrial pellets but I guess that trickles down to domestic production especially if industrial pellets are finding their way into the bedding market.

 

This thread has merits to both sides but I'm with Dexter. Gas and oil prices this low are NOT good for the economy as a whole. Especially if it lasts for an extended period of time.....

 

I see no downside over time. A new balance would be reached. I have rather pleasant memories of that time long ago when my wage was around 15K but my house cost 35K, a new car was 3K, gas was 40 cents and a weeks grocery was about 75 bucks. Now the house 200K, a car 35K, gas is 2 plus (and only because of deflation) and groceries 500 bucks. In addition we did quite well on a single salary back then. So while I agree that deflation will puncture the megaliths bubble, the bankers balloon, the Bain Capital casualty that was purchased with leverage and the margin stock buyer I see little long term pain for regular people who earn their living with sweat.

I am curious what you see and I have to ask why ???

 

Point made.....I suspect you and I are regular people. I remember $.29 gas and $25k homes and I'm only in my late 50s. I don't have a looking glass or a crystal ball and am by no means an expert on the economy. While we are all enjoying these energy prices, it just can't last....

 

It hasn't. Gas prices are already up almost $0.50 since the low point.

 

I feel the persistent high cost of energy is the straw that broke industry's back. When energy cost were fairly stable, there was a balance and our factories ran along and workers had jobs. But when energy went high, manufacturing left to where labor cost and pollution controls were low. Those were the factors that other countries could offer. Had energy cost risen slowly, then maybe they could have kept pace with labor cost and environmental concerns. The middle class has been years and years without any increase in wages. Energy drained off everything. If energy can stay lower this time, maybe we will see a slow come back in industry.

 

It will find its level. As save money points out - energy cost drove many companies out of America to places where regulation, labor, and policy offset those costs. It is many faceted but lower prices are not a bad thing over time. History shows that new commerce will replace old commerce jobs over time. With lower energy inputs perhaps the cost of doing business in America will be overall less and we can again create jobs that create tangible goods instead of providing services to an ever decreasing pool of those who can afford to receive those services.

Jobs that produce goods (add tangible value to raw material) always provide the greatest income to the masses. For a long while those jobs have been dripping away due to cost inputs. With lower energy cost we will see those jobs once again created here.

Oil has a new cap I think. It will be floating somewhere in the area of the cost plus profit of fracking for now. I read this is about 45 per barrel. This is good for consumers and it will in the near future be good for production workers. There will be a bubble recession first that will weed out those who are under capitalized and over leveraged in the oil industry. It will be painful but it is necessary for the newest economic reality. Those industry that are dependent on the oil industry at prices in excess of 50 - 55 a barrel will likely fall by the wayside all along the line. They are not going to be viable.

 

I agree, totally. The profit oil siphoned off was not seen again. it was drained off for the most part. Had the profits been taken by a diverse market, you would see a better reinvestment resulting in jobs and domestic production.
Look at it this way. Think what the markets looked like before oil cost doubled. Wages were much better, and welfare was low as was unemployment. When oil took a disproportionate share of the market, other markets shrank and so did jobs.

 

1976
I bought a new Ford 4x4 XLT for $7000
When I was in high school (class of 70) Gas was 29 cents a gallon
In college a nice house could be had for $20k (Did not say palace)

 

I don't want to sound like a groupie but goshdarn ol Spartan is absolutely spot on. You need to listen to him Dexter, there really is no scenario where high energy are of economic benefit to the masses. Our business deals in currency and in the past grain. We have seen the damage the Wall St has done to the world economy through thee manipulation of feed stuff and they actively do the same thing with currency. Oil is the same so once there is adequate supply it scares off the traders. This is a great thing, it can find its own level, not be inflated and deflated for trading margins.
Pardon my French but in case I am not being clear commodity traders are a**holes and a cancer on the world. I am a capitalist but constant growth is just stupid.

 

Commodity Traders at one point in time served an important function. The function was to limit swings in the market over time. They traded in future goods which allowed base line producers of food stuffs and raw materials to better plan production to meet reasonable growth targets.

For instance:

My former employer was a very heavy energy user (when considered on an energy cost to sales ratio). We evened the roller coaster by contracting for fossil fuels one and two years before we burned them. We used a trader for this purpose. When we began (mid 70's IIRC) the trader basically worked for a cut (commission) on the sales as the contracts became due. At some point the trader became a commodities house and the function changed from one of providing future energy to that of becoming an energy speculator. The addition of big capital then allowed them to buy and sell contracts in such mass that they in effect became the pricing agent for the markets. This is all done on margin and without ever taking possession. They "invest" nickels, borrow dollars from themselves, add interest, commissions, and holding fees. All these charges are applied without adding any value to the product yet in the aggregate they "earn" more money than any other part of the supply chain.

In a nutshell it is manipulation and it is a major factor in the destruction of our nation's economy.

 

I actually remember gas at 19.9 cents at Norman's Gulf Station at the end of my street but was not old enough to avail myself of it. My first gas purchase was 24.9 cents at that same station maybe 10 years later. In the 60's homes in this area were being built for less than 30K with an acre lot. Today, in that same area 30K barely meats the added cost of regulation, town hook-ups, permit and required engineering fees. (most of which are unnecessary to the usability of the final structure).

I believe these energy prices can indeed last with reasonable swings. That is all it will take is regulation (well mabe not all but a good beginning) of the trading part of the industry in such a way that traders are back to earning commissions but are unable to buy the commodity without without taking actual possession. Some regulation serves a benefit. This would be such an example.