As you wander through the halls of learning, studying the grain markets, you run into the factor we call “outside markets.”
Normally, this is contained in a throw-away remark by an analyst looking for some explanation for price movement. That was then, and this is now. Now, the outside markets are the market!
First, we need to understand what an outside market is. We are talking about any organized market that is not part of the grain complex, but which can influence grain prices.
This concept would include a lot of things, such as the balance of trade, the exchange rate changes between dollars and other currencies, and the trading of non-grain commodities. The outside commodity with the most influence currently would be crude oil.
In addition, the grain markets are now more formally world markets. Grains are traded on organized markets in Europe, China, and Japan. We occasionally see our opening call predicted by the Chinese market close.
Normally, the influence of these markets is marginal. When I read that the markets were affected by this and that today, I often cynically react that the person writing the analysis was looking for a reason to explain price movement where there was not a reason.
Today, however, I look at Monday’s market on the Chicago Board of Trade and have a different reaction.
I can argue that 100 percent of the move was caused by outside markets. In fact, maybe 125 percent of the move was outside!
Yesterday, Monday as this is written, December corn futures closed up 16-1/4 cents. November wheat futures closed up 61-1/2 cents. December Chicago wheat futures were up almost 20 cents.
This came as harvest is here in major parts of the country, and as we should be fishing around for the harvest low in soybeans and corn after a short bounce from the confusing USDA Crop Production and Supply and Demand Reports of last week.
Based on the fundamentals and the technicals both, we should have been lower yesterday. What happened? Outside markets happened, with a vengeance.
It should be no news that the financial markets are in chaos. The severity is still to be determined.
The government may spend a trillion dollars to solve the problem, or the foxes may be watching the henhouse, since government desire to force banks into poor loans so everyone could own a house caused the problem that the same government leaders are now trying to fix.
The people who were CEOs of the failed institutions have, in some instances, gone on to advise the presidential candidates how to preach the solution to problems the advisors created.
For us watching grain, what matters is the result of these outside markets trading currencies and credit suddenly have a huge impact on our markets.
Yesterday, the government was talking about spending $750 billion dollars to shore up the paper that has an undetermined value on bankers’ books. That money would essentially be printed by the U.S., devaluing our currency.
In addition, our financial condition causes a loss of confidence in overseas markets. The result is a huge drop in the value of the U.S. dollar and the largest up-tick in the price of crude oil in the history of trading — just when oil had dropped by more than a third.
If you were watching the grain prices yesterday, you thought the prices got higher. Actually, the price in euros stayed the same. The price in dollars artificially increased to reflect our cheaper currency.
How do we make decisions about grain marketing in this environment? I don’t know, and neither does anyone else, whether he admits it or not.