Volatile Markets are Here
May 13, 2011 I often look back at columns I wrote exactly a year ago to compare what was going on then with what’s going on now.
Unlikely as it may seem in a cotton publication, the April 2010 column started with a quote from Richard Brock of Brock and Associates on soybeans and corn: “If you think we’ll get back to $15 soybeans and $7.50 corn like we did in ’08, you’re smoking dope.”
He manned up and made a call, didn’t he? His words were prophetic. On the Chicago Board of Trade, the November ‘11 delivery month had a life-of-contract high of $14.09 per bushel, and a life-of-contract low of $9.12. December ’11 corn had a life-of-contract high of $6.19, and low $3.83.
As we go to press, a magnitude 8.9 earthquake and resulting tsunami just hit Japan and have caused incalculable destruction and suffering. Japan is a great grains customer of the U.S. and what’s happened there has caused some serious concerns in the markets. Again as we go to press, November soybeans and December corn opened this morning at $12.65 and $5.65. Still prices you wouldn’t run from.
The point?
In our cover story that starts on page 8, Allenberg Cotton Co. CEO Joe Nicosia warns that cotton prices could be just as volatile this year. He said the world doesn’t need a big cotton crop in 2010. It needs a massive one: “The world needs to grow a cotton crop so big that it can afford to have a disaster somewhere and still have enough cotton. We know that the risk now is so great, that if we have trouble anywhere in the world, you can put a $5 bill up there.” He was referring to a PowerPoint slide showing a $2 bill. He added that he was joking about $5 cotton.
We would probably be smoking dope, too, if we think cotton is going to $5. But at this time last year, who thought old-crop futures were going to $2.50? Who thought new-crop futures were going to $1.30?
But the fact of the matter is, disasters do happen – natural or man-made. In Japan right now, there are 3,676 confirmed killed and another 7,558 missing. It’s going higher. A lot higher. And another 400,000 are huddling under whatever they can find for a roof. It’s cold in Japan, and there’s a shrinking supply of fuel for heat. There are also food and water shortages that get worse daily. Nobody knows how bad the radiation leaks are going to be.
A sobering thought.
What’s going on in the markets today should also get your attention. You see what’s happening with grains. You see what’s happening with cotton. I couldn’t help but be reminded of a point Nicosia rammed home: “This is the best time ever – ever – to plant cotton. You have the biggest profitability ever, and the market is asking for it, which creates an opportunity. I’d sell it now.”
I hope you did. Because you never, ever know when a disaster is going to hit.
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