Clues to Our Future: The Bearish Apocalypse Meets Chaos Theory

Bears Will Kill You     The days are long for me especially this October, as I still haven’t started fall harvest.  A late planting season followed by a cold summer and a wet October has meant it will be my latest start of my career in any fall season.  It might not be that way for everybody across the corn belt, but this late delayed harvest has sent a bit of the shiver into the grain market.  Over the couple weeks we’ve seen an increase in corn prices of about $.20 a bushel and about $.50 a bushel in soybeans.

Prices have gone up for a number of reasons and many people say this is a selling opportunity.  I will leave that up to you for now because we know how bearish things have been.  We are farmers and we are involved in the agricultural commodity business.  The value of these commodities historically has gone up and down, so being down in 2014 is not surprising.  We are simply used to it.

What is different this week is that the nonfarm economy got a little bit of our medicine.  Last Wednesday we saw the Dow Jones industrial average plunge 335 points and the Toronto TSX composite index lost more than 200 points.  This was on top of recent losses.  Our North American markets were reflective of a greater market meltdown in equities across global markets.   Fears seemed to grip the market because of some uneven economic growth numbers in Europe and the United States as well as the fear of Ebola spreading beyond West Africa.  A rogue nurse who was diagnosed with Ebola actually traveled around the United States in a Frontier air flight, theoretically exposing a whole nation to an epidemic.  Believe what you want, fear is fear and its causes uncertainty in markets.   As the week is coming to an end these markets are still jittery based on the weakness caused by that fear.

Of course in the agricultural arena one of the first questions I was about any investment capital in global equities, which may be looking toward agricultural commodities as a safe haven.  Yes, we have had a tremendous break in the market since 2012, but seasonally the lows in corn might be in the rearview mirror.  It seems reasonable to me with the equity markets influx there might be some investment capital coming back into commodities.

In Canada we’ve got much to think of as well.  For instance the Canadian dollar actually slipped down into the $.87 level US briefly this past week.  It went there because our economic performance has hit a few hiccups and the price of oil always makes it a bit nervous.  The price of crude as I write this is $83.37 a barrel, but when you back off into Alberta the price is much less.  Every Canadian knows that Alberta oil money is vital to the greater Canadian economy and as the price goes down so does the tax revenue.  With all three of our political parties getting ready to spend our federal surplus, suddenly we are finding a lower oil price could be a real problem.

We all know the management paradigm, when it comes to oil within agriculture.  Ethanol is such a big part of our demand for feed grains; a high oil price arguable can be a very good thing.  Ethanol profitability is related to gasoline demand, oil price and the price of corn.  With the Bakken region of the North Dakota producing more and more oil, US energy independence is getting that much closer.  How all of this will play out within the corn ethanol complex is anybody’s guess.  However, as oil continues to ratchet down, there will be real issues springing up.

None of this helps me dry my fields up.  None of it takes away the record crops, which are sitting in the mud in US and Canadian fields.  The sun will do that and the ten-day forecast will surely get me started.  After that, it will be the long march until the last few rows of corn go underneath me.  The 20 cents on corn and 50 cents on soybeans I’ll take.  By the time I’m done harvest, this recent volatility might actually boost it up more.

Let’s hope so.  The road ahead is lined with prognosticators who thoughts they knew.  We’ve been expecting a bearish apocalypse all year and it yet may happen.  However, the economic events of the last couple of weeks along with this sloppy harvest reminds me that things should never be taken for granted.  As my friend senior DTN grains analyst Darin Newsom has often, said, there might be a butterfly fluttering somewhere unseen that can catapult us into market action unheard of.  Sometimes chaos theory gets real.  The events of the last few weeks just might be clues to our immediate price future.

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