The stock market broke to new lows and what it means for grains!
Mar 05, 2009
The stock market broke to new lows today erasing yesterday’s gain. This helped to cast a very negative tone over the Ag complex today. Granted, I believe the market is oversold and I’m preparing to buy a bearish Supply/Demand report and test of old lows but upside potential really seems limited. Today we also saw the dollar moving higher along with gold. So what does it all mean for the grain and livestock markets?
Frankly, I’m having to go back to school just like many of you in learning the relationship between bonds and interest rates as it reflects to inflation and subsequently on Ag. prices. As I said I’m a student right now not a master so I’m asking as many questions as I can answer but here are some of the ones that are on my mind.
- The bond market has been in a bull market since 1981 when interest rates hit their high and bonds their lows. The easy money policy plus with global demand especially stimulated by China have all contributed to last year’s price event. Was this a multiple year high? Are we structurally moving into along term pattern of tighter banking regulation and loaning policy? What will be the effect on agriculture if banks move from an asset loaning strategy to an income based loan? Will it have an effect on carrying charge spreads? If you’re a borrower of short term or long term money what’s the risk and how do you defend?
- What causes inflation? The books suggest it caused by grow in money supply plus active participation by consumers to buy (i.e. more money chasing fewer goods). One way to measure is velocity; we have experienced a drastic drop and in fact the biggest drop in over 48 years of data in the recent quarter. Without velocity, you don’t have inflation. How fast can velocity (consumer buying) come back? What impact will this have on commodity and subsequent land values? I will be talking about this in my upcoming seminar here in New Richmond, Indiana.
I have a ton of questions to ask, but that’s another day. In conclusion the outside markets are doing things that we haven’t seen in our life time and the current administration is enacting policy to punish business rather than stimulate. More than ever as corn and bean producers we need to increase our knowledge of the outside markets so we can make effective and informed decisions about the future.
If you want to go over details or would like to read more daily recommendations regarding reownership or marketing strategies, email me at firstname.lastname@example.org
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