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Veteran Contributor

Fundamentals vs. Big Money

Once again it appears that the big money has decided to leave commodities at the same time and the door isn't wide enough for everyone to get out in an orderly fashion.


Looking out my back yard, the fundamentals would seem to be getting more bullish based upon production problems.  In SD, ND and Minnesota, I think we will have a large number of prevented plant acres, drown out acres and water stunted crops and we are later than last year by at least 2 weeks.  The current sale price on the grains should keep demand going strong.


So, I need some different perspective.  Tell me why the fundamentals are not bullish for the grains or tell me that the big money is moving the markets irrespective of fundamentals. Huge crops coming in the I states?  Cattle feeding shut down?  Economic meltdown?  What's the bear side? I'm having trouble seein it.


If we are ignoring the fundamentals based upon the exit of big money from the market, will prices have to go that much higher in the end to ration demand in a shorter time frame?

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8 Replies

Re: Fundamentals vs. Big Money

Hi DW,


Here is the circular nature of the argument- do you think that $8 accurately portrayed the  fundamental case in corn or do you think we just had a huge inflow of funds that were gaming the Fed juice?


I don't know the answer but it is equally as relevant as the question you pose.


And either way, we all have to get used to the fact that these markets are just as impacted by financial shenanigans as they are by fundamentals.

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Re: Fundamentals vs. Big Money

It is no longer just SUPPLY and DEMAND... it is Money flow from the big funds.  Why they do what they do is known only to the insiders, the rest of us have to trade quickly with the "flow of the moment" or stand steady on the fundamental information. 

Facts will prevail in the end, but until then Fiction Rules.  I have the same problem you do, the crops don't look good and yet the market goes down..... Options help.  

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Senior Advisor

Re: Fundamentals vs. Big Money

Your conclusion on market influences doesn't account for time intervals or the issue of ending stocks. The financials can change from day to day  -  because it is largely human behavior by a certain contstituency in the paper market.  But, that behavior does not affect the corn in the field. Overlook that fact and any market conclusions based on the volatility in the shorter time intervals give a very misleading and flawed view of the market.


Think of it this way. Financial liquidity is like water in a mason jar that has clay in suspension. The clay settles out. From time to time the water can slosh about, but in the end  the clay will be a solid mass in the bottom seen when it settles out.


When the participants in the market who actually use or produce the physical understand what the supply is - or isn't - then those factors will dominate in the longer term. Financial liquidity does not change those facts. They also won't change the trend.


I.E., Chinas really doesn't give a **bleep** about volatility in the end. They will focus on supply and reserves. That's what will determine what they will or won't buy. Similar concerns will drive other constituencies that are involved with physical.


Overlook these facts and there will be real consequences. Financials can be very transitory and give you the supreme head fake before reversing in an instant. Physical tends to move in a consistent trend that can be obscured by distractions. It doesn't mean one can't use the distractions to advantage, but one can't do that with confidence unless the underlying physical trend is accounted for.

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Veteran Contributor

Re: Fundamentals vs. Big Money

Hi Hardnox,


I get your point that we may have been higher than justified by the fundamentals in corn and now are taking the "bubble" out.  However, it highlights the market disconnect from fundamentals when the market is sinking like a rock at a time when the crop size is shrinking. 

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Veteran Contributor

Re: Fundamentals vs. Big Money



When the board gets too far away from the fundamentals, what use is it?  If there is not enough rhyme or reason to it, why will people abide by it?



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Frequent Contributor

Fundamentals vs. Big Money - Maybe this will help

thx to Hardnox for the Goldman GSCI info:


Bankers recognized a good system when they saw it, and dozens of speculative non-physical hedgers followed Goldman’s lead and joined the commodities index game, including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers, to name but a few purveyors of commodity index funds. The scene had been set for food inflation that would eventually catch unawares some of the largest milling, processing, and retailing corporations in the United States, and send shockwaves throughout the world.

The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms:

  • In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities — including food — seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. “You had people who had no clue what commodities were all about suddenly buying commodities,” an analyst from the United States Department of Agriculture told me.
  • In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.

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Senior Contributor

Re: Fundamentals vs.. Big Money

Fundamentals are not bullish because of price. PRICE

8$ corn is high and more than priced in fundamentals.

SRW is a big crop and will see ES/USE gain 150 million bu in 11/12- . Fundamentals? Why has it even traded over 6$?

Enmass spec length, fall 2010 thru now is excess, indexers

Isn’t sustainable demand, it is temporal- people who think commodities are capital assets. They are not, they are consumables.  Farmers have had it handed to them, earn off of Conn house wives’s excess $$$. Greenwich Conn has avg. Incomes of 1 million+ .

They are a crop to harvest……


Fundanentals   vs fundamentals

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Senior Contributor

Re: Fundamentals vs. Big Money

The bear side of the story could be unfolding before our eyes.  I read yesterday where it's quite possible that there will have to be a failed vote in Congress over the debt ceiling before any real negotiations take place.  The article suggested a failed vote would have a dramatic impact on the stock market.  I would assume if the stock market crashes commodities would crash as well.  Then there's Europe.  It seems to me that the EU has put such severe restrictions on Greece that it is almost a certainty that Greece eventually defaults. 


Even though releasing 30 million barrels of oil from the strategic reserve has little bearing on the oil fundamentals, it does have a major impact in the minds of the funds.  Obama needs fuel prices to decline in order for a better chance to get reelected.  If oil prices decline and fuel prices decline, corn will also decline.  $3 corn can ration just as much demand as $8 corn if the end users prices fall accordingly.  The funnymentals change all the time.  This is why corn traded at both $8 and then below $3 in 2008.  Gary Schilling is already calling for another recession in 2012. 


Huge crops?  It's too early to tell, but there are some decent comparisons to 2009 which was a record crop.  The good to excellent ratings this year when compared to the same week in 2009 came in identical at 70%.  Iowa's rating in 09' at this time was 81% good to excellent while it is 84% good to excellent today.  Illinois's rating in 09' at this time was 51% good to excellent while it is 68% today.  Crops are not made in June, so it is way too early to call this crop a bin buster.  However, it is also way too early to call this crop a failure as well.


Cattle feeding shut down?  No.  However, the last cattle on feed report showed placements under 90%.  I called a couple of grain buyers seeing if basis had improved since the market has fallen over a dollar.  They told me basis was flat to weaker because of smaller numbers in feedlots. 


Economic meltdown?  I'd say this is the most likely scenario for any big market drops in commodities.  This is the one that concerns me the most. 

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