The world of agriculture is unpredictable and constantly evolving. Just a year ago, the Midwest and the Mississippi Basin were grappling with the most severe drought since 1956. Corn stalks were wilting, and prices were soaring, leading many to anticipate an impending food crisis.
We even published an article on
how to take advantage of it. What did we know back then?
Fast forward to today, and we see a completely different scenario. Mother Nature has provided us with a bountiful corn harvest, resulting in a significant drop in corn prices. It appears we’ve experienced a remarkable turnaround.
“The 2013 corn crop is anticipated to reach a record 13.8 billion bushels, representing a 28 percent increase from last year,”
reports Reuters.
“If this projection holds, supplies will reach an eight-year high, marking the largest annual swing in over fifty years from famine to feast.”
The impact on prices is evident: corn has plummeted from $7 per bushel last year to approximately $4.80 today, with expectations that they could decrease even further…
Blame It On the Rain
According to
Jay O’Neil, a senior agricultural economist at Kansas State University, “As harvesting begins in September and October, prices could drop to around $4.30 per bushel, a level not seen in the last three years.”
Additionally, not only has the price of corn taken a turn, but even the direction of its flow has changed…
Of course, we don’t mean the water flow of the Mississippi River has reversed—such a phenomenon is impossible. However, the movement of corn has reversed. Barges laden with corn are now transporting it north from the Mississippi Basin to the Midwest. This occurrence is rare, to say the least.
“What we’re witnessing is a significant change in the flow of corn,” remarked Brent Baker, a vice president at John Stewart & Associates, a trading firm. “This is unprecedented.”
So, what’s happening? Why is corn flowing north towards corn-producing regions? Shouldn’t it be heading south to reach export markets?
Believe it or not, you can trace this unusual phenomenon back to rainfall…
Despite the forecast of a bountiful harvest, a wet spring delayed planting in the Midwest, resulting in a later harvest. Farmers in this region won’t be ready to harvest until early October, weeks later than usual.
Consequently, the corn harvested in Louisiana and Arkansas is now being transported north to serve the ethanol producers in the Midwest. Until the corn from the Midwest is harvested in early October, these producers will continue to rely on southern corn for their supplies.
“We’re moving it as fast as possible from south to north,” stated Ryan McClanahan, a merchandiser with Commodity Specialists Company, a grain trading and marketing firm. “This is the big news right now.”
What’s the takeaway?
Something Big is Coming
The key takeaway is this: the world operates in a way that is often unpredictable. What appears to be definite can shift dramatically in an instant. In a year marked by record corn yields, it is astonishing that Midwest ethanol producers must import corn from the south to satisfy their needs—who could have foreseen that?
Connecting the dots and making logical predictions can often lead to incorrect conclusions. It turns out that linear thinking can miss the mark, especially in a world that is anything but linear and predictable.
When it comes to markets—or even weather—there can be an illusion of predictability. Just examine the wave patterns of the S&P 500 over time. Timing peaks and troughs appears straightforward, yet doing so in real-time with real stakes can quickly foster a sense of humility and caution.
To put it bluntly,
does the flap of a butterfly’s wings in Brazil trigger a tornado in Texas?
Most of the time, no. But sometimes, yes. The yield on ten-year U.S. Treasuries has risen nearly 120 basis points since early May. What will unfold when the yield exceeds 3 percent?
Without a doubt, something significant is on the horizon. You can almost sense it in the air.
Sincerely,
MN Gordon
for Economic Prism
