Conference nyoss1::market_investing

    To start off some level of discussion, i'd like to ask some questions
    associated with Money Market Funds.  From my limited knowledge, i
    assume that a Money Market Fund is actually trading 'daily' contracts
    of 'cash' between banks and other financial institutions (mutual funds, 
    insurance funds, etc.)
    
    During periods of 'decreasing' inflation rates or deflation, money
    generally moves to bonds to try to lock in higher rates for generating
    income during the low period of growth.  We have seen this scenario for
    over the last 3 years.
    
    It would seem that during a period of 'increasing' inflation rates that 
    daily re-valuation of your currancy would be a wise strategy for
    maintaining the value of your principle.  This would not be a 'growth'
    or income strategy but merely a 'preservation' approach.  In effect you
    will still be one step behind the markets in their re-valuation, but at
    least keeping pace with the upward spiral of prices.
    
    The specific question i have is i have noticed what appears to be
    different types of Money Market Funds.  Tax-free funds which seem to
    do daily trading of Municiple and Government Bonds and Taxable funds
    which deal with, i assume, cash.  Are there other types of funds
    within these catagories and if so which types would make the best sense
    in a world caught in high inflation rates???  
    
    Doug

    re: -1
    
    >different types of Money Market Funds.  Tax-free funds which seem to
    >do daily trading of Municiple and Government Bonds and Taxable funds
    >which deal with, i assume, cash.  Are there other types of funds
    
    Taxable funds hold large positions in commercial paper (corporate IOU's
    with sub-year maturities), re-purchase agreements, and longer-term bonds
    (both corporate and Treasury) with sub-year time-to-maturity.
    
    Also, I think your characterization of 20%/year inflation as an
    instance of hyper-inflation is incorrect. I don't know if NBER has a
    definition for hyper-inflation. If they do, I'll bet it's more along
    the lines of 4%/month or higher. 
    
    To your question: I don't think any instrument in the hyper-inflated
    currency would be a useful store of value. Other currencies (some
    Bosnians use deuschmarks), precious metals, and real assets would offer
    a superior defense, IMHO.

    OK...that seems understandable...your saying that the Taxable Money
    Market Funds would be longer term than say daily or weekly contracts
    and therefore wouldn't be as effective as holdings in say a stable
    foreign currancy (Swiss Francs, Yen perhaps, any others come to mind???) 
    or precious metals which would fluxuate daily based on the domestic 
    currency variations.
    
    Do you know of any Money Market funds that are shorter term and pegged
    to say the Fed's short term 'overnight' deposit rate???  That isn't to 
    say that the rate will necessarily be locked with the inflation rate, but 
    it might be a start.
    
    Also, what are your ideas in the area of growth and income???  Which
    industries or commodities would you focus on to try to outpace
    inflationary errosion???
    
    Doug
    
    

    The traditional investment if one fears Hyper-inflation I thought has
    always been gold.
    
    Something I found interesting to me:
    I read somewhere once that the "proper" value of good is equal to the
    price of one good men's suit.   The thing I read said that from 1790
    through the current day this has been true.   Although the price of gold 
    will move away from this benchmark, it eventually will move back to it.
    
    So since the price of suits will go up in hyper inflation, so will
    gold.  Of course, with my luck,  there will be a new discovery that
    will decrease the price of suits by 95%:-). 
    
    Wayne
    Note: I don't own any gold except in one tooth.

    
    There used to be a bond that you could by that was indexed to the CPI;
    that would be an obvious choice if it was still available.
    

	Inflation goes over the edge in Yugoslavia
	  Boston Globe   1/1/94  p.2
	     By Dusko Doder

Belgrade -  Yugoslavia ushered in the new year with a million 
percent monthly (yes, monthly) inlation rate that has plunged this 
once-prosperous heart of the Balkans into deep poverty and chaos.

The end of 1993 was also marked by the first signs of the kind of 
unrest that diplomats here fear could lead the government of 
President Slododan Milosevic to impose emergencny rule.

Strikes by coal miners, physicians, shopkeepers, railway engineers, 
bus drivers and power-plant works have sharply curtailed virtually all 
services.

The government has called on the military to provide essential transportation
services using army vehicles.

