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China stock plunge doesn't indicate U.S. grains topping out

Agriculture.com Staff 02/11/2016 @ 5:28pm

Despite the shockwaves it sent through Wall Street and major U.S. commodity trades Tuesday, the nine-percent drop in China's stock market pales in importance to U.S. commodities compared to what will happen as planting season gets underway this spring.

Even though it's the business trading platform for the largest and fastest-growing nation in the world, the Chinese stock market is not much of an indicator of the nation's economic health let alone economic conditions worldwide, said Bill Tierney, vice president of research and marketing with John Stewart and Associates.

"China's stock markets are thin, poorly regulated and unrepresentative of China's economy, and they are not indicative of much other than simply the prices of the shares that are traded," Tierney said Wednesday. "There is only a small relationship between Chinese stock markets and Chinese economic growth."

Beyond China's borders, Tierney said there's "virtually no relationship" between the market and others like it around the world, including the U.S. commodity trades. Tuesday's market plunge that sent the U.S. stock market on its largest one-day dive since the days immediately following September 11, 2001, is not quite worthy of a comparison to that day's events in the U.S.

"In the U.S., there is a set of leading, concurrent and lagging economic indicators, and stock market prices are one of the leading economic indicators. So, people -- rightly so -- believe stock markets have some relationship with the economy. But, it is only one of maybe a dozen leading economic indicators economists use," Tierney said. "I really don't see the relationship in magnitude between the market decline following 9/11 and the decline on 2/27. I don't see that it was appropriate with the perceived fundamentals.

"I can see what happened after 9/11 with the magnitude of that change, but this seems to be a disproportionate response."

Still another analyst said Wednesday that instability in the Chinese marketplace could eventually have larger ramifications in the U.S. markets. Dan Vaught, AG Edwards livestock analyst, says what might derail the markets is across-the-board commodity selling due to the Chinese equity market weakness this week.

"If we see much more of that, we might see some of these big index hedge funds bailing out of their across-the-board positions," Vaught said Wednesday.

Tuesday's market swing, which had already been partially recovered by mid-day Wednesday, indicates the ongoing volatility in the current largely bullish marketplace, but also presents some opportunity for growers, Tierney said. In times like this week, when market conditions are driven downward for one reason or another, well-timed transactions can work out well.

"If I had to establish coverage, I certainly would have established coverage on the overnight session," he said. "I would see this as an opportunity."

But, the biggest message out of Tuesday's action is, despite the one-day plunge, the U.S. corn rally's end is nowhere in sight. Too many influential factors, Tierney said, remain in question as attention turns to getting the 2007 crop in the ground.

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