So what’s really behind the recent rally in crop prices? And what does that mean anyway?
That’s what I’m wondering looking at the overall commodity complex rally and the coincident crop market rally.
So often we get so deeply immersed in our little agricultural commodities that we don’t look further afield to see what’s happening in the bigger commodity world. Because of that we often attribute almost everything in the ag markets to specific ag market supply and demand issues, and exaggerate the impact of ag-related “news,” or throw up our hands and exclaim “It’s the funds!” whenever our expectations aren’t met.
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But as we saw in 2007-08-09, and as gurus such as Jim Rogers prophesied as far back as the late 1990s, the world’s commodities all tend to move in the same overall direction, even if sometimes they don’t do it in lockstep. That certainly happened with ag commodities last decade, with the ags failing to catch up with the commodity rally for years, but then joining with a vengeance and leading the commodities world into late 2008, when they joined the other commodities in That Great Deflation Of Values.
As those poor souls who follow this blog know, I’m obsessed with the question of whether we’re re-living inflationary times like the 1970s (good for farmers) or deflationary times like the 1930s (bad for agriculture). I’m still on the fence about this question, a year later than I expected to be able to settle it in my own mind.
But our present crop market rally (I’m talking about the past few months, not the past few days) is coinciding with a general commodities rally, and I’m wondering if our ag rally is just part of that, and therefore dependent on the overall world situation, or is independently driven, and therefore has got firmer ag-related legs underneath it. And I’m wondering if this recent commodities rally is following the pattern of the 1970s, in which a huge spike is followed by a series of smaller spikes from a new higher baseline, or has a few corrections on the pathway to hell, like in the 1930s.
So let’s look at some charts, shall we?
How about corn and gold?
Notice any semi-sort of-similarity there?
How about with soybeans and oats? Totally different S and Ds there:
Obviously oats has a sharper curve upwards, but they’re both going the same general direction.
How about corn and copper? Not much similarity there in terms of industrial use. They shouldn’t move in too much synchronicity:
Well, golly. They’re all going the same sorta way. What do you make of that?
Let’s look at two commodity indexes, the Rogers recently, and the CRB back for a few years:
I used the CRB in monthly mode to bring us back to what happened in 2008. We haven’t gone anywhere near that yet. And if this is like the 1970s, we won’t. But we’ll get a good chance to cash out nicely. And if this is like the 1930s, we absolutely won’t. But it looks to me like we’ve got a general commodities rally occurring again, and how long and how far the ags can ride it is anybody’s guess, but I think we’re all safe in hoping that the commodity complex keeps rising and rising and rising to make up for this rotten harvest. Maybe we’ll make up in per-bushel dollars what we lose in bushels-per-acre production.