After compulsory power cuts, a last minute deal was worked out with the
striking coal miners to supply sufficient amounts of coal to a local power
plant so that Belgrade's 2 million residents could celebrate New Year's Eve.

The staggering inflation figures were made public this week by the government
Statistics Bureau.  It said the cost of living rose over 6 billion times in
the course of 1993.  Retail prices in December were 1,790 times higher than
those in the previous month, the bureau said.

Even these figures have only symbolic value.  They were based on the foreign
currency black market, the only one that matters here.

On Thursday, when the Statistics Bureau made the announcement, one US dollar
was fetching 3,000 billion Yogoslavia dinars, up from 1,100 billion on 
Wednesday.  Yesterday, however, $1 was worth more than 6,000 billion dinars.

Western diplomats contend that this tops the German Weimar Republic's
hyper-inflation in 1923 and that it is no longer possible to accurately
calculate the monthly rate.

"I know of no model for this, it has gone beyond calculation", one 
diplomat said.

To avoid the problems of the Weimar Republic, when Germans carried their 
wages in wheelbarrows, the Yugoslav government has issued large denominations.

The latest is a 500 billion dinar note, which together with the 50 billion 
note are the principal bills in circulation.  The problems is that shops and
kiosks are unable to give customers any change.

This, in turn, has created a different problem.  Since no cash registers can
handle totals running into thousands of billions, the government this week
decided to bring in new notes and chop off nine zeros from the existing ones.

In two previous such denominations earlier in 1993, another nine zeros had
been wiped out.

The country's monetary madness was criticized by senior financial specialists.
Vojislav Tomin, treasury chief at the Yugoslav National Bank, said the federal
mint is teh only firm in Yugoslavia that works around the clock.

"We will never get out of this pace unless the government adopts sharper 
measures to stem inflation," Tomic said.  He warned that printing presses are
overheated and the mint would not be able to keep going for a long time under
the existing conditions.

The government cntinues to blame the outside world for UN sanctions which have
constricted the economy of the rump Yugoslavia, which consists of Serbia and
Montenegro.  But the level of public discontent has risin visibly.

"The leaders are responsible for this chaos," said a Belgrade taxi driver who
only accepts Deutsche marks in payment.  "They keep saying that things are
going to get better, but they are only getting worse".

The effect has been devestating.  Life savings have been wiped out.  The
average monthly salary is 10 marks (about $7), or the price of 10 loaves
of bread.

A bottle of local rakija on New Year's Eve was selling for almost 100 marks.
One kilogram of chicken is 73 marks.  In the markets, distraught shoppers
buy fruit and vegetables by the piece.

As long as the UN sanctions remain in effect, the government can do little to
fight inflation according to independent economists.

  Well, i guess from the stories out of Yugoslavia, you could invest in
  Utilities.  With long term contracts in coal futures it would seem they 
  would be making significant money, at least from the outset of
  increasing inflation.  Everyone still needs electricity and running water.  

  How about Food Companies???  Still need to eat, and again pegged to 
  inflation and posed for short term profit based on long term futures
  contracts on wheat and other grains.  Mining stocks???  Taking advantage
  of higher precious metal prices.

  We could get into discussion about 'shorting' companies that would be hit 
  hard by rising inflation.  How about banks with lots of longterm low
  interest 30 year mortgages outstanding (Sounds like 1981 all over again). 

  Any other ideas???

  ==========================================================================
  i found this interesting...

  i was reading The Economist's 150th anniversary issue the other day.  In
  there they made prognostications of what the next 150 years might bring
  to the world.  Everything from culture and politics to entertainment and
  yes, finance.

  They had a piece in there called "The Challange of Global Money".  i found
  this one part very straight to the point;

    ECONOMIC POISON, ECONOMIC BALM

    When politicians and central bankers worry about the safety of the
    financial system, they are usually thinking of the threat posed by
    wayward or crooked banks.  They ought really to be thinking of
    themselves.  The biggest danger to financial stability is economic
    instability, and that is the child of bad fiscal and monetary policies. 
    In tomorrow's more integrated, more sensitive world, their capacity for
    harm will be even greater than they already are.

    The most dangerous type of economic instability is inflation,
    particularly when it is volatile itself.  Inflation muffles the signals
    from the price system, so that it is hard to tell whether a change in
    a particular price is reflecting relative scarcity or is merely part of
    the general rise in prices.  This leads to bad decisions by everybody,
    including lenders and borrowers of money.  And they are particularly
    affected because, in an inflationary world, the price they agree upon -
    the interest rate - is itself either reflecting loose monetary policy
    (and therefore contributing to inflation) or is the instrument being
    used to tighten it up.

    Even in a world of zero inflation, of course, interest rates will still
    change.  But most of the changes will affect only short rates, and they
    will change far less than they do when inflation is high and volatile. 
    Big changes in interest rates can cause big disruptions in the accounts
    of financial firms.  The prices of all securitized assets move sharply,
    lending conditions are affected, and so is the credit worthiness of
    borrowers.  Even if most of these changes were favourable (interest
    rates were falling), that is no comfort if next year then brings a
    lurch in the other direction.

    The more global that finance becomes, the more it will matter that the
    general economic backdrop is stable.  Exchange rates are likely to be
    less volatile if every country has a low and steady inflation rate. 
    Capital demands will be more predictable if governments reduce their
    debts and eschew big changes in their budgetary policies.  Even trade 
    policy will have a bearing on finance, because companies selling or
    setting up across borders will be more reliable borrowers if their
    trading system is open and governed by GATT style rules.

    You know, we humans are peculiar!!!! The answer is so obvious, we do
    not want to accept it. Golds (physicals, stocks, funds, commoditiy
    options, etc.) is THE answer.
    Back in Feb/March of 1993, I bought a lot of gold funds and stocks. My
    dearest friends called me stupid; other dearest friends gave me the DEC
    nod, but not one of them followed my investment into gold. 10 months
    later, I've realized anywhere from 40% to 90 % return. And you want to
    know something, they still think I'm stupid. IS this denial or what?
    They do not want to admit that the call was a great one.
    The reason I did the gold investments was because I believed that
    interest rates would creep up. The fact of the matter was that rates
    didn;t go up but simply the fear of going up along with a number of
    other factors made the price spike. 
    Now what happens when the rates go up, when the government masking of
    inflation gets unraveled, when the government masking of unemployment
    gets unraveled, when other economies falter further, and political and
    military unrest begins to flare up virtually anywhere in this unstable
    world. No, I'm not a pessimist or a gloom and doomer, I'd like to say 
    I've read a lot about history and macro-ecocycles, all the ingredients
    are there for a full fledged mess.
    Gold, for at least 12 reasons, I don;t have the time to list them, is
    THE answer. Expect Gold to go to $1,000/oz in the next 3 years. That
    will result in a 4-6 x growth factor of your investment..............
    yeah, I know, I'm stupid!   Marco

  Profiteering from commodities during hyperinflation...

  Excerpts from The Wall Street Journal By Thomas Kamm;

  "Brazil's deep seated problems have long been masked by the size and
  dynamics of it's economy.  Some say Brazil is hurtling towards hyper
  inflation, a social explosion or even a coup.  Since 1960, Brazilian
  prices have multiplied a staggering 22 BILLION times, according to
  economist Celso Martone.  Except for 1986, when a long price freeze
  limited inflation to a mere 65%, the annual rate in the past decade has
  never beeen under 211%.  The 1993 rate of 2,567% set a record.

  However many Brazilians have learned to tolerate and even like inflation.
  For some it brings big gains.  At Mr. Pih's flour-milling company, Moinho
  Pacifico SA, it turned an operating loss equivilent to $1.8 million into
  a $3.6 million profit in 1992. 

  How did he do it?  He buys flour abroad and has 180 days to pay for it. 
  But he mills the flour as soon as it is delivered and sells it for
  immediate payment.  He puts the money into financial instruments that pay
  two percentage points above inflation per month - the price banks have to
  pay to attack deposits.  "After six months, I've earned 12%," Mr. Pih
  says.  "So if I owe 100, I've made 112.  That 12 is profit that more than
  offsets my operating loss.  This generalized, makes business unwilling to
  attack inflation."

