Volatility is the big thing in the markets this year and lots of people were talking volatility at GrainWorld this year.
In the grain and livestock markets, volatility has been great, although nothing yet to compare to 2008. Farmers aren’t complaining much yet because the volatility has been on the generally-going-higher side of the overall market trend, but a number of analysts urged farmers to not take for granted today’s high prices just because there are all sorts of reasons to feel bullish.
This morning I listened back through a presentation and interview with a Bunge trader from the conference, and he noted that the recent $50 slide in canola futures shows how quickly the market can turn around. He said he thinks present forward flat prices for canola aren’t really justified and won’t hold if demand isn’t quite as strong as hoped and a big acreage goes in this spring.
Of course, as a crop buyer he’s likely to say that, isn’t he? But there’s no doubt truth to the scenario he paints.
And a senior Informa Economics analyst warned hog producers to lock in their margins now, because by their estimation hog futures prices through the summer are too high and corn more likely rise than fall.
A beef market analyst warned cow calf producers about the dangers of assuming high beef prices, in case they are thinking of getting into the cattle feeding business. They might do OK for a while, but eventually the market will turn and the non-professionals who are getting in late will likely be the ones who take the worst hit.
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So, there was lots of caution and warnings against farmer hubris (Don’t mimic the George W. Bush-going-into-Iraq error.) But even with all that, I must say I still felt bullish coming through GrainWorld, and as twitchy as crop markets have been, they still feel more twitchy-up than twitchy-down to me. There was some support for my bullishness, I thought, in the overall world economic outlook presented by Carlos Gomes of the Bank of Nova Scotia. I wasn’t particularly moved by his bank’s general outlook for North American and world growth – what’s a big bank economist supposed to call for considering the billions the bank is lending out to businesses and consumers? – but by his discussion of how neither the TED spread nor the VIX are giving any signal of big problems coming.
With little sign from those early warning signals of a general economic calamity to come, there’s little in the near term to derail the steady demand for commodities upon which our big bull market is built upon.
So after a couple of days spent in the clutches of the dismal scientists, I find myself oddly cheery. I hope that’s also a good signal for the market. (Perhaps it’s just a reflection of the fact that my wife is having another baby next week and it’s impossible – at least for me – to be pessimistic in those circumstances.)
