Market whispers from 2013

Farm Forum

01/07/14 — The year 2013 has officially ended, and what a barn burner it was for the stock market, which was red hot and pushed to new highs in 2013, just above the old historic highs before the year ended. But while the stock market soared in 2013, grain prices shrunk in value considerably from beginning of year to end. Is the market trying to tell us something? Has the commodity bull market ended, and the stocks bull market just beginning?

Lets review just what happened to prices of various commodities and stock indices in 2013. Wheat prices all retreated healthily, with nearby futures down 22.3% in Chicago, down 23% in KC, and down 26.6% in Minneapolis. Even looking at the new crop 2014 markets, prices retreated 22.3% in July 14 Chicago, 22.2% in July 14 Kansas City, and 25.6% in Minneapolis Sept. 14. This represents a significant loss in value to producers if not contracted on any of these 2014 markets.

While wheat prices retreated between 22-26%, the big dog of the grain markets, corn, declined even more with nearby corn down 39.5% from a year earlier, and new crop Dec. 14 corn down 23.2% from $5.86 to $4.50. This significant decline of course is the result of moving from a terrible crop in 2012 (perhaps a drought for the decades with a 25% below trend yield in corn for 2012 at 123.4 bu/acre) to a slightly above average ‘trend’ crop in 2013 (161 bu/acre current estimate). Once again, a failure to sell corn (even 2014 and beyond years) cost a producer a pretty penny in 2013. Note that the market declines started in 2012, as the highest prices were in August 2012 and into September, and prices started retreating in commodities about that time.

Of course, we were on the mountaintop of high prices at that time, as 2012 was indeed a drought for the decades (especially in corn) and a poor crop for soybeans as well (about 10% below ‘trend’ yields). Soybean prices fared much better in 2013, with only a 7.5% decline in nearby futures and a 12.9% decline in 2014 November futures. Still, a decline from $13.03 to $11.35 in Nov. 14 futures represents a pretty hefty loss of profit for producers who were unsold 2014 crop through the 2013 year. Soybean oil declined 21% in 2013, while meal was actually up 4.1% in nearby futures.

Meats fared better than grains, with live cattle up 3.5% on nearby futures, feeder cattle up 10.1%, and hogs down only 0.3% (less than 1%).

In other commodities, gold was down 28.3%, silver down 36.3%, cooper down 5.5%, platinum down 10.9%, and palladium down 2.1%. But the major metals, gold and silver, suffered tremendously in 2013 – so much for including them in your investment portfolio!

In the softs, coffee was down 23%, cocoa up 21.2%, sugar down 15.9%, cotton up 12.6%, and orange juice up 17.6% so there was no real consistency here. Energies were up 7.2% in crude oil, with heating oil up 1.1%, ethanol down 12.7%, and natural gas up 25.6%.

The real surprise was in the stocks, with the Dow Jones industrials up 26.2%, and the broader S&P500 up a whopping 29.4%! The Nasdaq gained 35.1% while the dollar was nearly steady at just a 0.6% gain (less than 1%). Overall, commodities suffered in 2013 with the CRB index down 11.4%, so commodities as a whole were heading the opposite direction of the screaming higher stock market.

Could it be that the luster was off of commodities in 2013, and the money has been flowing into stocks and out of commodities for the past year? And has that phenomenon been occurring since sometime in 2012? If so, it could be an entirely different economic reality commodity producers are facing over the coming few years, and stocks could be the darling of the markets for the near future!