Despite a record dry spell in July and August, the corn market failed to rally because there is no interest from specs and funds, says Bill Biedermann, Allendale, Inc.
"Funds trade federal policy more than anything," he says, noting that the macro economy works against commodities.
First, funds are taking into consideration the Federal Reserve’s tapering of the monetary stimulus program.
"They are going to quit subsidizing inflation, which is bearish for commodities because the Fed is essentially de-leveraging America," Biedermann explains. "If you’re holding on to a lot of commodities and are a big money man, you better get out of what has inflated."
Second, speculators and funds look at what Congress is up against. They have to get a budget, which they haven’t had in years. "Now, they are considering a possible continuing resolution, just kicking that can one more time," Biedermann says.
The third factor is the debt, which is an even bigger crisis. This is another bill that’s going to have to pass in Washington.
"Our debt to GDP is now 101%—that’s unbelievably high," Biedermann points out. "The federal deficit to GDP is around -7; we can’t even pay off the debt."
A rally in the commodity market is not dependent on crop conditions, but the macro economy. "Money will go where it’s safe: blue chips and gold," he says.
- November 2013