It is a wonder that when it comes to grain markets anyone has a good idea about what they will be tomorrow morning, let alone months before seeding, and farther still from the next harvest.
The most recent report from AgAdvance.com popped into my email box the other day, and the lead article was on grain markets.
The article begins; “The markets continued to move lower as funds continued to liquidate their long positions, while reports of good South American crops, a bearish IGC report, and Chinese cancellations of US soybean purchases also served to pressure prices. In recent weeks index funds and large speculators have sold over 30 myn tonnes of futures.
Adding to the bearish picture is producer selling, and financial market disarray is making the economic outlook difficult to forecast. There was an election in Greece this weekend, which depending upon who wins could put additional pressure on EU markets.”
That is only two short paragraphs but it encapsulates a lot of the pressures grain markets face which have nothing to do with crop choice, yields and weather impact, which are the market indicators producers probably best understand.
Today markets are impacted by where big money funds choose to park their money for the best return.
Then there is the impact the overall economic situation.
In Canada a down turn in crude oil, itself impacted by non-market driven influences, has pushed our dollar down against its American counterpart.
This in itself is one of those market factors which as a layman I have a difficult time fathoming.
Granted in the short term low crude oil prices have an impact in Canada, something we will likely see firsthand here in a few weeks when the Saskatchewan government brings down its budget and has to deal with the short fall in revenues caused by the oil drop.
But oil prices will bounce higher again. There might be uncertainty in terms of when, but higher prices are inevitable.
The United States on the other hand is now in debt to the point it will never dig itself out. When you factor in federal, state and municipal debt the load per person is beyond the population’s ability to dig out from under, and reality suggests there is little appetite to even curb spending in a meaningful way.
How the world deems the American dollar as the one to measure against, and does so with little apparent concern over the debt load they have, is confusing at best.
Of course understanding the impact of oil is a tough one. It might seem obvious that low oil could help spur an economy based on lower energy costs, but at present the juggernaut which has been the Chinese economy is slowing to a crawl. It has been the engine to keep the world economy growing, and if it stalls for any length of time, the drag will be noticed worldwide. Of course the sheer population size in China means the economy will ultimately tune back up again, if not to some of the monstrous growth seen the last decade.
And then there is the realm of politics. It always has its fingerprints on markets, including the current oil down turn.
Most people will be aware of worries in several European countries regarding debt, unemployment, and the all too real threat of economic collapse. The United States might be buffered from that because of sheer debt size, and its substantial political influence backed by military might, but countries such as Greece, Spain, Portugual and others are not afforded that luxury.
