Another collapse in the world's economy
Grains collapsed this week, led by soybeans (a change!) which lost almost $1.50 already this week in a complete collapse of prices. The old crop prices are leading the decline, with July doing it during delivery of that contract which makes it all the more legitimate. When the lead month and bull spreads are leading the weakness, it's the beginning of a bear trend that could last a while.
Pro Ag a few weeks ago talked about how corn had already fallen significantly, and that soybeans were the better sell now. This week proved that to be very prophetic, as soybeans led the market lower, with corn and wheat following timidly. Now prices have lost most of the corn/wheat premium we gained from March into planting/early summer, and now soybeans have lost a good share of that premium as well. That is starting to make the current sales situation not all that attractive at sub-$3 cash corn and $8 soybeans. Farmers aren't looking at any significant profits anymore, and that always takes the bloom off selling!
But while grains are now lower, the outside markets are showing some new found weakness, with the DOW dropping to near 8000. What will happen to grains if the DOW drops further to 7000??? While many Wall Street types would rather not think about that possibility, it looks like a real possibility (or maybe even likely) result over the coming few months. A sagging world economy and continued sluggish spending by consumers is making this a real possibility, and that could mean a slow grain market for now. Further selling pressure can come, and markets typically can drop 20% more than they should once a trend gets started (especially one with as much momentum as this one has). It may take months, not minutes, to bottom this thing and it will be a slow climb higher once we do. It could take the DOW 5-7 YEARS before we get it back near 14000, and the US economy (and thus the world economy) could struggle during that time period.
Grains could be a little different, as they generally follow the overall economy, but still need to trade weather. So far 2009 looks good (other than that late start that the market has seemed to forgotten), and prices have drifted lower. But don't tell the Delta farmer that, or the HRW wheat country where corn/soybeans are still planted (KS, OK, TX, CO). Warm, dry weather has settled in a few weeks ago, and not only can they not seem to buy a rain system, but also very not temps have settled in and don't want to leave (like an uninvited relative!). This one seems content to stay, and in a few more weeks it will be clear that the South won't have anything like a 2008 crop, and all the talk about how varieties and genetics have improved so much might be washed out the window. For now, the Corn Belt is OK (although late planted/developing in many areas), which has put pressure on the market. However, this late planted crop's biggest obstacle is the fall frost date, and this year we may not be quite so lucky to go deep into October before frost hits. In fact, Pro Ag would almost bet against it.