The Rural Voice, 1998-10, Page 12ALL, TYPES OF
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PARKEI(
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L I n/1 1 T E CO
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8 THE RURAL VOICE
Robert Mercer
Bets on the battered markets
It seems that wnerever you look,
markets are down. The financial
markcts have taken a hit, the dollar
took a basting and commodities have
slumped right across the board.
Times are tough,
and options are
limited when
trying to find
profit potential
for investments.
Two of the
most interesting
markets to
farmers and their
future
investment
choices are the
general outlook
for soft
commodities
which provide income, and rising
interest rates which affect costs.
The Commodity Research Bureau
futures index, which measures an
index of commodity prices, has
recently bounced off the bottom of a
17 -month decline at 195 points in late
August to a level slightly higher at
over 200 points in mid-September.
(In 1996 the index was over 260.)
These recent low levels of the index
were last seen in 1992/93 and in 1986
when wheat was trading at about
52.50 (U.S.), the same range as
today.
Commodity prices are of great
importance to Canada because much
of the domestic and export market is
commodity oriented — lumber, oil,
grain, fish, gas and gold, for example.
It is this dominance of commodities
in our marketplace that has forced the
dollar to slide as exports, especially
to Asia, have been hit hard.
The Canadian dollar's skid to
record lows at 63 cents (U.S.), now
appears to be reversed. By mid-
September the dollar had risen to 66
cents. This rise has been helped by a
full one per cent point rise in the
central bank rate and the expectation
of the federal govemment budget
surplus being greater than forecast.
Rising interest rates however, do
not help farm costs. Neither do they
help consumer spending or corporate
investment and tend to slow the
economy which is not needed at this
time of uncertainty. Hopefully rates
will not need to be raised again.
In agricultural markets, world
wheat production this year is
estimated at just undcr 600 million
tonnes which is adequate for normal
needs unless there is any hint of a
crop failure. World commodity
trading has now had four to five years
of living on the edge of tight
carryover stocks and has managed
remarkably well to maintain a panic -
free approach to trade when disaster
looms, but does not occur.
The ability of the grain market to
overcome the twin emotions of greed
and fear has done much to help
reduce the volatility under conditions
that, a few years ago, would have had
daily limit moves depending on
weather forecasts.
Even with less volatility in
commodity markets I would expect to
see a far faster recovery in grain and
oilseed prices than in financial
instruments. One report suggests that
it takes an average of 21 months for
the stock market to return to its
previous high after a major sell off.
So a slow recovery is to be expected
in that sector.
To me the agricultural
commodities, grain -oilseeds -
livestock, have seen, or will soon see,
their cyclical lows and will move
higher faster than financial assets.
This is in part also due to financial
assets being switched to hard assets.
Some of those assets including
commodities, have far better profit
potential than equities or bonds, but
do carry risk.
Canada is still a good place to live,
and not all the hurt is with farm
prices. Crude oil is trading below
prices last seen in 1986.0
Robert Mercer was editor of the
Broadwater Market Letter and alarm
commentator in Ontario for 25 years.