Back Forty: The Gambler
The Bloomberg Grains Sub index Total Return tumbled to the lowest since 1977. Soybean and corn futures slumped after tweets from President Trump that threaten an escalation of the U.s.-china trade war, frustrating battered American producers hoping for a quick resolution.
The prospect of an end to the tariffs that Beijing imposed on U.S. soy, corn and wheat exports was one of the bright spots for American agriculture markets. Chinese officials were still planning to travel to the U.S. for the next round of trade talks -- but was unable to confirm when amid signs that a delay is now being considered.
July soybean futures capped a seventh straight loss as the contract slumped to a record. Soy has been one of the hardest hit commodities by the trade war as China, the world's top consumer, snubbed American imports.
Recent news reports on the U.s.-china trade talks had led many farmers to believe a resolution might be near. “The sense in farm country was ‘my gosh we're finally going to get out of this nightmare'," he said. “And then boom. “It's “like a bad version of the movie ‘Groundhog Day' for the U.S. farmer,” Irwin said.
The bad weather that farmers are facing is a double blow, according to Scott Irwin, an agricultural economist at the University of Illinois in Urbanachampaign. Not only are they unable to plant, he said, but this leaves them more time to stew on the current conditions from trade to the overall downturn, Irwin said.
Here on my farm, I agree with the information presented by Bloomberg. It's been wet for months now, with rain still in the forecast. I've got hay that will need baled in a couple weeks, fence to fix and cows to work, but I can't do any of it until it dries up.
When I was in college, I had an agriculture economics class. The rule of thumb in class, and by pretty much every beef producer I've known- when feed is cheap cattle are high, when feed is high cattle are cheap. This cycle is driven by the feed yards that fatten calves every day, feed cost in the feed yards determine how much they can pay for calves coming in. This week, and it seems to me in the weeks and months before, cattle prices aren't adhering to basic economic principles. As I write this article corn, soybeans, oats, rice and spring wheat are all up, so in my mind cattle prices should be down, but live and feeder cattle prices are up as well.
I called a friend of mine at USDA and asked him why the prices aren't following "the way it should be." He had some insight I hadn't thought of- computers now do the trading, whereas it used to be done by an actual person. Twenty years ago, a person could only make so many trades each day, now a computer can make thousands of trades in a minute. When the price of A gets to this sell, and buy B. It happens in a microsecond.
Traders today are using algorithms, or mathematical formulas to decide when to make trades. Today's futures market, and to a point the stock market is largely being driven by speculators and algorithms. What happening in the real world isn't as important as it used to be, drought, bad winters, disease will still affect cattle and crop futures, but mostly it's became a number crunching game done by computers. Listening to my friend at USDA talk about speculation and algorithms I couldn't help but visualize the casinos in Vegas. They won't let you bring your laptop or use a phone at the craps table, but that's essentially what's happening to our stock markets. Computers play the commodities and stock markets with programmed efficiency. They basically cheat at cards, betting on trends and short-term runs, whereas twenty years ago a person would buy a stock or a commodity and wait for it to grow enough over time to get a good return on investment.
Our financial world is basically being ran by people who cheat at cards. It reminds me of the old westerns where the card shark wouldn't do real cowboy work, just sit in the saloon and then try to rip off the real cowboy who just came in with a herd. The sad thing is usually in the western the card cheat got ran out of town, shot or whipped. I don't see that happening for us though.