Commodity Insight

Longtime commodities analyst and columnist Jerry Welch died Oct. 2. His daughter shared the news in a post on X: “Dad unexpectedly passed on Monday. We are in total shock, he was our world.”

A year ago, my column was entitled “Cattle supplies to tighten moving forward.” The day I wrote that column December live cattle futures traded around the $154 level, but a few days ago kissed $192.

The Federal Reserve left U.S. interest rates unchanged this month, waiting to see if the rapid rate hikes since March 2022 will finally push inflation down to their target of 2%.

An important gauge of inflation was released this week, the Consumer Price Index. It showed August inflation above expectations at 3.7% and a new three-month high.

Those who follow my column know I am quite bullish toward the food and energy markets. They also know that my forecast for those markets to turn bullish has not yet come to fruition.

A shortage of food and energy should be coming sooner than later. I fully expect the final quarter of this year and into late 2025 to be a period marked by rising prices for those two basic markets.

The last weekly column I penned in July stated boldly: “We are entering a new era for food and energy prices that will not be solved until 2025, or later.”

When Russia invaded Ukraine on Feb. 24, 2022, Chicago wheat prices rose from $8.85 a bushel to $14.27 by March 7 2022. The rally, however, was rather short-lived.

Several fundamental events have combined in recent days suggesting that stocks as measured by the Dow Jones could drop 50% to 60% from current levels.

There are several interesting theories on the ag and energy markets that have been unfolding the past few weeks.

The Federal Reserve began hiking interest rates more than a year ago to fight inflation. In June 2022, inflation was nearly 9%, but has since dropped to 3%.

The late May to late June period this year was the driest and warmest in history for the United States. It was far worse than what was experienced in 2012, when grain prices rose sharply during the growing season.

The first half of 2023 has come to end and it was bullish for the stock market, and though commodities, per se, remain stuck in a trading range that goes back a year, there were some historic events that did unfold with hard assets.

Watching the various markets move higher on bad news and lower on good news is the order of the day. Lately, there is little connection between logic and reality.

There is no doubt the grain complex has evolved into a full-blown weather market thanks to above-normal temperatures and below-normal rainfall in the U.S. Grain Belt going into the heart of the growing season.

In the marketplace, price volatility is a two-edged sword. When it is in your favor, the odds of making a great deal of money are great.

A year ago, the Federal Reserve began pushing interest rates higher at the fastest rate in 30 years in an effort to fight inflation. The Fed hiked rates fivefold and may not be done yet.

This tale is a chapter from “Back to the Futures,” a not-so-serious look at the futures markets in the 1980s, written by yours truly.

From “Back to the Futures,” a not-so-serious look at the futures markets in the 1980s, written by yours truly. And not to be mistaken with the movie, “Back to the Future” — my book came out before the movie!

In mid-February, my weekly column was entitled “Grain prices living on borrowed time.” Because a wide array of markets collapsed this week, including the grain complex, I wish to repost portions of that column.

This week was noticeable in my view with one news story that received precious little coverage and another that is being touted loudly by the media to the point of ad nauseam and beyond tiring.

One of the oldest sayings on Wall Street is “sell in May and walk away.” The old adage is based on what the Stock Trader’s Almanac claims is the best six months of the year — namely, November through April.

Over the past few weeks, and now that we are into the second quarter of the year, a number of commodity markets have been chopping around with a downward bias, or simply remained bearish.

The past few months, price movement in the grain complex has been simple to explain. It has been one step forward quickly followed by two steps backward, or vice versa.

The wild card for the U.S. and global agriculture markets is Mother Nature. That is how it has always been and that is how it will always be.

The first quarter of 2023 has ended, and moving forward, the financial environment for commodities should be far more bullish than what was seen the past few months.

In my column from Dec. 30 last year, entitled “Cattle report bullish for prices,” I wrote: “Moving forward, I am uncomfortable with the long side of most markets for the first quarter of 2023."

A few days ago, former President Barack Obama, a basketball junkie, said “this is the best time of the year.” What he was excited about was the fact the NCAA Division 1 men’s basketball tournament is played each March to determine the national champion.

It is not unusual for markets to be blindsided by a shock of some sort. But lately, markets of all kinds are being caught flatfooted and hit with shocks and aftershocks.

The second to the last column I penned for this newspaper in 2022 was entitled “The super cycle is alive and well.” I wrote: “Commodities in the new year will outperform the other major asset classes, stocks, bonds and currencies.”

Over the past few weeks, a host of markets have turned lower to sharply lower. The reason for the weakness is the money managers, the funds, the “algo boys” high-frequency traders and chartists are finally reluctant to fight the Fed.

In the world of investments and trading, there are two rules always to be followed and never forgotten that stand above all others. One is “don’t fight the Fed.” The other, “don’t fight the tape.”

In the absence of weather-related problems this growing season in the United States, grain prices are now at levels that are simply unsustainable.

Thus far, the outstanding feature of the new year is the money flowing into the commodity markets, per se. There is a growing belief among several major financial institutions that the commodity markets will do better this year than they did last year.

The best-performing group of markets last year were commodities as measured by the CRB Index. The CRB is to the commodity markets as the Dow Jones is to the stock market.

Agriculture continues to make headlines. Here is some of the latest farm industry news.

By any measure, 2022 was historically dismal for stocks and bonds and by one measure quite bearish for commodities. Stocks ended last year with their worst performance since 2008 while Treasury bonds endured their worst year in history.

The U.S. Department of Agriculture recently released the December Cattle on Feed report that traders and ranchers anticipated to be bullish.

Commodities in the new year will outperform the other major asset classes, stocks, bonds and currencies. Of course, not all commodities will do well as some will be laggards, not possessing the right sort of bullish fundamentals to spark and sustain higher values.

The crypto industry has slipped into chaos and bankruptcy. The cryptocurrency exchange FTX, one of the largest in the world, collapsed in a week and filed for bankruptcy.

The Federal Open Market Committee meeting minutes are nothing more than a detailed record of the committee’s voting and opinions about monetary policy held two weeks earlier. Most dub the information as simply the “Fed’s minutes.”

There are scenarios and forces at work that are, by any measure, bearish most markets. I am specifically referring to the Federal Reserve and other world central banks that are lifting interest rates at the fastest rates in 40 years to fight inflation.

The Consumer Price Index report for November showed U.S. inflation eased to 7.7% annual rate from 8.2% in September. The slowdown with inflation was so bullish the Dow Jones Industrial Average rose nearly 1,200 points, the best one-day gain since 2020.

This was quite the week with major agricultural and financial reports due for release and the midterm elections also being held. From Monday until Friday, there was plenty to keep one busy, excited or frustrated.

From the Columbia Missourian newspaper: “Harry Truman remains near the top of a list of U.S. presidents ranked this year by C-SPAN, the public affairs TV network.

One of the oldest sayings on Wall Street touted by seasoned investors and traders goes like this: The trend is your friend. However, the trend is only your friend until it isn’t. Or, as some say, until the trend bends and a new trend emerges.

Over the past month, well-respected brokerage firms, legendary money managers and market forecasters with excellent track records have been predicting the U.S. and global economies are poised to slip into a recession.

The odds are high that the cattle market is on the verge of moving north in a big way.

The third quarter of 2022 ended historically bearish. Stocks as measured by the Dow Jones Industrial Average fell 22%, the S&P 500 dropped 25% and the Nasdaq hit the skids to the tune of 33%. Bonds tend to hold up better than stocks.

Fears are growing that the Federal Reserve is pushing interest rates too high too fast and the results will lead to a recession — a Fed-induced recession that could be far more severe than many expect.