Fear of a "global recession" turning into a "global depression"
Dec 02, 2008
I believe we are now in the final month of one of the most violent years on record for the commodities. I know a lot of those with unpriced grain want a sharp price recovery. I don’t want to cast a negative shadow over the holiday season, but I have to say we must be realistic. The market is at these lows for a reason--the fear of a “global recession” turning into a “global depression!” In my opinion it will take more time than many unpriced producers want to see.
(1) As I’ve suggested for several weeks now, a change in the bear trend for equities, energy, gold and a bull trend in the U.S. dollar must be reversed before any sustained rally in the ag commodities can be maintained. The earliest I would expect this to be technically confirmed would be late January to early February.
(2) In regard to the grains and oilseeds, I believe we must see solid confirmation of domestic usage and export demand not dropping. Essentially, it’s important that we prove to the trade that a global demand contraction is not going to occur. I would suggest this confirmation will take place in February or March.
(3) Supply. We are going to be talking a lot about crop mix and the amount of planted acres for next year. Right now my bias is less corn and more bean acres. While this would generally be favorable long-term to corn and bearish to beans, it will not be enough of a reason for corn to rally. I believe these factors will only come into play next spring, and then they will only lead to strength if we can combine them with some sort of weather concern.
So where does this leave us? I’m concerned that we have the potential of end of year weakness. It will be more about cleaning up the books before the end of the year. If the corn and bean markets remain at the bottom of the trading range and anything happens in the outside markets, we could see one final panic break to the downside. This implies, if you have been trying to bottom pick the market, you really need to keep an eye on risk management to the downside during this time period.
Bottom Line: We need to first find and confirm the bottom before we talk about how far the market can recover.
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