Trading Places

Christmas 1983, Eddie Murphy, Dan Ackroyd, Jamie Lee Curtis.  A comedic tale of commodity trading, greed and excess (Randolph and Mortimer Duke), nature versus nurture (Murphy and Ackroyd), a tart with a heart (Jamie Lee Curtis) and frozen concentrated orange juice futures.

Fast forward to Christmas and New Year 2020/21 and we are in the middle of an agricultural commodities bull run the like of which we have hardly ever seen before.  The London and Paris futures exchanges are hanging onto the shirt tails and following the lead set by the Chicago markets, where wheat, maize and soyabean futures seem to trade ever higher on a daily basis.

The ‘fund money’ city investors are piling in to buy agricultural commodities which they view as assets that are a hedge against inflation which many investors see as poised to rise as we all go on a post covid spending spree.

Fund money is currently interpreting every small news item as a further buy signal to push the market ever higher, ignoring every argument to the contrary.  Recently they have fed on, port side strikes in Argentina and worries in general over South American crops as a potential world supply issue. Continued Chinese demand and a possible Russian export tariff as a further sign that supplies may tighten.  On Tuesday afternoon this week the latest WASDE (world agricultural supply and demand estimate) from the United States Department of Agriculture added further fuel to the fire when after all the numbers had been crunched, they summarised that, global wheat stocks at the start of the season were less than originally thought with production down slightly and consumption increased resulting in a forecast reduction in ending stocks at the close of this season.  For global corn(maize) the story was similar resulting also in a reduction global corn ending stocks.

Tuesday afternoon close of business saw Chicago wheat up 30 cents/bushel, Chicago Corn up 25 cents per bushel, London wheat up £4.75 per tonne and Paris up 6.50 euro per tonne.

But there appear to be one or two anomalies out there in the financial World: Why is the FTSE and other financial markets generally at current highs when according to news reports most businesses are living on furlough money and government hand-outs. Further on the back of this why is the housing market on fire? Also, post Brexit with a deal done why has the value of sterling not gained relative to the euro?

News stories and thoughts of global stock numbers can change on a daily, weekly and monthly basis.  Turning down the price offered by your local friendly merchant today confident that tomorrow he will bid you more might seem like a simple and clever strategy in the middle of a huge Bull run.

But if the latest news and numbers subsequently turn out to be wrong and some one stands up in the market and shouts ‘Sell April Orange Juice at $1.42!’ then watch out because as Randolph and Mortimer Duke will tell you catching a market on a corrective down as it races to 29 cents is almost impossible.  Ultimately, they ended the movie bankrupt, whilst the characters of Winthorpe, Valentine and Ophelia end it rich.  The fortunes of all changing on one news report!