Crop prices are shooting through the roof again and the world’s financial engine is alarmingly blowing valves and vomiting-out thick oil smoke.
I can’t get over how similar the feeling is to mid-2008, even though a lot of the elements are complete opposites.
Back in 2008 there was an overall commodity market rally into the summer, helping drive crop prices high, high, high. But this year commodity prices in general have been falling for months and the mood is the opposite of bullish for commodities. And while ’08 brought us great crop growing conditions that combined with an apocalyptic financial meltdown to kill prices in the second half of the year, this year conditions where it counts – the U.S. Midwest – are bad.
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Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
And in ’08 we were just seeing early signs of the financial breakdown that was to come, whereas now every day brings us more confirmation that the world financial system is in triage.
So is this 2008 all over again, or is there little to be learned from that time?
I’m just starting to think about that question, so have no answers yet, and really, when I do have some answers, will you listen to me anyway? Â Pondering’s always more worthwhile than pontificating, methinks.
Let’s look at some charts, just for fun and old time’s sake:
There’s a one-year of corn futures. Incredible lift-off there, thanks to the dry Midwest and dryness on the opposite side of the Northern Hemisphere. Boy, that’s a sharp rise. Everyone was bearish corn just a few weeks ago. There’s a little bit of a different mood today.
Soybeans have been sprightly too, after already rallying impressively this year.
That’s soybeans in black versus the CRB commodities index in green. The bullishness over the fundamental situation of soybeans has been enough for it to resist the downward pressure of the commodities selloff so far.
Canola’s been a little less exciting this week, but still poppy. We get the knock-on effects of the Midwest drought, but canola’s doing fine up here and there’s no reason to think we won’t get a boffo canola crop this year.
Nice year so far. May it continue.
Spring wheat futures have suffered from more chop this calendar year, but they’ve had a very nice June, almost entirely in sympathy with the crappy growing conditions in the U.S. Hard Red Winter Wheat area.
But spring wheat is such a pale reflection now of its incredible build-up and blow-off of 2008. Look at it here compared to the CRB:
Spring wheat isn’t going to lead the wheat markets this year, unless something very bad happens to specific spring wheat growing areas. That 2008 incredible spike in wheat prices occurred months after most other commodities had topped and begun dropping – including canola – so it shows the independent life crop commodities can have when allowed to run.
In the bull market run-up to the 2008 peak, there was a lot of talk of “linkage” as all commodities appeared to be linked, following closely the progress of each other. That stayed true throughout the collapse, in which everything sold off together.
Right now there are no signs of linkage between the ags and the rest of the commodity family. Here’s canola versus the CRB:
Since the beginning of 2012 canola and outside commodities have gone opposite directions.
How’s this crop market rally going to turn out? That’s up to 1) the weather; and 2) whether the world’s financial structure implodes again, which appears likely.
This is going to be an interesting one to watch . . .
And I hope the second half of 2008 doesn’t recur.
