COLUMNISTS

Alan Guebert: Commodity markets see winter thaw, securities markets remain in deep ice

Alan Guebert
Special to the Farm Forum
Columnist Alan Guebert

As 2023 searches for a toehold, both the commodities and securities markets continue on the paths plowed for them by last year’s larger-than-expected inflation, Russia’s brutal war, a likely surge in the global pandemic, and a growing power vacuum in American politics.

Securities markets hated 2022’s bad news and most market indices hit yearly highs in early January. After that, it was mostly downhill most of the time. The Dow Jones Industrial Average, for example, fell 9 percent last year. A broader market measure, the S&P 500, lost 19.4 percent of its value and the tech-heavy Nasdaq lost a gutting 33.1 percent.

All told, the Spectator Index tweeted New Year’s Day, global securities markets lost a collective $18 trillion of value in 2022, or the equivalent of about three-quarters of the annual U.S. gross domestic product. Not chickenfeed.

In contrast, commodity markets often shrug off doom and gloom and use both as rocket fuel to shoot the moon – place big bets – on prices. That’s exactly what happened in December when tough weather forecasts here and abroad and sagging U.S. livestock and poultry numbers ignited futures prices.

For example, year-ending inventory reports by the U.S. Department of Agriculture strongly suggest that reduced numbers of both U.S. hogs and cattle will keep red meat markets on their present high-price path. That’s especially true for live cattle whose April futures ended December just a tick off the yearly high of $1.62 per pound.

Grain futures also rode a year-ending rally higher. November 2023 soybeans futures, reflecting ever-bigger production woes in Argentina, climbed throughout the holiday season and finished 2022 near its contract high of $14.50 per bushel.

That quick kick up by soybeans inspired both new crop wheat and new crop corn contracts to shake off their early winter torpor for an equally quick, follow-the-leader move higher, too.

Neither small rally, however, looks as sustainable as soybeans' strong move. Lingering questions over South America’s crop will keep world markets on edge until hard answers – best delivered by working combines – start trickling in sometime around mid-February.

Until then, an even bigger wild card, China’ fast-spreading Covid-19 pandemic, could easily undermine almost any other market-driving factor, bullish or bearish, in both the securities and ag commodities markets. The reason is the mortal, Covid-centered math now increasingly preying on China’s people and economy.

It’s the almost inevitable consequence of China’s years-long, deeply contentious national Covid isolation policy. Designed to keep the disease from spreading, it resulted in widespread political discontent and, eventually, open defiance. When China’s chastened leaders lifted the restrictive rules last month, Covid – as expected – quickly filled hospitals and mortuaries.

Since China claims not to track either Covid hospitalizations or Covid deaths, at least officially, it’s difficult to judge the pandemic’s immediate impact on the world’s largest national population and second largest national economy. Comparing what the U.S. experienced since 2020 to what China may see in 2023 suggests some very grim times ahead for America’s biggest ag export buyer.

For example, through Dec. 2022, the overall American death toll tied to Covid stood at 1.1 million out of a population base of 332 million. If China – with 4.3-times more people (or 1.43 billion in total population) – lost the U.S. equivalent to Covid, it can expect 4.7 million Covid deaths.

That back-of-the-envelope estimate is nothing more than that; it’s not a prediction or a forecast. It is, however, one market-altering possibility hanging over almost every commodity and securities market from Chicago to Shanghai.

Initially, suggested Bloomberg News in late December, China's reopening is “set to buoy demand for crops.” And it did; witness the late-December commodity rally. January could see a similar kick because, beginning Jan. 8, China will lift restrictions on “imported chilled and frozen foods.” 

Chilled – or maybe frozen – might be the best word to describe 2023’s political possibilities in Washington, D.C. given the rancorous Republican House caucus and its onion-skin thin majority.

On second thought, let’s go with frozen. Or, better yet, “Let It Go…”

The Farm and Food File is published weekly throughout the U.S. and Canada. Past columns, events and contact information are posted at www.farmandfoodfile.com.