There are three hot topics of conversation in the world of the agriculture commodity markets that have been fiercely debated for the past year.
As always with controversial topics, only with the benefit of time will we know for certain how events unfolded and the arguments settled once and for all.
The three topics I am referring are the swine fever epidemic in Asia, the potential to end the trade war with China and the impact high frequency, automated or computer trading is having on ag markets, in particular grains and livestock.
Allow me to start with swine fever infecting the hog herd in China and other Asian countries, as well. The Wall Street Journal published the following headline, “After Devastating China, African Swine Fever Threatens to Go Global. The highly contagious virus has swept across the country more quickly than authorities had expected, crippling the country’s pork industry.”
Daily, there are news stories about the deadly disease that kills hogs on the spot with no cure available. Here in the United States, hog prices have jumped 50% since February due to the problem facing hog producers in Asia. Hopefully, the disease does not show up in the United States.
The trade war with China began in March 2018, and since then, grain prices have declined sharply. Wheat and soybean prices are down more than $2 a bushel and corn off 45 cents a bushel.
The sharp decline with grain prices is one reason the U.S. Department of Agriculture estimates that U.S. farm income will hit a 15- to 20-year low this calendar year.
If U.S. agriculture is suffering due to the trade war, it is logical to assume that ending the conflict will bring about better times for farmers and ranchers.
In fact, if a trade deal is indeed agreed upon and China honors its pledge to buy $50 billion worth of U.S. ag products, it will prove to be revolutionary for American agricultural. But first, a deal has to be struck to halt the financial hemorrhaging inflicting farmers and ranchers.
As for the impact computer and high-frequency trading is having on the agriculture and non-ag-futures markets, consider the following from Gizmodo.com with a headline that blares: “The Vast Majority of All Futures Trading Is Now Automated.”
The article goes on to state: “Who’s up for a friendly neighborhood reminder that the global marketplace is underpinned by automated, high-frequency trading to a nearly incomprehensible degree? Good, then a new report highlights the still-growing dominance of automation in futures markets: For starters, over two-thirds of livestock futures trading is carried out automatically, and 91% of all currency futures trading is now done with nary a human involved.”
The situation with swine fever should be of grave concern to everyone. There is no cure for the disease, and the only positive, thus far, is it has not been detected in the United States.
But understand clearly: Swine fever has the potential to alter the eating habits of every human being on the earth and the global livestock markets, as well.
This week, the U.S. grain and livestock markets were sharply lower, a result of the trade war with China. Plus, farm income in the first quarter of this year was the worst in the past three years. It seems to me, a trade deal has to be struck with China because we need them more than they need us.
As for the topic of “automated computer trading,” I wrote about that in a chapter from my book, “Back to The Futures” in a chapter entitled “Number Crunchers.”
I wrote: “Like it or not, computers and computer trading programs are here to stay. The controversy, however, rages at this very moment. Should computers be allowed to trade the markets or should they be banned? Commodity Insite’s position on this matter is very clear. If computers are outlawed, only outlaws will have computers.”
The phrase, “There are few things that are new under the sun,” is an old saw. That is precisely why those interested in the history of the markets need to check out “Haunted by Markets” or “Back to The Futures,” which can be found at commodityinsite.com.
Knowing the history of markets and how events unfolded in the past can be of great help to deciphering the future. Learn about history.
Keep a close watch on the three hot topics of conversation dominating U.S. agriculture. Stay alert because each topic is fluid and subject to change.
As a result, the marketplace will remain historically volatile causing some producers and traders to make money and others to lose money. Stay alert!