  The government too is "married to inflation," say Edmar Bacha, senior
  advisor at the finance Ministry.  It's revenue  - tax receipts - is
  indexed.  Income tax, paid monthly, isn't calculated in Brazil's
  currency, the cruzeiro real, but in a unit of account, the ufir, whose
  value rises in step with inflation.  But the government's expenditures
  are largely unindexed. so that the longer it waits to spend money on
  programs, the less it actually needs to spend.  The higher the inflation,
  the lower the defict.  "The government depends on hyper -inflation to
  balance it's accounts," Finance Minister Fernando Henrique Cardoso said
  recently - though he admits this can't go on much longer.

  The politicians haven't woken up, however.  "Every economic team that
  comes to power makes the same diagnosis: The state is bankrupt, we have
  to implement tax reform and we have to privatize.," says Francisco Gros,
  a former central bank president.  "But you can't convince politicians of
  the gravity of the situation."

  It is a problem of personal vs. collective interests.  In Brazil's
  pork-barrel politics, a good politician is one who brings public works
  and public sector jobs to his power base and votes for generous social
  measures.  "Congress is like a big town council," former Finance Minister
  da Norbrega says.  "They want money for a soccer field or a square.  They
  vote generous wage bills, sing the national anthem and then send the bill
  for it elsewhere.  But there's no where else for it to end up, but right
  out onto the street."

    

    Inflation Brazil style is another form of taxation, one that hits the
    lower classes the hardest. The rich are going to put their money in
    foreign currencies or inflation-indexed instruments. Those who live
    from paycheck to paycheck have no such luxury.
    
    Mr. Pih, the flour mill owner, is one day going to have a rude awakening.
    When Things Get Real Bad, the government will freeze his deposit at some 
    nominal rate below the true inflation rate thus giving him a (large)
    negative rate of return. He won't be able to pay his creditors because
    his deposit won't be yielding the return it currently yields. He'll
    lose his business as will many others, having nothing to carry him
    through the next coup. Unless he's socking away some gold or Swiss
    Francs today.
    
    The comments about pork-barrel politics sound hauntingly familiar.
    Not meaning to be vindictive, but Tip O'Neil was a real master at
    supplying local goodies at others' expense. I can see why some worry
    that this is America's future.
    
      John

Re:  making money on the float

It sounds to me like inflation has nothing to do with
it.  The guy gets an interest free loan that is worth
just as much to him whether the inflation is 0% or
10,000%.  Am I missing something?

    Well, understand that inflation is different than deflation (ie; rising
    interest rates rather than falling).  Right now in the US, we have 
    falling interest rates (or stagnant) but 3% inflation...so conceptually 
    it would be hard to hedge against inflation with currency or Money Market
    instruments (2.5% would break about even). 
    
    But when you have dramatically falling currency valuation with
    increasing inflation/interest rates (daily) then you can parlay the
    'daily' revaluation by working the 'real value' of money.  As the
    article points out, if your money is worth 12% more at the beginning of
    the month than at the end, as long as you can get 30-60 day payment
    options you can buy raw material with 12% less cash and sell them for
    12% more...it works, but for how long is a good question.
    
    Many companies here do this....they string out their accounts payables
    in a cash crunch to reduce the 'present value' of the cash used to pay
    them off...you may think that it's just a matter of not spending the
    money, but it's more a matter of collecting interest on that money
    while it's working for you rather than working for your suppliers.
    
    Doug  

Wall Street Journal - 26 Jan. 1994

BUDGET DEFICIT NARROWED IN DECEMBER DUE TO QUIRK

WASHINGTON - The federal government's budget deficit narrowed to $8.25
billion in December from $38.95 billion a year earlier, the treasury said,
mostly because of a calender quirk.

Social Security benefits for January 1993 were actually paid out in
December of 1992, widening that month's deficit and skewing the
year-ago figures.

Last month's deficit compared with a deficit of $38.38 billion in November.

For the first three months of the government's fiscal year, which began
Oct. 1, the deficit totaled $92.06 billion, compared with a year-earlier
$120.47 billion.

The Treasury said receipts totaled $125.42 billion last month, compared
with $113.68 billion a year earlier and $83.11 billion in the previous
month.  Outlays totaled 133.67 billion last month, compared with $152.63
billion a year earlier and $121.49 billion in November.

The government paid $52.71 billion in interest in December on the federal
debt. <DJY - 42% of Dec. income>

Outlays for the Resolution Trust Corp. totaled $2.47 billion last month. 
The RTC generated $1.17 billion in receipts in November through the sale of
assets of failed savings and loan associations.
    

