Perhaps it’s just the Christmas spirit and the desire to not seem like Scrooge or the Grinch, but a bunch of commodity price forecasters have been saying cheery things about crop prices in the New Year.
A string of smart guys have been trotting out their year-end projections (guesses?) for stocks and commodities recently in media interviews, and a surprising number have turned semi-bullish on crops.
They say that most commodities, including ags, have fallen so far so quickly this year, that even if a long term, permanent recovery doesn’t happen, a big bounce could, because prices never just fall down, but go down and a bit back up in jolts.
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Crops, like the other commodities, have fallen pretty close to straight down since spring and summer’s peaks, so a recovery rally makes sense, some of these prognosticators say. Ag commodities haven’t fallen as far as fast, but they have certainly slid a long way from where they were. And while stocks of crops like wheat are large in terms of raw numbers of millions of tonnes sitting in storage, they are not large compared to how many extra human beings now exist that need to eat them.
Everyone always says the world is one crop failure away from a shortage, and right now it’s no different. Supply and demand fundamentals could shift radically this winter if big problems arise in any major producing region of the globe, and some problem arising somewhere is a pretty common occurence. There’s been no fear in the marketplace about ag commodities for half a year. It could be time for it to come back. That fear can give hope to farmers, who’d like to see a chance to price out their unpriced crops at better prices than recent one, or at least sell them while the market is going up rather than down.
Even mega-bears have been getting a little bullish. Robert Prechter of Elliott Wave International – a believer in the idea that the world’s economy is melting down and all asset classes including commodities are heading much further down eventually – thinks that pessimistic sentiment has reached such extremes that a recovery is likely in the next few months. (That’s because he thinks fear is already priced into the market, so there’s a big opportunity for greed to come in for the short term.) On Bloomberg TV the other day he said commodities especially, because of their huge sell-off since summer, could see a temporary rebound. Everyone cries about stocks going down 40 percent – some commodities have plunged 70 percent.
The small rally we’ve been enjoying watching in U.S. futures markets might be small and partly explained by the slide of the U.S. dollar, but it’s a nice thing to look at as we move towards 2009.
