The achingly slow dance of death of Greece’s finances has sucked the confidence out of the world’s stock markets and caused a lot of economic angst.
Here’s what the S and P index has done for the past two months:
It’s been so awful watching the Eurozone coming apart, and the dissimulations of Europe’s politicians, that even the bullish fundamentals of the crop markets have been dragged down.
Look at what’s happened to November canola futures:
Even corn, which has seen production estimates cut in recent weeks, has dropped a bunch.
So that’s where the bull argument comes from, as provided to me yesterday by a U.S. broker. A lot of the bad news on Greece is already in the market. Crop futures have fallen in sympathy, despite the fact that crop fundamentals if anything have gotten more bullish.
Europe is not key to corn and crop demand, and even with a default, food consumption probably won’t decline that much, if at all. Consumption in the U.S. is unlikely to decline much. Only if Asia – where all the demand growth for crops is coming from – chokes on Europe’s bile and its booming demand drops will crop prices become fundamentally undermined.
Since that hasn’t happened, and might not happen, crop prices might be undervalued right now. Can you justify a dollar per bushel drop in corn futures in the last two months? That’s the question smarter analysts than me will have to ponder. With low stocks the market needs to ration demand. You generally don’t do that by making prices a lot lower. If anything, cheaper prices will encourage more consumption, and make the fundamental situation even more bullish.
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In the recent slide of crop futures the markets were moving relatively closely together, yet the equity and crop fundamental stories are in fact going in opposite directions.
So something’s gotta give somewhere, and hopefully it’ll be the downward pressure on crop prices giving and the bull market resuming.
