Christmas and New Year have given birth to this year’s weather market, and so far they’re giving farmers lots of reasons to hope for a big recovery in prices for 2009.
Since July, it hasn’t mattered what has been going on in the world of supply and demand of grains, because grain prices have been sucked into the sewer by the draining of the confidence in the world’s equity markets. As the stock markets have plunged, so too have grain prices. It hasn’t helped that the world has produced huge crops in the past year, and by some measures there are lots of big stockpiles around the world.
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But now that the equity markets seem to have calmed down, the crop markets have become twitchy again, and nothing makes the crop markets twitchier than weather problems. The recent rally, which doesn’t just seem to be a blip, appears to be due to fears about the health of the crops in South America. A La Nina weather phenomenon may be developing, and crops in Brazil’s southern grain belt are dry and seeing their potential getting limited. Argentine corn crops are suffering along with Brazilian soybeans. (It’s spring there and most crops have only been seeded in past few weeks or couple of months.)
This crop damage has been enough to worry turkey-drunk traders in North America into getting back to their offices and play the market. As James Bower of Bower Trading in Chicago said on Bloomberg TV this morning: “We all thought that the markets were going to be relatively quiet over the holidays, but that certainly hasn’t been the case.”
The dry weather in South America is a problem and traders have shaken off the shackles of “outside markets” to focus instead on the supply and demand situation, and it isn’t that great.
“Soybeans are on the minds of grain traders today in a big, big way,” said Bower.
In one sense, the big crops last summer have left big stockpiles around the world. In another sense, there are small stockpiles and the world can’t afford a crop problem anywhere. There may be big stockpiles by historical standards, but there are also small stockpiles compared to how many extra people now exist in the world and how much of a reserve of edible crops the world has to feed them with. The world has been relaxed about the grain stocks situation up until now, but that could change fast this winter.
“I still think there’s going to be some major weather problems develop here sometime and when that happens, the world is not prepared, because stores of grains and proteins are still relatively tight,” said Bower.
The second half of 2008 was depressing for farmers with crops left to price. 2009 might begin with a rebound to the better side. If this La Nina effect holds, look for worldwide sentiment to change fast.
