Like A Trap Door Opening: Following Our Commodities All The Way Down

After any major market move, I like to say “everybody is a smart guy now.”  With major commodities in price free fall over the last few weeks, its like everybody’s coming out of the woodwork to say, I told you so.  The next thing we’ll hear is oil going back to $30/barrel.

Getting sideswiped in this commodity meltdown is our Canadian loonie.  The loonie got down as far as  93.69 cents US last August 8th, which is a whole 16.41 cents, less than it was last November 7th.  It is like the sky is falling.  What once was very bad for the Canadian manufacturing and agricultural sector is now getting better.  With our currency slipping, it’s a great tonic for those sectors of the Canadian economy.  The significance of our currency decline should not be ignored.

When you think about these things you have to be careful, because there is a certain amount of hype to being caught up “in the market.”  The difference is as farmers, we love our commodities, almost to the extent where we have an emotional attachment to them.  It’s hard for our non-farm friends to understand.  However, there is an emotional attachment to the land and what it produces.  Call me crazy.

However, there is one thing that I know.  The price of commodities represents the value, which they move at whether it is oil, gold, soybeans, corn or pork bellies.  The difference over the last two years has been the degree in which mutual funds; hedge funds, index funds and the resident corporate dogcatchers have had their positions within the commodity markets.  Simply put, when they turn and head in one direction, its like a trap door has opened up and everybody falls.  There is no emotional attachment to that.

Yes, the cold hard truth can be harsh.  One recipient of some added strength has been the US greenback.  It was only a few short weeks ago I wrote about the weakness in the greenback.  It’s still weak historically, but on closer reflection it’s up 6% since earlier this year.  So when you add 6% to the world’s default currency, its like everybody except the Americans just got a price increase.

Going forward I’m at a loss of where the commodity complex is going.  The smart money has always been China and India driving this commodity boom.  However, while this was happening the whole world has “geared up” to meet that challenge raising production levels in places like Brazil, Eastern Europe and Russia.  So measuring how the commodity boom and the recent commodity meltdown will affect us becomes very difficult.

Nevertheless, for the 55,200 Canadian who lost there jobs last month, it gives them no solace.  And surely there were many others in farm country that still held some old crop from 2007 through this slide down.  When it happens to you, its like the trap door opens and you just keep falling.  However, we hang onto those beans, like they are our first crush.    I’m sure others pretend it never happened.  After last week’s USDA report, with a limit up move in grains to boot, we’re now headed toward harvest.  That’s a very good thing, because another few months of this wouldn’t be for the feint of heart