Joe Victor assumed corn and cereal prices would fall when flu panics hit.
After all, the Allendale Inc. analyst figured, if consumers become worried and traders, commercial buyers and sellers of meat and feedgrains rush to dump those commodities before prices fell, the tumble would become a self-fulfilling prophecy.
To test his assumptions, Victor looked back at how the world’s grain markets reacted to news of avian flu outbreaks.
“It was a surprise. I was flabbergasted,” Victor said.
Crop prices appeared unaffected by meat panics.
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“My initial, common sense thinking was that it couldn’t have been good for the corn market. It was absolutely the opposite. The only time we saw a massive selloff is when Vietnam announced that for the first time in years they had no reported cases of bird flu.”
Victor looked at corn prices in periods when big avian flu news hit the markets, including 1997, 1998 and 2003-07. There was no discernible impact of avian flu on corn prices. If anything, prices rose.
For instance, in 1997 after six deaths were reported in Hong Kong in December, corn prices rose by two percent in the next two months. In 2003, another Hong Kong death was followed by a two percent decline over two months.
In 2004-05, a death in Vietnam was followed by a 50 percent increase in corn prices. In later 2005, rumours of deaths in China were followed by a corn market rally of seven percent.
In 2006 prices rose 15 percent after a number of deaths were reported in China. Then in 2007, after Vietnam announced it had found no cases of avian influenza, the corn market plunged 67 percent.
Victor doesn’t attribute the price increases to avian flu, but he thinks this price reaction shows that while meat prices can be hammered by animal-human sickness panics, that influence doesn’t appear to reach into crop markets.
That means farmers and other crop sellers and buyers probably don’t need to panic about the outbreak of H1N1.
“I really don’t see that much damage to the corn futures prices,” Victor said. “Our message to our clients was don’t go into a panic and rush into forward contract sales just because of this.”
