Marlin: New fear strikes at grain prices

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Just when you thought you had seen it all, something new comes along to chase grain markets around.

Sept. 20 it was a Chinese real estate company that no normal grain producer or trader had ever heard of. Commodity and equity markets tanked on the rumor that Evergrande, soon to be a new buzzword for traders everywhere, may default on $89 billion in debt.

“Who cares?” was actually my reaction. “Couldn’t happen in a better country” was my second take. It turns out that a lot of people care.

The fact that the Chinese government is not expected to jump in to salvage the company has analysts comparing it to our own Lehman Brothers collapse in 2008, which cratered our economy with ripple effects.

Now, you may have gotten used to our government talking about passing laws with multi-trillion-dollar price tags, so $89 billion dollars may seem like the new chicken feed. However, it is not just that money alone.

I am reminded that when Everett Dirksen made his famous statement that, “A million dollars here, a million dollars there: pretty soon we are talking about real money,” he used millions of dollars in the phrase.

Lately, he gets misquoted as if he said “billions” of dollars. Our concept of what “real money” is has blossomed.

Speculation

The real danger is the ripple effects from the possible Evergrande failure. They are a matter of speculation and are unknown at the moment.

Our trading markets do not handle unknown factors very well. The role of the futures markets, especially, is to predict prices in the future. Large unknown events can cause large overreactions in markets.

There is a large difference between rumors and news, so it can take a while for this bit of rumor to shake out.

A major analyst, according to a Fox Business report, had stated as far back as 2012 that Evergrande was insolvent. The market is finally buying into that idea. So, one more thing to worry about that we have no ability to adjust for or anticipate.

The immediate knee-jerk result for the equity markets was a drop of 614 points on the Dow. In this case, it was, “Sell the rumor, buy the fact,” I guess.

Chicago futures trading took December corn to as low as $5.151⁄4 Sept. 20. November soybean futures touched $12.62, the lowest price in over three months.

The good news, if there is some right now, is that the prices rebounded quickly. December corn futures got back to $5.213⁄4 at the close Sept. 20, down five and a half on the day. November soybean futures, however, closed at $12.621⁄2, just a fraction above the low.

Soybeans

It is not surprising that the worst reaction to the Evergrande rumor is in the soybeans. That is where the volume of trading and the perceived export action is.

It is demand for soybeans and soy products exported to China that has driven our markets over the last year. The large exports of corn for the first time have been a nice side effect. Now, we look for follow-through.

The overnight markets are not normally what lead the futures direction, but as this was being written in the middle of the night Sept. 21, December corn futures are down an additional nickel at $5.163⁄4, but the November soybeans are only off one and a half cents, at $12.61.

We wait until the normal morning markets to see how the full trading of the Chicago Board of Trade swings into action.

Real news

There is real news in the market, not just rumors. Harvest is well underway in some parts, with widely divergent reports of high and low yields and no real trend yet.

Exports are still very slow out of New Orleans because of the recovery from Hurricane Ida, which managed to hit right on the export elevators. Efforts to restore electricity service to commercial users was a big priority, but damage to the actual facilities is much slower to happen.

Fortunately, the storm came before the harvest crush of business. We had been short in supply of grain at the end of the marketing year and are not getting the pipeline full yet.

The long view for grain marketing should not be on the current Evergrande crisis. We may have made the corn harvest low already if this blip in trading does not get us back there.

If the Sept. 20 low holds, that may be the soybean harvest low. We have potentially big crops to allocate to storage, processing and exports.

We still have the projection of tight carry out that should limit the drops we see with harvest pressure and odd news. We have every reason to be positive about price direction.

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