I gave a big “ho-hum” when I heard last week that Goldman Sachs, the big investment bank, was being charged by Uncle Sugar of fraud. But I guess I hadn’t thought the ramifications through.
Grain prices have broken sharply lower the last few days, and the reason given is the effect of the Goldman Sachs charges on the market.
Connection
It is alleged that Goldman Sucks, as one commentator is now calling the company, offered billions of dollars of financial instruments based on bundled bank loans that were shaky. The fraud would be if they knew they were shaky.
“What effect does this have on grain?” is the common view, but these things are all wrapped together when you start thinking about them. I am struggling to understand some of the connections.
I know some financial instruments are traded on the Chicago Board of Trade, with the board being the regulator. There is talk that the government needs to take more control of financial trading regulations, so this could lead to negative feelings in Chicago which bleed over into the grain pits.
Then there is the fact that losses by investors in one camp can draw money out of their speculations in Chicago.
The Goldman problem also contributed to lower stock prices at the same time that crude oil was slipping lower. These days there is a direct link between crude and corn because a major use of corn is to make ethanol. Ethanol prices are dominated by the value of the gasoline it is blended into, and that is based on the value of crude.
So, the banking problems of the last two years are a drain on your pocketbook that just keeps giving.
If you are not subsidizing bailouts with your taxes, you are suffering losses in your grain prices. Who knew?
How it looks
Corn prices were firming up on the board through last week. We gained 5 1/2 cents in the May contract on Wednesday and 5 1/4 on Thursday. We held on to the gains with a fractional gain Friday.
It was over the weekend that the Goldman talk began to dominate. The overnight session going into Monday was down nearly 6 cents, and it got worse from the day session open. We ended up down over 16 cents, to below 3.48 May futures.
Even the overnight 3-cent bounce does not take the bite out of that drop.
Timing
Maybe bad timing added to the losses. The market was focused Monday on the apparent fast pace of corn planting. Traders were guessing that 19 percent of the crop had been planted. After the close, the report came in at exactly 19 percent, an accuracy that is interesting.
The market has been giving a little support to corn on the thought that we had been wet and might have a delayed planting season. That has all gone out of the market now, and we will stay defensive until the weather changes.
Brazil sits on beans
The soybeans have fought off the negativity in the corn markets with fundamental news that is supporting prices.
Brazil has taken off 89 percent of its crop, but the farmers there are holding off the selling. They normally rush to market to beat the high cost of storing against rising inflation. This year they are lagging, and that is helping our exports remain on record pace, above USDA projections.
In the process, May soybean futures made a new recent high on Friday at 9.89 3/4, above the Feb. 23 high of 9.85, and the highest price since January.
Wheat futures had also been rallying for two weeks, but the last two days have been ugly, as in corn. The May contract lost 24 cents from the Friday high to the Monday low, and is now trading at 4.7475.
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