From the Macro Tourist:
I have had some bad trades in my day. But lately, one call has been especially atrocious. For the past couple of years, I have taken stabs on the long side of the grain market. At different times, I have held various positions for different lengths of time, but make no mistake - grains have done nothing but cost me money. Sure, I might have a decent sounding argument, The Last Remaining Cheap Asset, but the market is indisputably telling me that I am dead wrong.
And it’s hard to sit and watch the grains go down. Day after day. Week after week. Month after month. Like the slow drip of a leaky faucet that no one can fix, it can drive you insane.
Have a look at the 5-year chart for front month Wheat.
Tough to make money writing any blue tickets with that sort of action. All rallies have been opportunities to sell, not the start of any sustainable uptrend.
This recent grain bear market has pushed the big three contracts (wheat, corn and soybeans) down to near all time lows when measured in real terms.
I don’t want to bother with another forecast about why this time will be different, and how the low will be made in the coming weeks. After a certain number posts, I begin to more closely resemble a degenerate gambler than a cool calculating macro trader (I think that number might be three, which means it’s too late for me, and I do in fact resemble Richard Dreyfuss a whole lot more than George Soros).
And although I poke fun at myself, it’s no laughing matter. The amount of economic pain in farming is downright scary. According to an article in The Guardian, Why are America’s farmers killing themselves in record numbers?, the stress from low grain prices is causing an epidemic amongst the agricultural community.
Once upon a time, I was a vegetable farmer in Arizona. And I, too, called Rosmann. I was depressed, unhappily married, a new mom, overwhelmed by the kind of large debt typical for a farm operation.
We were growing food, but couldn’t afford to buy it. We worked 80 hours a week, but we couldn’t afford to see a dentist, let alone a therapist. I remember panic when a late freeze threatened our crop, the constant fights about money, the way light swept across the walls on the days I could not force myself to get out of bed.
“Farming has always been a stressful occupation because many of the factors that affect agricultural production are largely beyond the control of the producers,” wrote Rosmann in the journal Behavioral Healthcare. “The emotional wellbeing of family farmers and ranchers is intimately intertwined with these changes.”
Last year, a study by the Centers for Disease Control and Prevention (CDC) found that people working in agriculture - including farmers, farm laborers, ranchers, fishers, and lumber harvesters - take their lives at a rate higher than any other occupation. The data suggested that the suicide rate for agricultural workers in 17 states was nearly five times higher compared with that in the general population......
...... The lightbulb
For the longest time, I had no idea why grain prices were so low. It perplexed me. Central Banks around the globe were printing money at an unprecedented pace. All else being equal, you would expect a real asset, like grains, to have rallied in these circumstances. Yeah sure the advances in farming technology might keep the price of grains pressured, but at the same time, demand has also never been higher, so you would expect the debasement of money to eventually win out and send grains prices skyward.Our intro to and outro from "The Last Remaining Cheap Asset":
But more importantly, these situations are usually self correcting. Nothing solves the problem of oversupply like low prices. Except this time. Even with the state of farming littered with heartbreaking stories of ruined families, not enough farmers are giving up planting crops to allow the price to rise....MUCH MORE
Ah hell.
I hate seeing stuff like this in print.
It's true but I hate seeing it.
And it gets worse. He profanes an image of Julie Andrews along the way.
This Julie Andrews:
"It would surprise no one, perhaps, to learn that Julie Andrews travels with her own teakettle."No. No it would not....
***********The only positives of seeing this talked about are 1) You are dealing with a complex-chaotic system (a financial market) overlaid on a complex-chaotic system (weather) that will crush (soybean pun) you should you start to exhibit any symptoms of hubris, thus weeding out quite a few of the wannabes and 2) although the intraday move can be violent the longer term stuff can lull you into serious misreadings of reality.
The best examples are in the presentation of the charts above; it's actually been a wonderful trading environment.
If you've been short.
Which is what two-sided markets are all about.
The Andrews quote is from "Nun with a Switchblade: Julie Andrews and The Fiftieth Anniversary Of The Sound Of Music".
If interested we embedded one of the better homages to Dame Julia Elizabeth in "Watch Out Mary Poppins: The World's First Tea Brewing System Utilizing Machine-Learning Algorithms Has Received Pre-Launch Seed Funding (plus a Princess Rap Battle)" although purists will probably have the same reaction to it that I had to news Disney was planning a Mary Poppins sequel:
Blasphème!
