Published on: 12:53PM Sep 16, 2011
I had some folks asking me about the implications of the European Debt situation and "if or "how" it could ultimately affect their crop prices.
There hasn't been a lot of talk about it, but the recent downgrades of the French banks "Credit Agricole SA" and "Société Générale SA," could end up being a much bigger deal than any yield release by the USDA. This is certainly a little out of the box, and you may need to know a little history before you can tie the two together, but what if I were to tell you Société Générale also known as "SocGen" one of the oldest banks in France, and in European terms they are larger than Credit Suisse and have a huge global presence. The real kicker is they provide lines of credit for thousands in the hedge fund industry. If you remember back to 2008, one of their futures traders actually lost $7.2 billion (thought to be the worlds largest loss). I would also point out that many still believe that the US government bailed out AIG, in order to keep "SocGen" from taking what some have estimated would have been an $11 billion dollar hit. Looking back, if the US government hadn't stepped in, a "SocGen" type default would have brought down the entire house of cards. My point is that with so many lines of hedge fund credit being tied to "SocGen" and some of the other European banks, you have to believe that any type of major issues in liquidity will force them to tighten their lines and possibly reel back in some of the credit they have extended to the funds. I am telling you now if something like that actually plays out it will rock the corn market more than any yield data being reported by the USDA in October. My point is we still have to keep a close eye on the developments in Europe, "Money-Flow" continues to be King, and as of right now it seems to be walking upon an extremely fragile tightrope.
Keep in mind this is not a knee jerk type situation, and if it were to develop it would take some time to play out. It is also not a direct corn, soy or wheat type play, it would be broad spread and affect the entire commodity market. Therefore do not hit the panic button, just be aware of the situation and keep your eye on things in Europe. A good point is the news yesterday that super bank "UBS" took a $2 billion dollar loss on their trade desk, and talk is now circulating that they me need to throttle back while some type of restructuring takes place. this is not bullish the commodity markets by any regards, but rather just another small "wrinkle" in the story. My point is that if we get enough "wrinkles" in the page, the bullish story may become tougher to read.
As far as the near-term is concerned I would have to imagine with the EU finance ministers meeting in Poland with US Treasury Secretary Tim Geithner on hand, some bullish posturing by the European banks will be released, therefore it wouldn't surprise me to see the Euro rally, adding some pressure to the US Dollar early next week. The dollar being pressured could add a little support to the commodity markets in general and may give you another opportunity to make a few more cash sales as we head further into harvest. Don't miss your opportunities when they come around.
Have a good weekend!