European Debt Meets the Fundamentals of Grain: What Matters Anymore?

Fundamentals of GrainIt has been quite a day.  Tonight as I write this Asian markets are down on news that we had the largest drop in the Dow Jones this year at -376.36 points.  It would seem that the European flu is spreading with many analysts thinking that the American economy cannot withstand the possible sovereign debt meltdown in Europe.

I did not have a birds eye view of this as this happened to be the day that I started planting soybeans.  I took delivery of a bigger seed drill this spring, more capacity, more speed, the whole 9 yards.  So it took me a couple hours to get everything adjusted the way I wanted and in between I was finding out about economic jitters in Europe.

I keep abreast of these things on the farm through a satellite radio.  I’ve always been a big fan of the radio while driving a tractor.  The problem is sometimes the maintenance to keep radios going in older tractors is prohibitive.  So a few years ago I came up with the idea of a portable satellite radio combined with noise canceling headphones.  Needless to say if you want to keep abreast of things and don’t like listening to commercials, satellite radio is the way to go when you are driving a tractor.

If I am lucky I can hear whenever DTN analysts on CNBC or some other financial news radio network.  That doesn’t happen very often but it does happen.  When you are facing long hours in a tractor cab keeping abreast of the economic events around you can best be served in my opinion by one of those small satellite radios.

Today that radio was crackling with opinion of American economists as well as investment advisors trying to put some type of continuity to the European debt problem.  It would seem that our European friends are coming a bit unglued regarding “keeping everybody together “.  There is even some rumor tonight that the European Central Bank will heavily invest in the Euro overnight to strengthen it against other currencies.

From a Canadian perspective, these latest economic jitters are surely affecting the bottom line of many investments.  One caveat that has really been hit from the problems in Europe has been the Canadian dollar.   The dollar closed at 93.27 cents Thursday, which obviously will be a boom for Canadian grain prices.  However, just because the Canadian dollar is down to $.93 US does not necessarily mean that basis will change for Canadian grain.  It at least has to be sustained for a few days or weeks to make a difference.

What should be taken back from this is the fickle nature of our Canadian dollar.  At the end of the day when there were fears in the investment community around the world, nobody was running to put their money in the loonie.  Sure it was a sexy currency when times were good but when Europe was having its problems the US dollar filled the void.  I have said before publicly I do not know what will happen to the value of the Canadian dollar and I understand the argument about it going up.  However, we’ve lost about seven cents in three weeks and farmers should expect more volatility in the weeks to come.

One thing that I find quite intriguing in this current debate regarding some of the debt problems in Europe is the movement toward more regulation in financial markets.  For instance this past week Germany made a move to stop “naked short selling “.  The optics of that is simply fascinating but it’s not what you think.  Essentially, what some countries are worried about are financial products being bought and sold almost simultaneously by computers within our financial markets.  Some governments have moved on this because it’s like the fox and the chicken in the henhouse all cooperating financially together like it’s scripted.  There is even a movement among some European finance ministers for a bank tax to make sure bankers can be reeled in.

All of this crackles over my satellite radio every day and I’m trying to get my head around on it.  You might say agricultural markets are full of chicanery to.  So far we have been bystanders to the financial markets gyrations everyday.  At least that’s the way I feel.  At the end of the day somebody out there realizes we all have to eat.  The bad part though is much of this economic uncertainty is simply eating up agricultural demand which is so difficult to generate in the first place.

It would seem “on this side of the pond” we will be able to weather the storm regarding European markets.  As one large farmer told me last week we never used to have to think about all this stuff.  The fundamentals of grain were the fundamentals of grain and that’s what took up our time.  Now he said we have to think about all this including sovereign debt problems.  Of course I concurred.  Our marketing horizon is global in scope.  It’s like those grain fundamentals don’t matter anymore.  But, we all know they do.  It’s just much bigger than it used to be, figuring out exactly what’s going on.