You are here

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.

For now, it's worth continuing to sell any soybean rally, but Pro Ag is no longer
interested in selling corn at current price levels. In fact, now is time to
start looking for an indication of a turn in trend to higher, as some areas are
having weather problems (drought in Delta, KS, OK, TX, CO), and some areas are
well behind normal development (eastern Corn Belt, northern MN, ND). This
doesn't look like a disaster yet, but it may become one with the right
conditions. Today, the market is far from seeing that in front of their noses.
But maybe the market can pound corn lower another 20-40c, and why not let the
market run lower and then turn trend up before any purchase is made? It's a
lot simpler to pick the bottom after it's occurred, and a whole lot easier on the
margin account checkbook, too! So let's sit tight and look for buy signals in
corn and wheat, and continue riding the short side of soybeans and crude oil
(another great short position recently). Especially with the DOW setting its
sights on the 7000 area and falling.

The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be
reliable. The opinions and recommendations contained are based on
our judgment and do not guarantee that profits will be achieved
or that losses will not be incurred. Recommendations should not
be construed as an offer to buy or sell commodities. There is
substantial risk of loss in trading futures and options on
futures.

If you have questions about this column, call Progressive Ag at 1-800-450-1404,
or email Ray at rlgAATTprogressiveag.com.

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.

Read more about

Crop Talk

Most Recent Poll

How much of your 2016 soybean crop is planted?