Beware the shoe salesmen

One more presentation from the USDA Agricultural Outlook that you may want to review is this one, which addresses the speculative positions that hedge funds have taken in commodity markets. Amid the record price run ups of various agricultural commodities, one wonders when the bubble will burst and what impact that might have on the farm economy.

Here is a link from an AgWeb blog that talks about the speculative presence in the market:

“Old school” commodity brokers from the early 1970’s tell me it used to be “easy” to call a top in the commodity markets. The top came when the “shoe salesmen” of the world walked into the branch and opened an account. Today things are a little more complex, as the “shoe salesmen” of the world have a tremendous number of investment vehicles at their disposal (like ETF’s and hedge funds) and they can pile into long commodities without even knowing what they own. With Wall Street talking up commodities (and specifically agriculture) on a daily basis, I believe the volume of money that has poured into the commodity world in recent weeks could be the modern day equivalent of “shoe salesmen” opening a commodity account. Because this money has been flowing in, traders have stopped focusing on signs of domestic demand rationing. Just this week, Smithfield Foods announced a 4% to 5% cut in their sow herd.


TK: At least there is no commodity futures trading for apples or grapes, but I see a bear market meltdown at some point for soft commodities like grain and oilseeds, made more dramatic by the speculative positions in the market by hedge funds.