Grains reversed a lower opening to close mostly higher.
Livestock ended sharply lower on Monday as a risk off selloff in global equity markets spilled over to cause fund long liquidation with concerns about recession and slowing demand also adding fuel to the fire.
Chuck Shelby, Risk Management Commodities, says “It certainly was a pretty dramatic and ugly day over in the livestock, particularly the cattle market but again its just money flow. There was no fundamental justification for what was going on other than the losses in equities and the stock market caused the funds to reign in some profits from the livestock market.”
Japan’s stock market was down 12% which caused panic selling in U.S. financial markets and talk circulated about recession and that the Federal Reserve might have to make an emergency cut in interest rates before the September meeting.
Shelby is concerned about the Fed taking that action because it could cause more panic selling on ideas the economy will have a hard landing.
“I don’t think that’s in the cards, but if you look at the stock market at around 40,000 a 1,000 point drop isn’t as bad as it might seem from a percentage standpoint,” he explains.
The hope, he says, is the stock market can settle down as the week progresses to allow the livestock sector to recover.
Shelby thinks the cattle can find some stability as seasonally the market is moving into a strong demand period with Labor Day buying.
The grain markets all started off lower and tested last week’s lows in corn and soybeans before reversing higher.
Shelby says the funds are short in those markets and quickly took short profits and unwound some of that position to offset their losses in the stock market.
If the stock market continues to see pressure will the funds keep blowing out of that short position to produce a bigger rally in the grains?
Shelby is doubtful, “It was nice to see it come back around but the question you need to ask yourself going forward though is how much can we get out of this and it probably relates back to what the stock market is going to do.”
He adds that there were also geopolitical concerns in the market with tensions rising in the Middle East as Iran stated it would be retaliating against Israel.
