Macroeconomic -- The 800 lb. Gorilla

Posted on 03/09/2017 10:25 AM

Hello Pro Farmer Members!

 

Macroeconomic concerns are building. A continued sharp plunge in the Chinese stock market and crude oil's fall to 12-year lows are fueling those concerns, which are spilling into the agribusiness and ag market sectors. Once those markets stabilize, so will the other “outside” markets. Until then, bulls are going to have a difficult time.

Grain and soy markets tried to shift focus back to fundamentals this week with the help of USDA's bevy of report data Jan. 12. In nutshell, the report data wasn't as negative as feared. There were even some friendly (you'll notice I didn't say bullish) data in the reports. That triggered a round of corrective buying in grain and soy futures as funds covered some of their massive short positions. But the short-covering was limited. Given the macroeconomic concerns, it's very likely funds will remain comfortable with a net short position in grain and soy futures. They may want to lighten it, but there's no reason to abandon their short stance until the macroeconomic headwinds ease.

With macroeconomic headwinds blowing stronger, it's relatively easy to turn extremely bearish. While odds of an extended price rally in grain and soy futures aren't strong, I still believe these markets will give us opportunities to sell strength. But the harder the macroeconomic headwinds blow, the shorter-lived and more limited the corrective rallies will be. Therefore, as global economic concerns mount, it becomes more critical to focus on making strong risk-management decisions in your marketing plan. Periods of price strength must be used to advance sales -- especially if prices get to levels that are at or above breakeven levels for your farming operation. You may even need to make sales below breakeven levels with the intent of "building" a better price through the use of futures and options throughout the marketing year. This type of marketing isn't nearly as fun as selling when prices are well above breakeven, but it's the environment we are currently in.

Unfortunately, we are back to the days when global economies, crude oil prices, the U.S. dollar and other "outside" markets mean more to price action for ag markets than market fundamentals.

 

That's it for now...

... have a great weekend!

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