Use a weather scare to make sales
What were the major events that created price movement in 2011? And can you forecast any events – negative or positive – that will drive prices in 2012?” Those were the first two questions that were asked at a Missouri seminar in early January. A third, equally important question was “What is your long-term game plan for 2012?”
Question #1: What were the major events that created price movement in 2011?
Following are the five major events that were responsible for the very volatile grain markets in 2011.
1. The tragic earthquake and tsunami in Japan. The uncertainty that this created initially dropped global stocks and commodity markets sharply lower. Later, though, the market rebounded on all of the indications that Japan would rebuild and that they would need larger meat and grain imports.
2. The European debt crisis that went from Ireland to Greece and then on to Italy and Spain. It seemed at least one weekend a month there would be bad debt news out of Europe, and that would bomb the global stock and commodity markets.
3. The political gridlock in the U.S., as politicians positioned themselves to make political gains rather than cooperating to talk about and to resolve the nation's debt and spending problems.
4. The late wet spring in the eastern Corn Belt that created an April-May weather scare rally.
5. The drought in the western Corn Belt that dropped corn, sorghum, and soybean yields in the western third of the Corn Belt.
Question #2: Can you forecast any events – negative or positive – that will drive prices in 2012?
It is difficult to anticipate all of the events that will drive prices in 2012 and some, unfortunately, will be reruns from last year. Following are my forecasts of how five events will drive prices in 2012.
1. The Euro debt problems are likely to be a major focus again by February. Several European nations have to roll over billions of dollars in sovereign debt in February and March. How these debt auctions go will have a huge impact on stock, currency, and commodity markets this month.
2. Congressional leaders in the U.S. will go through round two of the payroll deduction debate and will likely fight some more on tax-and-spend issues. How Congress handles the continuing debt issues will have a large impact on the U.S. dollar value and commodity prices.
“How Congress handles the continuing debt issues will have a large impact on the U.S. dollar value and commodity prices.”
“I believe we are in a year with slowing global demand for commodities, and if we end up with a large crop in North America, prices could be a lot lower by the fall of 2012.”
3. Weather in South America has turned hot and dry in early January. The world had been expecting a record crop from South America; any shortfall will have immediate price ramifications and can dramatically change global fundamentals ahead of planting time in the U.S.