If I was a trader with a big open position, I wouldn’t feel like this. If I was a farmer with full bins of unpriced crops or lots of unhedged crops growing in the field growing in the field, I wouldn’t feel like this.
But since I’m just an ink-stained scribbler, I can admit to having lots of fun watching the markets work out their deep, underlying issues after certain reports come out, like USDA’s WASDE report this week. Up, down, all around, like a rollercoaster the crop markets went after WASDE found nothing really that anyone in ag markets didn’t already know and didn’t mostly expect.
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Sometimes, when the markets have been taking their meds religiously, no one reacts because, after all, what’s new here? But sometimes they go all nutsy, and that happened this week. Check out this week of trading, including the volume.
Well, we certainly went through a little bit of a tizzy there didn’t we? Now a couple of days later we’re right back where we started, on roughly the same trending price line. As if we flipped out in the cafeteria in front of everyone and are now acting like nothing happened.
Not having a bunch of skin in the game, I could relaxedly watch it all unfold second by second via channels like Twitter (follow me @EdWhiteMarkets) in which analysts, traders, farmers and all sorts of interested ag industry folks talked, noted and chatted themselves through one of the wildest days in the crop markets in years. Just check out the volume there. Big.
The report came out and most people right away got bullish because of the big drop in expected yield. Then lots of people began noting all the cuts to demand, and got all bearish. And prices shot higher, and slumped lower. And at the end of the day, we weren’t that far from where we started. And by the end of the next day it almost seemed all forgotten and the market had moved on.
It’s odd to think about what made people jump up and react. Everyone knew that U.S. corn yields would be down a bunch, with a mid-low 140s predicted by many. And the USDA found 146 bushels per acre to be a reasonable guess as of July 1. (And everyone knows that since the survey was taken things have gotten a bunch worse.) So, what’s to react to? And the cuts in demand? Well, we all knew that ethanol plants were cutting back and shutting down and that some livestock feeders and export buyers would likely back away from higher prices. So what’s to react to there? A day after the report the Intercontinental Exchange held a great webinar with DTN’s Darin Newsom where he parsed the numbers carefully and revealed interesting and questionable implications of the numbers in the July reports. He related them to DTN’s internal estimates and came up with some alarming results if present production problems persist. So USDA has provided a useful baseline, but the DTN numbers are far more likely to be what the market’s really going to be dealing with in coming weeks. In rapidly evolving weather situations like this, USDA can’t be more than a very lagging indicator.
So why the wild report day action? Maybe it was just because everyone was so primed to want to see something big-dealish that the market just wanted – at a very deep psychological level – to have something to react to. It didn’t quite react the way it was supposed to, with the bears winning most of the day after the initial happy minutes, but that’s the reality with emotion. Kinda unpredictable. It’s what makes the markets such a human machine, in all the good and bad ways. Maybe some people can’t accept that a situation is truly occurring until an official authority tells them that it is, like the guy who once lived next door to me who wouldn’t believe his mother had sold the house and was moving until the moving van actually drove up and the furniture was going out the door.
Today it’s fun to watch a certain non-ag market also acting-out emotionally. JP Morgan Chase shares are up 5.46 percent right as I write this after its boss acknowledged that a big screwed-up “hedge” is now working out to cost the firm about $4.4 billion, which is more than had been admitted to this point. So everyone jumps for joy and drives shares up, for some sorta reason lots of smart analysts are trying to explain rationally. To me, it just looks like everyone’s sick and tired of the downtrend in stock markets of the past couple of weeks, and of being negative about JPM, so why not relax and a bit and get happy again? Markets are up all over the world, so it’s just a happy day in the Zeitgeist, methinks. Why not go into the weekend happy?
So what’s going to happen to crop prices from here onwards? That’s up to the weather, and everybody’s mood.
