October 16, 2021

Commodity Insight: It is still all about events

One of my all-time favorite quotes that apply to both the marketplace and politics comes from the lips of Harold Macmillan, prime minister of the United Kingdom between 1957 and 1963.

When questioned by a young journalist about what was most likely to throw the British government off course, Macmillan said: “Events, my dear boy, events.”

The last time I used that particular quote in this column was in early 2020 in “What they’re saying about the coronavirus.” I wrote: “I cannot recall a time in the past 40 to 50 years where ‘events’ are lined up like ducks in a row to impact virtually all markets.”

And here are the major events I highlighted in that column along with some comments, as well:

• Climate change: “The decade that just ended was the warmest and hottest in the history of the world. In the United States, the years 2014 through and including 2019 were five warmest years in history. A week does not go by without some sort of weather anomaly taking place somewhere. When I read of such weather aberrations it makes me worry about the impact it could have on agriculture in the United States during the growing season.”

• Chinese trade deal: “Will newfound demand from China coupled with climate change issues also spark higher U.S. agricultural prices? As a firm believer that history repeats itself, the stage appears set for a scenario to unfold in U.S. agriculture similar to that of 1972 to the early 1980s. If so, grain and livestock producers should be honing their marketing skills. After all, the key to success in agriculture is marketing.”

• Coronavirus: “The long-term impact of the virus sweeping across China and getting a foothold in a host of other countries in Asia and Europe is unknown. In my view, the coronavirus suggests loudly that China needs foodstuffs as soon as possible. Foodstuffs such as pork, beef, poultry and cooking oil. But make no mistake. The trade deal with China is bullish U.S. agriculture.”

Here we are 17 months after I penned the column above and the very same events dominate the U.S. most markets. The July that just passed was the hottest month in history for the entire world, according to the National Oceanic and Atmospheric Administration’s National Centers for Environmental Information.

But, in my view, the summer of 2022 for the United States and the rest of the world will endure even hotter and drier conditions that surpass the summer of 2021. The summer of 2022 could well be an all-time record-breaker for hot and dry growing conditions.

The Chinese trade deal is ongoing and they will likely buy more U.S. goods than expected due to need. A big worry for the Chinese now is the flooding in the major corn and soybeans regions of their nation.

China is on the receiving end of record flooding and if such a phenomena does not soon change there is no doubt in my mind that they will be in need of far more U.S. foodstuffs than what they signed up for in the trade deal.

As for coronavirus, new projections by COVID-19 researchers indicated the pandemic that has killed 4.7 million people worldwide may dramatically decline in the United States by March. It was two years ago in March when the pandemic began to impact the daily life of every American.

But what about the rest of the world? From the final paragraph in the well-written article, “No End in Sight for the COVID-Led Global Supply Chain Disruption,” by Garth Friesen in Forbes: “Near term relief for the global supply chain disruption is not around the corner. As long as demand holds up through the holiday shopping season, COVID outbreaks continue to shut shipping hubs around the world, and extreme weather batters individual links in the chain, expect the disruption to persist.”

The most dramatic event in years took place recently when the Chinese real estate giant Evergrande missed a $83 million payment and warned it may default on its $300 billion in debts.

The news caused all markets stocks and commodities to collapse on the first day of the week. But a huge recovery rally unfolded when the Chinese central bank pumped $70 billion into supporting Evergrande and calming the markets worldwide.

The Chinese news was a historic event. And though most markets shrugged the news off by week’s end, I bet the story, the event, has a long tail.

Investors, traders and agriculture producers should keep a close eye on China and be on the alert for other events as they surface. This week proves conclusively that it is still all about events.