    
    Can someone explain why stock markets around the world are falling at
    present, I know  they are worried about inflation and the FED's
    expected response, ie raising rates, but where is all the money going,
    selling stocks is fine but were not getting rising Gold prices (yet)
    and I'd have thought that holding stocks would be preferable than cash
    if inflation gets going. Will we see a rebound on the indices soon ?
    
    Garry
       

currency problems.  the US Dollar is falling against lots of
foriegn countries, which is causing problem at home and aboard.

>    expected response, ie raising rates, but where is all the money going,
    					      ^^^^^^^^^^^^^^^^^^^^^^^^^^^^
    
    Back in high school I had a similar question regarding the first Great
    Depression, where the DOW fell 89% between 1929 and 1932. Where DID all
    that money go?
    
    If the market falls 10% that doesn't mean 10% of the money invested in
    the market has been cashed out, somehow awaiting better opportunities.
    It just means buyers aren't as willing to buy as they were. And/or that
    sellers are more anxious to sell, therefore willing to accept less.
    This can all happen on extremely light volume, therefore need not
    represent any great fraction of the money invested in the market.
    
    Plus, lots of money is headed towards Asia. Lower rates of taxation
    and less government interference in the economy attracts investment
    capital because the return is expected to be much higher.
    
      John

     
    If the money is heading towards Asia, it certainly isnt moving towards
    H Kong,China or the other Asean stock markets, with the exception of
    Japan, most SE Asia indices are way down on January of this year.
    Actually rather than meaning where is the money 'going' I meant where is
    the 'smart' money going. 
    
    Garry.  

>    expected response, ie raising rates, but where is all the money going,
					      ^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Where does happiness go when you're sad?

Where do red and yellow go when you mix them to get orange?

Where does productivity go when it goes "down"?

-steve-

    Interesting scenerio...could the dollor settle below 100 yen when this
    is over???  i heard on CNBC that the fact that Germany has raised it's
    long term rates is putting pressure on the Federal Reserve here to
    match them...
    
    It represents the fact that there are many faces of inflation that
    people must take into account.  We haven't really been seeing a push in
    commodity prices, because overall industrial output and demand has been
    growing at a weak pace.  But we are beginning to see inflationary
    pressure on monetary instruments.  In other words, there are alot of
    people out there vying for your money (Mutual Funds, Bond Markets,
    International Funds, Banks, Governments).                    
    
    The US Government has been promoting the fact that the deficit has gone
    down over the last year or so, but it's really been because of lower
    interest rates.  Investors are beginning to wise up to the fact that
    the government can only depress interest rates just so far before the
    money flows to higher interest bearing instruments overseas.  Germany
    is trying to cover it's reunification.  Then you have the Asian markets
    need for capital to expand....
    
    My take on it is that if the US dollar settles in the 90 yen range
    you'll see gold gradually work its way up above $400/oz...settleing in
    the 415-425 range...also, get ready for the long bond to make a run at
    9%...when the rest of the world comes fully out of this recession,
    we're going to have to raise rates to attract investment from
    overseas...
    
    This may be the beginning of the 'restructuring' of 1995-97, so be
    cautious... 
    
    As always the IMHO moniker applies,
            				Dugo
    
            
    
    

    re .19
    
    Central Banks do not raise or lower their LONG term interest rates. 
    Markets do.
    So Germany did not raise its long term interest rates. The Buba has
    been slowly but significantly been reducing its SHORT term interest rates.
    However, German long-term bund yields have risen sharply due to high money
    supply (although this month showed slower growth) and due to sympathy
    with the US bond market correction.
    
    All in all German long term bunds are way oversold and represent solid
    value, if you can hedge the currency given recent strength of the Mark.
    
    Phil

    Good point Phil...it should have read Fed Fund Rates (or German
    equivilent)...CNBC was pointing out this morning that there is little
    incentive for anybody other than the Japanese to step in and prop up
    the dollar...it will be interesting to see what Greenspan has to say
    today before the Finance Commitee...
    
