Dave, thank you for taking the time to speak with me. You began the Hightower Report back in 1990. What are biggest changes that you have seen in the markets since then?
When I started the company, China was relatively unimportant in the world grain markets. It is now the most important factor in terms of price and flows.
Back in 1990, the markets were still very US-focused, and still driven principally by the fundamentals of each particular commodity. Since then the markets have become global and have lost much of that focus on the US.
Globalization has also meant that markets now often move together, in unison. Ethanol has played a role in this: corn and beans are now energy commodities; there is a good correlation between the prices of crude oil, beans and corn.
Traders don’t always pay enough attention to outside markets. The price of oil is a major factor, but you also have to look at currencies and the stock market – are we, for example, going into deflation?
All this means that you can’t just look at the supply and demand of, say, beans, in isolation. You have to take into account a lot of other factors. So that has been the biggest change.
Are the fundamentals still important?
Very much so. The advent of the hedge funds has increased short-term volatility, but in the medium- to long-term, market price will always go to its fundamental value.
What are the main issues now in the grain markets?
We are coming out of a period of over-supply and going into a period of tighter supply. The trade had assumed that we would have multi-year surpluses, but we have slowly transitioned into lower stocks. In the corn market we have seen China liquidate huge strategic stocks – corn that was really old. They are now in a phase of rebuilding their stocks, and we are expecting them to hold bigger stocks than in the past, largely to protect themselves from future supply shocks, for example from a pandemic.
China has already purchased 71 percent of what they promised to buy under the first phase of their US trade deal. They will probably complete what they promised by the end of the year, but they may buy more depending on how much they want to rebuild their strategic stocks.
We are seeing China buying a lot of everything at the moment: crude; natural gas; copper; zinc etc. China’s GDP may grow 5.5 percent this year – that’s relatively slow compared to the past – but their economy is switching focus from exports to domestic consumption. That means that they will buy differently than in the past.
China is not going to buy agricultural commodities because of US pressure; China is going to buy or not buy either because they need it or because the price is attractive to them. In any case, it is not what China buys from the US that is important, it is what China buys globally.
US farmers have received record subsidies this year. Will that continue?
It will be a question of priorities. With the pandemic, there are now a lot of politically more important groups that are lobbying for financial help. The pandemic has increased the need for government spending and reprioritized where it is going. Unless crop prices fall so low that we start to see farm bankruptcies, I think that there will be less subsidies for farmers next year.
Remember that US farmers have had difficulty in promoting ethanol in the face of the oil lobby; the farmers have lost some of their political clout.
What will you be focusing on in your presentation at the Geneva Grain Conference?
I will be looking at the tail end of the Southern Hemisphere crops and then set the scene for the next cycle in the Northern Hemisphere. I will be concentrating on the fundamental S&D.
I will be very specific on the price outlook – where I believe prices will be going over the next six months to a year – and on the timing of future moves.
Thank you, Dave for your time and good luck with your presentation.
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