Below is a commentary from Craig Turner, senior commodities broker with StoneX Financial Inc., Daniels Trading Division. Turner discusses the impact of fed’s tapering talk and the fear of the spread of the Delta variant on the stock market.
Q2 2021 hedge fund letters, conferences and more
Federal Reserve Tapering
The latest Fed meeting minutes show most voting members agreeing they need to start tapering sooner rather than later. That means less monetary support for the markets and that is causing a "risk off" mentality in energy and copper this morning. Ags are lower, but we are also in a seasonally bearish window and some of the yields to come out of the Pro Farmer tour were better than expected.
Crude is down $2 (-3%), Copper is down 8 cents (-2%), Gasoline is down 7 cents (-3.5%), Natural Gas is down 8 cents (-2%), Corn is down 17 cents (-3%), Soybeans are down 38 cents (-3%), and the list goes on. The U.S. stock market and gold are holding up well as they are barely changed on the day. The U.S. Dollar index is up 0.30.
Delta Fears
One reason why Ag, Energy, and Copper may be hit harder than other markets is the fear for COVID-related shutdowns due to the spread of the Delta variant. Lockdowns are coming and there is concern for commodity demand over the next couple of months. Commodities have run higher due to tight stocks and inflation concerns.
Market Outlook
August is rarely a good time to be long the Ag markets. Even in tight stock years it is choppy or bleeds lower in the Sept FND. That is why I like short straddles in corn due to the calendar and carryout levels. The balance sheets are still tight either way you slice it. Any suppressed demand in Q4 most likely comes back stronger in Q1 and Q2, which is what we saw last year when COVID subsided.
From a supply and demand perspective, it is hard to argue for sub $5 corn or soybeans below $12.50. Crude could trade into the $50s but there is no economic justification right now to trade in the $40s. Travel and manufacturing may slow down but we doubt we will see the same kind of shutdowns we saw last year.
As we've said before, when we get a crisis or pandemic like COVID, the 2nd and 3rd iterations do not impact the market nearly as much as the first event. The market knows what to expect. Governments and corporations have a game plan to fall back on. People now know what to expect and can plan around it. There is still risk in these markets and we expect continued volatility.