    As long as the dollar doesn't fall too dramatically against European
    currancies the economy shouldn't suffer too significantly...the reasoning 
    being that if world wide the dollar is down, the high cost of foreign 
    materials could kick in inflationary pressures here on commodity items...
    but the Japanese are definitly feeling it right now from the export
    side.
     
    Gold was up to 393 yesterday at the close but is falling back...
    
    Dugo

                 Copyright 1996 The New York Times Company
                                                      

        April 26, 1996


        Grain Prices Soaring as Supplies Dwindle



        By BARNABY J. FEDER 

           CHICAGO -- As the nation's farmers head into their
           fields for spring planting, economists are paying more
        attention than usual to how the work is going. 

        Bad weather, dwindling stocks of grain and strong demand
        at home and abroad have sent corn and wheat to record high
        prices this month. And while the ultimate impact of the
        spike -- on consumers and the broader economy --
        depends on such unknowns as the coming season's
        weather, the price instability has spawned anxious talk of
        inflation from the Farm Belt to Wall Street. 

        Already, many economists are saying it is likely that food
        inflation rates, which have hovered between 2 and 3 percent
        in recent years, will double by next year as the impact of
        current prices filters through the food pipeline. 

        Should that happen, the average family with children, which
        by government estimates spends approximately $6,500 a
        year on food, could end up spending $400 more next year. 

        Economists say that a repeat of last year's experience --
        when planting was delayed, summer heat disrupted corn
        pollination and an early frost crimped yields -- could drive
        those costs still higher, sending food inflation over 10
        percent, a level last seen in the 1970s. 

        For now, the real impact is on agriculture itself. Many
        farmers are scrambling to cash in on the price increases by
        planting more acreage, while cattle producers are starting to
        kill off cows they can no longer afford to feed with
        expensive grain. 

        But what has economists and the financial markets edgy as
        they look ahead is that food prices are not the only ones
        going up this spring. 

        Heavy demand has also driven energy prices upward, to
        their highest level since the Gulf War. 

        Many bond traders, in particular, have already decided that
        broader inflation and higher interest rates are on the way,
        judging from how bond prices tumbled in recent weeks. 

        "Commodity prices are clearly spooking the bond market,"
        said David Wyss, director of research at DRI/McGraw-Hill,
        an economic forecasting service in Lexington, Mass. 

        Most economists say that Wall Street has been overly
        anxious about inflation's return. Price shocks to the
        agricultural sector are certainly nothing new, and energy
        prices move in a volatile manner, both up and down. 

        "It is a temporary distortion as things stand now," said
        Diane Swonk, deputy chief economist at First Chicago NBD
        Corp. 

        Indeed, futures prices indicate the market is expecting some
        balance to be restored. While corn prices for delivery next
        month hit a high Thursday of $4.99 a bushel, traders are
        willing to bid only $3.35 a bushel for corn from next fall's
        harvest. 

        One reason for optimism: farmers are projected to plant 79.9
        million acres of corn this year by the Agriculture
        Department and as much as 84 million acres by some
        private forecasters, up from 71 million acres last year. 

        But analysts say the risk is real that inflation could be
        uncorked, as much by market psychology as by supply and
        demand. 

        David Hale, chief economist for Zurich Kemper
        Investments Inc., warned in his most recent economic
        survey that the commodity price increases posed a serious
        challenge to the economic policy makers of the Federal
        Reserve Board. 

        The Fed, he said, must "pursue a policy which prevents
        higher food prices from encouraging a general acceleration
        of inflation expectations, which influences wage
        bargaining." 

        Hale said that a combination of low grain reserves and
        depressed output could cause food prices to rise by 8 to 10
        percent during 1997. 

        Normally, grain demand falls relatively quickly as prices
        climb. This time around, though, all of the world's major
        grain purchasers kept buying long after economists
        expected them to curb spending. 

        In part, that reflects the rise in agriculture of deep-pocketed
        enterprises that have the means to ride out increases in feed
        prices. And unlike the situation in the 1970s, when the
        Soviet Union bought huge amounts of grain on credit,
        China and other importers are flush with dollars to pay for
        American grain and meat. 

        "What's different is that this is a demand-driven market,"
        said Terry Francl, chief economist for the American Farm
        Bureau Federation, a trade group in Chicago representing
        more than four million farmers. 

        Consumers are likely to get mixed signals for many months
        about what the low stocks and high grain prices mean to
        them. 

