Western Producer reporter Ed White is talking to the world’s top market analysts and bringing a wide range of philosophies and insights into the current financial crisis. In this series, the analysts discuss what happened to predictions about the world being in a long-term bull market for commodities and whether the financial crisis changes the long-term outlook for commodities farmers produce. This is the third in the series.
Since 1986, Akron, Ohio-born Dennis Gartman has been writing The Gartman Letter, one of the most-read market newsletters in the world. Before that, he was an economist and investing strategist focusing on the U.S. cotton industry, foreign exchange and money market instruments.
Read Also
Green lentil market oversupplied
Farmers in Western Canada can expect price pressure on their new crop of green lentils, as the available supplies among the world’s major lentil-growing nations increase significantly.
The Gartman Letter is a daily commentary about many markets, including grain markets. It is considered essential reading within many resource-based and grain trading companies.
Q: I never expected to live through a market collapse like this. What does it seem like to someone like you, who has been intimately involved with the markets for decades?
A: I’ve been at this since the early 1970s and I can tell you quite honestly I have never seen anything like this. In 1987, you had a five day meltdown. It was quickly resolved. In the Russian, emerging markets, long-term capital fiasco (of 1998), it was just concentrated here in the United States and a few hedge funds in London. In 1982, it was a slow, laborious global bear market, but it wasn’t a fracturing of the banking system or a fracturing of the debt market at the same time.
In the really overt recession of 1972-74, the world went into what was really the greatest economic depression since World War Two, and the equity markets in the industrialized world just slowly went down and ground everyone to tears, but at the same time you had wild, strong commodity prices.
This is unlike anything I’ve ever seen. The volatility on top of anything just makes it that much more disconcerting.
Q: How do you get a sense of direction from markets like these?
A: Flip a coin? Put your money on 21 red? That’s really where you’re at right now.
Q: Over the past few years there has been a lot of talk about the possible existence of a long-term bull market in commodities. What do you think about that idea and whether it still applies?
A: The argument worked for five years; the argument may work again. But right now the whole world is deflating. I think that deflation, that deleveraging, that collapsing of economic activity and capital market activity and the shedding of prices will probably continue. Has the multi-year bull market in commodities ended? Well, every trend line I can see has broken. All the broadest moving averages are all turning down. Anybody who still believes in it has been hurt badly.
Q: What about the argument that Chinese economic growth will be able to power the world through this crisis and provide a fundamental basis for a commodity rebound?
A: Is China going to continue to grow? Of course. Will we use more corn two years from now than we do today? Almost certainly. Will we use more crude oil in two years than we do today? Almost certainly. Is Chinese growth going to go back to 12 or 15 percent from its current nine percent? Almost certainly. Are prices going to deteriorate between now and six months from now? Almost certainly.
Q: Ag commodities often seem like odd ducks among the overall flock of commodities, flapping off in their own directions sometimes. Are we likely to see them continue the recent trend of being locked to the other commodities, or will they break free to follow their own course?
A: There was a wonderful demand-driven commodity bull market. In demand-driven commodity bull markets, all correlations go to one. That is, copper prices go up, wheat prices go up, gold prices go up, cotton prices go up. In the kind of demand-driven circumstances that began about two years ago and ending in July of this year, everything went higher. They all did it together and it didn’t matter what the fundamentals of the particular commodity or crop was. They were all going up.
Now they are basically all going down.
Q: What do you think of the argument that crop demand will remain strong because people need to eat. I’m sure you’ve heard that line.
A: I’ve heard that for 35 years. And you know what? It’s one of the things you can count on. People have to eat. The question is how much will they be taking off the market to put into storage? That’s the big question. That’s the marginal demand (that can create or kill bull markets). The real question is how many new refrigerators will there be in China …. People are going to put food in their fridges when they get them. The question is: how many more fridges are going to be sold and how full are they going to fill them? Will people continue to fill their fridges when the price of everything keeps coming down and you’re rewarded for not storing food?
Q: In terms of market history,is there any period that is analogous to the present?
A: The only one that comes close is (the long depression of the 1870s). There was a real panic that lasted for almost seven years. It was a real implosion of economic activity, after a sustained period of time in which there were emerging markets around the world, not the least of which was the United States. Banking imploded. Lending imploded. A vibrant economy went into a moribund state for six years.
What did commodity prices do then? They fell.
