Here’s one story: Yesterday the USDA found lots more soybeans and corn than anyone expected, so all the crops dropped in reaction. That’s the story summed up by these two charts:
That’s soybeans dropping a lot and corn going off a cliff. Check out corn’s gap down.
Read Also
Higher farmland taxes for investors could solve two problems
The highest education and health care land tax would be for landlords, including investment companies, with no family ties to the land.
The USDA found many fewer acres seeded to winter wheat in the U.S., but the corn and soybean rout meant that wheat prices fell too, but less profoundly. Here’s that chart:
So that’s one story, and it seems you can see it pretty clearly on the charts.
But here’s another story that you can also see in the charts, and which challenges some of the first story: Equity and commodity markets around the world turned down yesterday after China made moves to clamp down on excessive lending, undermining support for most commodities. Look at what happened to oil over the last couple of days. 
Does it look at all similar to you? How about copper? What happened to copper yesterday?
Down too. And with a similar look to oil and the grains.
Let’s take a look at the overall commodity complex, summed up by the CRB index. Here it is:
A lot of dittoness there: what happened to the individual commodity markets that we just looked at happened to the overall complex. How about the equity markets? Here’s what happened to the Dow Jones Industrial Average:
The market fell yesterday, after a steady stream of rises over the previous week. So, everything everywhere was weak yesterday.
Why am I going on about this and chucking so many charts at you? It’s because I’m pondering the question of how much the fundamentals are governing the crop markets. This is a question I’ve repeatedly brought up here and in the paper, but one that is still vexing commodity market analysts everywhere. When I read the early reports of the USDA findings, I was hoping that the equity markets would move up yesterday, because then you could see whether “outside influences” were still the dominant factor. If grains stayed solid, only slipped slightly, or rose, it would be clear evidence that fundamental factors like those revealed by the USDA yesterday were not ruling prices. But if equity markets and non-ag commodity markets rose yesterday, but crops fell, then it would be clear that fundamentals were back in charge. Well, crops fell yesterday, but so too did the equity markets as well as most commodities.
I have no doubt that the USDA numbers affected the fall of the crops. Corn’s off-the-cliff plunge and wheat’s much weaker reaction seem to reflect what the USDA found, which is that there is lots more corn but won’t likely be as much wheat six months from now. Wheat fundamentals got better yesterday but not enough to make up for the huge overhang of extra corn. However, when oil and copper and stocks all take the same directional turn as the grains the picture becomes murky. Just how much of yesterday’s plunge can you attribute to USDA? A bunch? A bit? All of it?
From late fall to the end of 2009 outside factors allowed wheat to be much stronger than anyone watching fundamentals would have predicted. That’s been a good thing for farmers. It’s not been so good for fundamental analysts, who for a number of years now have been stuck in the situation of having to always explain why the markets aren’t working “they way they should.” It’s allowed technical analysts and commodity-bull-market prognosticators to treat fundamentalists like Albert treats Sheriff Truman in a Twin Peaks episode from 1990 that I can still recall: “Well I’ve had enough of morons and half-wits, dolts, dunces, dullards and dumbells, and you chowderhead yokel, you blithering hayseed, you’ve had . . . ” which is the point at which the sheriff punches him in the mouth. watch?v=-uz7g-kOU-0 I imagine a lot of hardworking fundamental analysts have felt a lot like Sheriff Truman in the past few years as they try to make the markets fit back into the comfortable frame and have to repeatedly throw in the phrase “outside influences” to explain why the frame is so bent.
Yesterday’s cross-market action could have done a lot to clear up the confusion about just how big the outside influences are these days. Unfortunately, by turning down on the same day as the bearish USDA figures came out, they have left the situation up in the air for a while longer.