        The single biggest user of grain is the cattle business. Once
        it starts killing large numbers of cows, the price of
        hamburger and other lower-grade meats could fall for many
        months if retailers pass through the savings. Savings may
        also show up in the form of larger portions for the same
        price, as McDonald's is reported to be considering. 

        Low beef prices will force pork and poultry producers to
        keep their prices low to compete. The savings at the meat
        counter may well offset the nickel-to-dime price increases
        for pasta, bread and other grain products already making
        their way into some markets. 

        Eventually, though, there will be less meat around than
        consumers want, and prices for meat products could rise
        sharply, economists say. 

        "We are headed for a shock to consumers," said Paul
        Prentice, president of Farm Sector Economics Inc., a
        Colorado Springs consulting firm. 

        For the time being, it is the agribusiness sector that is
        reacting to the shocks of corn's near doubling from $2.50 a
        year ago, wheat's climb from an average of $4.35 last year
        to about $7, the climb in soybeans from an average of $6.80
        to more than $8.20 and the upward pull of those crops on
        most others. 

        Farmers stand to profit, but face many tough decisions:
        Should they rip out winter wheat decimated by drought and
        disease to free up more land for spring planting or harvest
        what's left of the wheat in June? How much of this year's
        corn and soybean crops should they sell in advance? (The
        biggest winners in this year's price surge were the few
        gamblers and procrastinators who held on to most of their
        1995 crop long after others sold.) 

        One wild card is the new farm bill, which allows farmers to
        get government payments without placing any restriction on
        what they grow. It gives farmers more flexibility but not
        necessarily easier choices. 

        "I've changed my plans about what I'll plant several times
        since the beginning of the month and I'm not done yet,"
        said Noel Kjesboe, a Wendell, Minn., farmer who usually
        grows wheat, corn, soybeans and barley. 

        The giants of agribusiness are also among those feeling
        pinched. Profits are plunging at grain processors like Cargill
        and Archer-Daniels-Midland, which recently shut down
        some of its ethanol production. 

        Tyson Foods and other chicken producers have cut back
        broiler production for the first time since the 1970s to
        reduce their need for corn. Interstate Bakeries and its rivals
        are scrambling to minimize the production losses from
        dealing with poorer quality wheat they would normally not
        buy if supplies were more plentiful. 

        As in the past, the brunt of the grain squeeze is destined to
        fall on animal producers, especially the cattle industry. 

        Normally, cattle producers can avoid high corn prices by
        switching to more use of wheat, hay or grass in pastures.
        But wheat is expensive and in short supply, dragging up
        prices for other forage crops. And the pastures of the
        Southwest and Great Plains have withered under some of
        the driest conditions in a century. 

        To make matters worse, the grain prices are rising when the
        beef cattle herd of 35.3 million animals is too large for the
        market. That holds down prices packers are willing to pay at
        feedlots, which are losing an average of nearly $1 a day on
        every cow they fatten at current grain prices. 

        "A feedlot can't afford to tell a packer, 'I don't like your
        price so I'll wait until next week,' " said Mike Fitzgerald, a
        spokesman for the Nebraska Cattlemen's Association. 

        The feedlots have responded by driving down the prices they
        pay for young animals to around 55 cents a pound. At that
        price, only 20 percent of ranchers that raise calves can eke
        out even a slim profit, according to Charles Lambert,
        economist at the National Cattlemen's Beef Association.
        Many have begun to sell breeding cows to raise cash. 

        By some estimates, the nation's cattle herd could drop by
        two million this year. The selloff is expected to be especially
        sharp if this summer's weather is not wet enough to restore
        pasture land and produce bumper grain crops. 

        "There's no room for another bad grain crop," said Paul
        McAuliffe, senior commodity analyst here for the North
        American Grain division of Continental Grain Co., a leading
        feed and livestock producer. 

        Old-timers note that current prices look modest when
        inflation is taken into account. Corn soared to $18 a bushel
        in 1947 and was at $12 a bushel in 1974 if prices are
        adjusted to today's dollars. 

        Farmers are so much more productive now, though, that
        economists say such peaks are hard to imagine without a
        worldwide weather disaster. 


                 Copyright 1996 The New York Times Company