America's ranchers and farmers have a strong, if unintended, tie to the financial markets. Even if they don't actively and personally participate, the outcome of the prices they receive for their crops and meat animal production is determined there.
We're speaking, of course, of futures trading on the Chicago Mercantile Exchange and the Chicago Board of Trade, where contracts in most commodities are traded, including hogs and cattle, poultry, grains, lumber and other products. Many farmers and ranchers intensely dislike futures trading and its effect on their markets--but it is nonetheless a reality that they have to live with.
Starting last winter, and on into this spring, as stocks and bonds whipsawed every which way, investors took refuge in commodities, feeling they were safer, as they were theoretically backed by actual assets, such as livestock, grain in the bin or field, etc. This alleged safety is questionable, but for those holding secondary paper backed by sub-prime mortgages rapidly spiraling into foreclosure, they thought the commodities markets looked real good.
This resulted in a pretty good burble in commodity prices, with lots of speculators suddenly entering the market, willing to buy the other side of contracts on cattle, hogs, etc. put out as "hedges" by owners of the underlying commodity.
The chickens came home to roost this week, as investment funds liquidated their futures contracts and prices plunged. Corn futures dropped the most, probably because they had attracted the most outside investment due to ethanol. Livestock felt it too, with prices down $1-$2 today on Merc, when the more normal move is a few cents per day.
It falls back to the old saw that whatever goes up must come down. Now that the futures markets are back to mainly agricultural owners, with the speculator money evaporating or chasing a new dream--the earth is shaking.
Agriculture is not immune from the travails of Wall Street.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment