Markets love a story.
There’s always a story in the markets, making the otherwise dull and arcane task of endlessly looking at numbers and charts mean something bigger, something more tangible.
So traders, analysts and professional yackers like me look around to find stories in the markets to explain their cruel and kind ways. There are the stories that try to answer where prices are today. Those are the less interesting stories for everyone, because everyone wants to look forwards, not backwards, to see where prices are going. So the story of How Prices Got to Where They Are Today is a bit of a snorer.
But the future-looking stories are the ones that get everyone yacking, speculating, writing stories and believing stories.
It makes for better financial chatter and more interesting financial journalism, but unfortunately some of the stories turn out to be just that: stories that, like bedtime stories, lull us to sleep. When morning comes those stories evaporate like the morning due under the sun’s light. I should explain at this point that when I say “stories” I really mean “informal theories,” because that’s what they are. It’s just that those in the trading professions refer to these things as stories.
Two stories that got a lot of talk in the ag markets in the past three months – and which kept prices higher than they would normally have been – have quietly drifted away and are now mostly forgotten, as the market forgets all its defunct stories. Without those stories, the market’s had little reason to not go down. One I’ve written about here a lot: the frost story. People, including me, have been talking about the frost risk and the ability of an early or even normal-dated frost to devastate North America’s crops. This would likely lead to a big rally in the markets and – if you weren’t the guy who got the frost damage – make the crop price situation a whole bunch nicer. As the summer crawled on cooly and slowly, this story became the big story and gave the market some reason to hold itself up. Then the record warmth of September day-after-day ripped pages out of that storybook and by the beginning of October it’s more like a paragraph than a book. There’s little of that story left to believe in, so we all just forget about it.
The other story that’s gone away in a big-timey way – to the pain of the canola market – is the story that said extremely short 2008-09 soybean stocks could lead to a massive rally in soybean prices in the gap between running short of supply in late summer 2009 and the new crop coming in during the early fall. I heard this talked about again and again and again, but demand slackened a bit and stocks increased a bit and buyers have gotten through to the new crop without having to bid prices to the moon. That’s sad, for growers anyway.
So we’ll just forget those frost and soybean squeeze stories and jump onto the next exciting story, hoping it does a better job of taking us to happyland. No one’s doing anything wrong by talking up these stories, searching for them, always looking for a way to look at the present and extrapolate its conditions and trends into the future. If you don’t try to understand today’s reality in terms of where things are going, you’re not doing much to prepare yourself for the future that you’re all too soon going to be living in. You do the best with what you’ve got.
But the constant failure of most forward-looking markets stories makes it pretty clear why children’s stories are always set a long time ago, in a place far, far away. Those stories are going to be good today, tomorrow, six months from now and six centuries from now. And with that, let us tuck ourselves in and put ourselves to sleep until there’s a cheery story about prices getting better to wake everyone up.