Higher Bitcoin, Lower Grain Prices Ahead?
What you'll read in this issue:
TOP STORY
Lower Corn and Soybean Values Could be Ahead
Farmers are facing a potential multi-year period of lower crop prices and incomes, prompting a renewed focus on risk management and marketing strategies.
Background: Crop prices have dropped significantly from their 2022 highs, with corn at around $4.20 a bushel and soybeans near $10 in October, both down about 10% from the USDA’s estimates earlier this year. Not only is a big crop coming in, many farmers are sitting on more grain than usual from last year’s harvest. This means farmers are having to make room for this year’s crop while selling last year’s grain at lower levels.
Farmer Sentiment: The drop in grain prices, and the resulting expectations for weaker income contributed to a decline in farmer sentiment in September, according to the Purdue University/CME Group Ag Economy Barometer, which reached its lowest point since 2016. While farmer sentiment then saw an unexpected surge in October driven by a rise in producers’ confidence in the future, the Current Conditions Index still reflected farmers’ concerns that economic conditions this year are worse than last year.
Why It Matters: With less income expected, farmers will need to manage operations carefully, even as costs for seed and fertilizer remain high. Risk management tools and creating thoughtful marketing and financial plans are a necessity.
"By using CME Group’s options and futures contracts, we can lock in a minimum price for our crops. This way, even if the market takes a downturn, we have a safety net in place. It's about ensuring that we can cover our costs and maintain profitability, no matter what the market does." – Illinois farmer Matt Bennett, alongside a video highlighting the harvest season on his farm.
➜ Read more about the potential impact of lower grain prices and how one farmer is managing risk.
FEATURED ARTICLE
Volatility in China’s Gold Premium
The Shanghai gold premium - the differential between the domestic price in China and international prices – has experienced extreme movements.
Record Highs: A short-term gold shortage was created by government intervention in the middle of 2023 when China’s central bank decided to tighten gold import quotas to defend the weakening Yuan. This supply disruption coupled with strong Chinese demand facilitated a sharp upward movement in the Shanghai gold premium – the premium at the start of 2023 was around $40 per troy ounce and reached an all-time high of $121.20 on Sept. 14, 2023.
Slowing Demand: Just over one year later, the premium is hovering around -$10/troy ounce, a whopping drop of over $130 from its peak. After meeting the demand for the Chinese New Year, monthly gold withdrawals from the Shanghai Gold Exchange (SGE) flattened. The diminishing withdrawals coincide with the slowdown in local gold demand and are reflected in the lower Shanghai gold premium.
Rally Continues?: If gold prices do stay strong, whether Chinese consumers manage to adapt to the high-price environment and resume purchases could be a factor dictating the premium price. The performance of China’s slowing economy and the Yuan exchange rate could also play crucial roles.
Behind Bitcoin's Post-Election Rally
Despite bitcoin reaching new highs post-election, prices overall have been relatively flat.
Background: Bitcoin prices have often gone on post-halving rallies in the twelve months after coin production declines. Yet, thus far, bitcoin prices have been largely flat, trading in a relatively narrow range at least by historical standards, despite a spike to record highs in a post-election rally.
Gold’s Rally: Gold prices have soared to record levels this year amid central bank buying, budget deficit concerns and worldwide central bank easing. Despite these economic factors, bitcoin did not rally alongside gold.
Quotable: “Some of these same forces which are calling into question the value of government-issued fiat currencies and are boosting gold might eventually work out to bitcoin’s benefit,” writes CME Group Chief Economist, Erik Norland, noting that growing demand for ETFs could be increasing the volume of transactions on the bitcoin blockchain, which in the past has sometimes been a precursor of rising prices.
What Employment Data Can Reveal About the Economy
There are numerous drivers of supply and demand that exist, but some of the most important and consistent external factors include economic data, such as the monthly establishment survey and household survey.
Survey Insights: The establishment survey, or the Current Employment Statistics Program, covers approximately 119,000 businesses and agencies throughout the U.S., offering insights into items like nonfarm wage and job numbers and employment changes. The household survey, or the Current Population Survey, measures demographic-based employment trends and provides the national unemployment rate.
Market Impact: The August jobs report indicated a cooling labor market, with 142,000 jobs added and a slight drop in unemployment to 4.2%. This data, along with downward data revisions to the establishment survey, likely influenced the Fed’s decision to cut rates by 0.50% at their September meeting.
Why It Matters: Releases in line with expectations may reassure investors, and the Fed, that the economy is still trending toward the coveted “soft landing.” Monday-expiring CME Group Treasury options volume spiked to a record 257K contracts in October, fueled by strong non-farm payrolls data from the establishment survey.
Three Unusual Economic Indicators
While many know about traditional indicators like GDP growth and unemployment reports, the combined occurrence of informal indicators can highlight broader economic issues.
First Dates: During prosperous periods, people tend to meet potential partners through in-person activities. However, during downturns, dating apps often see higher engagement as people seek less expensive ways to meet others and support during stressful times – this was studied in the U.S., during the 2008 recession and again after society began opening after the COVID-19 lockdowns.
Cardboard Boxes: The demand for cardboard boxes often correlates with economic booms and busts because it strongly represents the level of consumer spending, which could indicate a potential rise or decline in gross domestic product (GDP). Market participants can use this information to decide how to manage risk in the manufacturing and retail sectors, the packaging and shipping industries, or even in cyclical stocks that tend to respond more strongly to economic expansions or contractions.
Buttered Popcorn Index: This index suggests that when people are going through financial hardship, they tend to escape to the world of fiction, leading to an increase in the success of the film industry. This index was proven to be accurate when the U.S. box office reported massive success in 2009, a year after the recession had set in.
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