The Tractor Seat Bounce
In the early 1960’s, if memory serves best, tractor seats evolved from a curved metal plate mounted on spring steel, to a cushion with a short back rest solidly attached to the tractor frame. No longer did the tractor operator bounce up and down through the field. Wallets, pocket knives, pliers, and coins in the pocket were frequently jostled out on a tractor seat bounce.
The up and down motion of the grain market in the past week—in the midst of planting—is known as the tractor seat bounce. But unlike years past, when money was physically lost out of overall pockets, the grain markets of the past few days gave farmers the opportunity to put money in their pockets that was unexpected ten days ago.
The market rally from nowhere began on April 19 and picked up speed as planting progressed across the Cornbelt. Checking the markets on cell phones and tractor tablets, farmers were unusually curious why it was happening. They had been told for months that burdensome global stocks of corn, beans, and wheat would depress prices; and those prices would likely prevent nearly all farmers from any chance of profitability from the 2016 crops.
So what would cause new beans to close 26 cents higher last Tuesday? And on Wednesday, what would have caused old corn to gain 10 cents, and old beans gain another 22 cents? Then on Thursday what would have caused volatility to push old beans 9 cents higher and push both new and old corn 9 to 11 cents lower? Then Friday the floor dropped out with new and old corn down 11 to 13 cents, old beans down 35 cents, and new beans losing 18 cents. But why?
Tractor seats go up and down.
Monday, the market for old corn was up nearly 20 cents at one point and closed 7 cents higher. New crop corn spanned 15 cents and closed 8 cents higher. Old beans traded in a 42 cent range, and closed 13 cents higher. New crop beans traded in a 37 cent range and closed 12 cents higher.
Obviously, the market drivers still had the key and were behind the wheel, despite the fact no one had a roadmap and could not see if any curves or stop signs were ahead. As the market furiously bounced up and down, it was clear that managed investment money was flowing into the market as tens of thousands of futures contracts were being traded daily. Fund managers are not there to interpret the fundamentals of supply and demand, only to get on board a moving market and make money buying or selling.
Heritage Grain Cooperative General Manager Jerry Rowe at Dalton City said, “Imagine someone, someplace sitting at a computer and buying 5000 contracts by hitting the enter key. If the market cannot fill those contracts without moving up or down to find sellers, it is going to take some time for the market to go higher so commercial grain managers can find contracts to sell out of their offer book. How much the market has to move depends on where the offers are to sell. Thus we are seeing big movements in the price to fill these buy contracts.”
Market analysts have identified a myriad of fundamental factors that added fuel to the volatility. Those included extensive rain damage for Argentine soybeans, drought cutting both corn and bean crops in Brazil, China buying corn from Ukraine but converting its reserves into export sales, the potential for the Fed to raise interest rates earlier than expected because of inflation, and farmers selling grain as prices rose.
Since tractor seats don’t bounce as violently as they used to, many farmers were able to make a cell phone call and sell grain at a time no one foresaw.
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