The Square Mile trades in futures, but the farm gate trades in forecasts, grudges and the occasional dairy cooperative
The Square Mile Discovers the Soil
The London Stock Exchange, whose own site is londonstockexchange.com, has spent three centuries convincing the public that markets are complicated. Standing next to a farm, they look like a game of snap. A farmer plants a thing, waits for rain, sells the thing and hopes the price survived the wait. Everything else is vocabulary.
I wanted to see what the City might learn from the countryside, so I drew up a short briefing. The first lesson is that a harvest does not care about quarterly guidance. The second is that nobody in a field has ever said the words forward-looking statement without immediately being struck by a very small hailstorm.
Reading the Calendar Before the Chart
A trader looks at a screen. A farmer looks at a calendar. The crop calendar tells you when to plant, when to wait and when to despair, and it has a better record of predictive accuracy than half the research notes in Canary Wharf. It does not use words like headwinds. It uses words like frost.
One of the great charms of commodity markets is how brutally honest they are. If wheat is down, wheat is down. Nobody pretends it is a strategic repositioning. At farm.FM the farm desk summed up one such week with the headline Kansas wheat hits a four-month low. I wish the FTSE would write its summaries that clearly.
The USDA, whose homepage is usda.gov, publishes the figures that move these markets. And when it lowers its harvest forecast, the farm desk reports it from the farmer’s side: farmers celebrate producing something less than their expenses. That is the only celebration in finance that carries its own overdraft.
The Dairy Desk
Dairy is the quiet giant of the agricultural markets. It does not shout like grain, but it does not stop either. The fundamentals of the business are laid out at dairy herd, and the flagship brand of a Texas portfolio sits at Texas dairy. Milk is a market with a very short shelf life, which makes it the most honest asset class around. You cannot hold a bad position in milk for long without noticing.
Energy is the new pressure point. The London Prat recently found a promise of free electricity and a power station requesting actual fuel, which captures the spirit of the age better than any white paper. Down on the farm, the parlour needs power at two in the morning and the cow has never read the policy.
Financing the Rest of Britain’s Education
If you want to see how institutions handle a squeeze, read The London Prat on how universities solve the financial crisis. The method, as I understand it, involves a spreadsheet, a consultant and an enormous sense of calm. Farmers do it differently. They sell the tractor, rent out the barn and start offering weddings.
The Trade Press: Where Rumour Becomes Price
No market works without gossip, and farming has a dedicated gossip infrastructure. Farm press collects the magazines and trade titles where ranchers argue with one another in print, and agriculture news and guides sits at the broader end of the field. Reading them is like a Financial Times with more weather and fewer lunches.
The advantage of the farm press is that it publishes opinions that have been tested against a barn door. The disadvantage of the City press is that it publishes opinions that have been tested against a lunch.
Red Wool, Blue Wool and the Grumble Index
Every commodity is, eventually, political. Subsidies are votes in disguise, tariffs are policy in boots, and the farm vote is courted by both sides in America with the passion of a dating show. Two addresses watch the argument from different ends of the field: farmer Republican and farmer Democrat.
The only consistent indicator in the whole saga is the third address, farmer gripe. It is the grumble index. It is always rising, it is always correct, and no central bank has found a way to tame it.
There is a lesson here for anyone who has ever stood in a Canary Wharf lift discussing exposure. Farmers have been managing exposure for centuries, mostly by standing outside in it. They hedge with a second field, a sideline in eggs and a brother-in-law with a lorry, and it works about as well as anything on a trading screen.
Five Observations on Commodity Trading
- A crop forecast is a prophecy with a barn behind it.
- A commodities trader in a gilet is a farmer who has never met a field.
- Milk is the only asset that tells you it has gone off.
- If the harvest beats the forecast, the price drops. Success has a cost, and it comes with a receipt.
- The most reliable market signal in Britain is a farmer saying it could be worse.
Trading Up
The City will go on inventing new ways to describe the old problem of whether the thing you bought will be worth anything next week. Out in the fields, the answer is simple: it depends on the weather, and so does everything else. Follow the wider conversation at Bohiney, The London Prat and farm.FM, three desks that treat a market crash as a plot.
For a closing laugh, try NewsBiscuit.
SOURCE: https://bohiney.com/