Well, it is one of those days. This afternoon the Dow Jones industrial average fell 512 points or 4.3% wiping out all the 2011 gains. It was the biggest percentage loss since February 10, 2009. As headwinds go in the outside markets this was a very small hurricane sending the grains into reverse as market players looked for a safe haven. Oil got whacked hard currently at approximately $86 only a week after it broke through the $100 mark. I guess this is what volatility is.
Getting whacked in the market is never any fun. The 24-hour news cycle is full of commentary tonight predicting the doom of the global economy. The one constant that we have in our agricultural markets is that they go up and down and today was a down day. It just so happens that once outside markets face a hurricane of a headwind, the nonfarm public wakes up. The crisis seems to be much worse than maybe it is.
It is a bit of a laboratory for the speculative impact on grain markets. For instance this past week the corn market had a limit up day as traders fell into a bit of panic over a US corn crop, which is increasingly seen as damaged by too much heat. This led to a limit up day on Tuesday, but only after several hours of trading when concern grew over damaging heat. So a retrenchment of that over the last couple of days is a bit surprising. It shows you how resilient the grains can be with such a headwind. There is real concern about the crop out there and even a Tsunami in the outside markets has its limits in grains.
Having said that, there’s no question that the health of the global economy is suspect. The Americans managed to cobble together a debt deal over the weekend, but their economic growth numbers are still anemic and the jobs numbers are even worse. President Obama, I have always felt sometimes does not give off the proper optics regarding the economy. However, maybe I should give him the benefit of the doubt. His day job sure beats mine.
The laboratory of speculative impact has to do with the money flows quickly leaving for his safe havens when the equities tank. For instance gold went to an all-time high of 1681 last week as money wanted to find a safe place. The same was true for the US greenback, which despite quantitative easing continues to strengthen any time there is even a hint of global economic calamity. So the grains get caught in the crossfire as speculative money flows out during these volatile times. With trading houses building close to exchanges, they are even shaving nanoseconds off the amount of time it takes to move the capital.
Meanwhile, according to some people the crop fries in the field. Of course nobody really knows that. With the August 11th report coming up next week traders will be very interested to see how the USDA handles both crop size and acreage changes. I was surprised to see Informa’s estimate of corn yield come in today at 168 bu/acre. That is a good 14 bushels more per acre than many private analysts have been talking about. It shows you just how difficult the 2011 crop may be to estimate. It may also be an affirmation that the only way we will know how good this crop size becomes will be when combines roll in the field.
In Canada we have missed much of the dome of doom, which was firmly ensconced on the Corn Belt. We had a very difficult time getting things planted in both Western Canada and eastern Canada and that surely will manifest itself in reduced yields this fall. Some corporate players are estimating the Ontario corn crop at about 135 to 140 bushels per acre. I think it is more like 125 bushels per acre. Add the latest problems in the global economy in the mix and it’s not so good.
If there is any hope, it’s that markets are cyclical and volatile and maybe this was just a bad day in the market. However, there is no question that outside markets are jittery over the lack of economic vitality in the US economy. With interest rates at all time lows and economic growth anemic, it begs the question what can be done? I mean if you can’t give money away to create jobs what can you do?
So grain markets will go ahead on this jittery path. Needless to say, if you want a bull market, you have to feed the bull every day. In this present market environment, it’s not going to happen. If we ever get the nonfarm economy humming again, that’ll be key. Maybe then the bulls can eat hay every day.