Grain and oilseed futures rallied last week and by the close were about 10 percent higher than their 2009 lows set in early March.
Two forces were behind the rally: the U.S. Department of Agriculture’s seeding report that forecast soybean acreage lower than the trade’s expectation, and a rally in stocks and oil based on thoughts that governments are starting to put in place policies and spending programs to revive the world economy.
However, weather and markets will continue to affect seeding plans right up to when the planters roll. Perceptions of how well governments are managing the recession change almost daily.
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Markets turned lower early this week and I believe investors’ confidence will balloon and deflate several more times until sustainable growth returns.
For now, too many people are being laid off. The United States lost another 660,000 jobs last month, pushing the jobless rate to a 25 year high. The U.S. auto industry’s problems are not yet resolved and it will likely have to undergo severe downsizing.
Government stimulus packages are taking a long time to be implemented.
Oil demand is weak. Total U.S. daily fuel demand averaged over the past four weeks reached the lowest since October, the U.S. Energy Department said April 1.
Last week, some ministers with the Organization of Petroleum Exporting Countries said they are not trying to push oil prices substantially higher and that $50 per barrel is a “pragmatic” price given the weak state of the world economy.
The economic slowdown is hammering trade.
Japan’s overseas sales plunged a record 49.4 percent in February from a year earlier and China’s shipments tumbled 25.7 percent in the same month. India’s merchandise shipments dropped 21.7 percent.
The Baltic Dry Index, which tracks the cost of ocean freight and is an indicator of world economic activity, has retreated after bouncing off lows reached late last year. In early March it reached 2,298 but had fallen to 1,506 by April 3.
The BDI rally earlier this year was linked to a flurry of iron ore demand from China, but that has subsided and steel inventories in the Asian giant have climbed to a record high.
So while presidents and prime ministers might talk a lot about new moves to stimulate the economy, the hard numbers that actually measure the economy don’t yet show a turnaround.
But this won’t go on forever and there are already glimmers of recovery, raising hopes for the second half of this year.
Perhaps the best example is a measure of China’s economy.
The China Federation of Logistics and Purchasing index climbed to 52.4 in March from 49 in February. It was the first time in six months it exceeded 50, the point that signals expansion.
