One of the most interesting elements of the recent slumping in stock markets has been the relative strength – incredible strength – of crop futures. It hasn’t been true every day, but often, like this (Friday) morning, when U.S. Stock futures are down hard again, corn, soybean and wheat futures are all up slightly. As I sit here watching Bloomberg TV while quaffing a coffee at breakfast, the Dow’s down about one percent, European markets are worse, and corn, soybeans and Chicago wheat are all up about three cents per bushel.
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Corn’s at contract and historical highs, hard red spring wheat has shot ahead and soybeans have recently climbed back on the bullish bandwagon. Yes, I know, the crop fundamentals are bullish, with corn at historically low levels of stocks-to-use and soybeans and hard red spring wheat at tight levels compared to most of history.
But this recent equity market selloff has not just seemed correctiony, but panicky like 2008. And if you remember, when the stock markets collapsed in 2008, the crop markets were flushed down the toilet with them. As was everything. Stocks led and crops deflated along with all other commodities.
That’s not happening here – yet. And it might not this time, even if the stock slump continues. Right now there hasn’t been anything like the Lehman Bros failure to inspire true panic. Unless a Eurozone bigboy like Spain or Italy goes tummy-up, or U.S. Treasuries reverse course in a big way, there may be no true panic and market collapse.
And there is a big, crop-specific difference between 2011 and 2008. In 2008 a financial and economic slump was matched by big summer crop production that reversed a tight stocks situation. This summer it’s the opposite. The crop production is continually – at least in the U.S. – falling beneath estimates. So the crop stocks trend is the opposite.
So we’re in a significantly different situation to ’08, but if that means it’s different enough for crops to escape and stay high is too early to say. That’ll be seen if there’s a true panic arising from this slump. And if this was just a correction, we’ll never need to know.
