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08-25-2017 07:05 AM - edited 08-25-2017 07:06 AM
Just for the record, Black Swan events don't exist. Complete media created fallacy.
Everyone on the planet that moves grain, KNOWS for all eternity, that the gulf coast gets hurricanes in Aug/Sept. How can a well known and widely anticipated event be a Black Swan? It can't.
Black swans are most often used by the market elites as an excuse for ignorance, or outright mismanagement, or maybe just simple market manipulation for personal gain.
08-25-2017 07:44 AM
08-25-2017 08:52 AM
08-25-2017 09:32 AM
I have a pretty clear memory of what happened in the immediate aftermath of Katrina - corn went from $1.75 to $2.50 and beans from $5 to $8 at the local elevators, and has never gone back that low (Although we seem to he headed that way).
The markets, especially the futures markets, are all about expectations for the future, not so much about the reality today. There has not been a supply shock since 2012, and my feeling is that the market is complacent and thinks short crops are a thing of the past. They have bought into (small) rallies every summer on some possible weather scare, and one hasn't actually materialized for several years. So they are tired of betting on rising prices and losing money, and it will take an actual shortage, not a perceived possible one, to really kick prices higher. (I bought a call to cover some corn I sold last winter to take advantage of the spring rally. It expired worthless.)
But here's what Harvey might do. Forget about it damaging supplies, think about it affecting delivery. We're coming up on harvest. Overseas buyers are expecting to be able to buy cheap American corn in a few months. A hurricane damages export facilities, and now the expectation is that supplies will be bottled up for a while, and suddenly there's a mad scramble to cover needs for the next few months. This raises prices across the board as speculators jump in. If the disruption lasts long enough, it changes the mentality of the markets on what corn/bean prices "ought" to be. I think this is what happened after Katrina, and it has taken many bumper crops to wear that mentality off. Will Harvey be able to repeat that?? No idea whatsoever....
Remember, a 2 billion bushel carryout is about a 7 week supply. If a hurricane damages facilities such that it will take more than 7 weeks to repair and get back to normal, look for some fireworks in the market.
08-25-2017 10:02 AM
Nutlug that is certainly the sentiment from those who ask us to ignore the extreme irrational volatility in the market.. Which is not an expected reaction of an "overproduced" commodity with low demand.
I disagree with you on the "invisible hand" label......When healthy..... what the market does is always visible and explainable.... what it is not is predictable.... events change, supply and demand change. etc.
What we are right now as a market is 1. Extremely predictable........ and almost never explainable or visible........ we have to make guesses as to what happened and why...........
IMO........ We are at the end game of this system and headed for government pricing soviet style.......It is like that point in a Poker tournament when It is all over and just a count down to the end ........... where all the chips are in the hands of the Funds managers and they are just bidding without restrictions( the SEC is asleep and can't keep up anyway)..................... because they know the others at the table can't afford to call the bluff. They play both sides of a bet as they bleed the minor players dry...
To work by design.... rules and restrictions need to be in place and enforced. The Hunt brothers would have succeeded if they had been fund managers in todays trade.
08-25-2017 10:25 AM
Don't let me distract too much from your comments because I agree with the sentiment totally
But here is the chart for Dec 05 corn
Fall of 2006 did exactly as you described, going up through the fall and endding in the $4 range on into 2007
Your comments on Harvey and other huricane effects are right. Interruptions in distribution, harvest, and export are destructive to a short supply......... which is what we have as you point out ....... in time we don't have a lot of anything. We are dependent on the international shuffle happening uninterrupted....globally.... It is why Turkey can get by with shooting down a Russian military plane...... Wheat is in such short supply, or money is, that keeping that shipping route open is more important than military action.
The only thing there is a surplus of in the world is words...................................... to describe the "surplus". But an international interruption in trade for three months... is more than the world can afford.
08-25-2017 11:06 AM - edited 08-25-2017 12:08 PM
You're right bsf - Hurricane Isaac did alot of damage to crops in 2012, especially in Louisiana and Arkansas.
The only positive to come from that hurricane was it brought drought relief to the mid-west.
Didn't help folks in sw's part of the world as their drought continued for several years.
The market effect from that crop damage was probably overshadowed by the drought caused damage.
We'll see where Harvey goes after making landfall.
08-25-2017 12:11 PM
Harvest is in full swing in south texas........ and remember your SF articles................... that is 300 bps corn down there
and with an additional 15 inches in 24 hours....... probably 450 bps by monday....... in the Press...