The Good: You can debate the relevance of the Chicago oat market to price discovery, but at least it has displayed some very rational behaviour in the light of the North American drought. Unlike spring wheat and canola, the oat market has rallied in 10 of the past 12 trading sessions since the release of the USDA report. This has resulted in a gain of US$0.75 per bushel since the release of the report. The market is now trying to price in the deterioration in the Canadian crop, which is very important in the U.S. oats supply situation. Cash oat prices have rallied in the Prairies to the C$4.50 to C$5.00 per bushel range which reflects the poor growing conditions this year.
The Bad: The spring wheat market was lower today, which marks the third session in a row of declines. The fact that the crop conditions for spring wheat dropped to eight per cent good to excellent rallied the market today, but a weak close pushed the September contract to a loss of a half cent on the day. The market appears to be sleep walking since the contract high was established on July 20th. Crop conditions in Canada and the U.S. have declined but the market is having a hard time rallying back to the US$9.00 per bushel level. Even when it is in a drought induced rally, spring wheat still gets no respect!
The Ugly: Here is an investment proposition for you. Put your money into the world’s second largest economy that is growing at a double digit rate out of the COVID-19 outbreak. What could go wrong. Well, what could go wrong is that country is China – a communist country that can change the rules of the stock market at a drop of a hat. Last week, companies that created social media apps faced the scrutiny of the security police. This week, the government has decided that certain sectors of the market (education) should be non profit. It makes you glad that you don’t live in China, but then you realize that your emerging market fund has a 90 per cent weighting in the Chinese economy. Hint it is one that is down 10 per cent in the past two days.