Stock Market Turmoil Could Drive Grain Prices Higher

October 22, 2018 02:24 PM

During the Tuesday, October 23, trading session, the Dow fell more than 500 points at one time during the day before settling back higher. New warnings from companies like Caterpillar (CAT) about trade tariffs and rising costs of raw materials helping to fuel that drop. Analysts say, however, it may take continued turmoil in the stock market to drive investors back to commodities.

"You should see, at some point, money comes out of equities into commodities," Doug Werling with Bower Trading tells AgDay TV's, Clinton Griffiths. "You'll see some markets that have turned down most of the year starting to trade higher."

Werling says a lot of fund managers are short commodity markets right now. When they decide to get out of equities and lighten their risk that will likely change.

"They have to change those positions," says Werling. "They will look at [commodities] because some, for example, are at 10 or 15-year lows."

He expects equity market turbulence to continue as the impacts of trade tariffs and higher interest rates begin to show up on balance sheets.

"Equities take a certain [amount of] time because their indicators are more delayed," says Werling. "It's not a futures market like commodities where we hear 'tariff' and the market immediately drops off."

But as tariffs, higher fuel costs and interest rate trickle through the economy Werling believes the 'value' of commodities will entice more money into the system. 

"It could help the grain trade more than people realize," says Werling.

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Spell Check

David Adcock
Atwood, IL
10/23/2018 05:58 PM

  Funds can drive markets short term as long as they want to stay in their positions but long term they have NO effect because if they buy something then eventually they will need to sell it and if they sell something then eventually they will need to buy it. Funds do NOT consume nor do they produce commodities.

Greensburg, IN
10/24/2018 09:35 AM

  Large manage funds are more trend following traders, which is based off the fundamentals that drive the particular market. Currently large manage funds have flipped from being short corn to be long corn in the most recent Commitments of Traders report, while in soybeans the large manage funds are short. Money flow (which Mr. Bower is eluding to) is a theory that if dollars are withdrawn in one sector (equities) then it must be placed somewhere else (commodities). However commodities is a large basket with energies & gold are the top two they typically begin investing in. Soybean fundamentals for the U.S. producer is probably the most bearish time in history in both size of crop &demand destruction due to the tariff situation effecting prices. Corn is less bearish but hardly bullish. These two commodities I would think be the last two that fund managers would put in the investment basket.

Memphis, TN
10/23/2018 01:54 PM

  What does this article tell you? The funds drive the market; not the fundamentals.


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