It can get pretty ugly when relationships break down, but one that appears to be falling apart right now could give farmers a chance to celebrate in the future, even if it’s providing heartbreak in the present.
Here on Tuesday morning agricultural commodities are not enjoying the same explosive rally that world stock markets, including the TSX, have been enjoying for the past two days, seeming to stay near the bottom reached a few days ago as world stock markets crashed.
That isn’t great, because farmers want to see higher prices right now for the commodities they produce. But since the early July peak of the commodity markets and ag commodity prices, crop prices have been chained to equities and sucked down along with them. Until July commodities had been going the other direction – up while stocks went down – but in the recent collapsing of the stock market commodities reversed course and followed the plummet.
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Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
Since last week there have been some signs that the chains might have been broken, with a couple of days of commodities prices rising while stocks continued to fall. But Friday ag futures prices collapsed again, at the same time as the equity markets plunged. It was unclear whether that was caused by the plunge in equities, or bearish USDA news. Or a bit of both.
But on Monday and half of Tuesday so far, ag commodities don’t seem to be following equities any longer. The explosive gain in world’s stock markets Monday and on Tuesday in Canada hasn’t been copied by wheat, canola, oats, corn or soybeans. For farmers, that may be good in the long run, because lots of analysts have been noting that the world may have slightly bigger food stocks than last year, but stocks that are still very low compared to most of the past couple of decades. On the fundamentals, there are lots of reasons for crop prices to go higher over the fall and winter months.
In the past week a number of analysts have pointed out to me that “the fundamentals don’t matter right now.” The only thing that has mattered has been the collapse in equities. With that equity collapse ending, at least temporarily, ag commodities appear to be regaining their independence.
As this week goes on I’ll be watching that relationship closely.
