Chicago Board of Trade soft red winter wheat prices began a long-term bear market over five years ago in July 2012. Since then, prices have fallen by more than 50%. The good news for wheat growers is that while prices are depressed by 2007-2017 standards, at $4.30 per bushel, they remain higher than levels between 1997 and 2006 when prices fell below $3.00 per bushel (Figure 1). What concerns many wheat growers, however, is the level of inventory. Ending-stocks-to-use ratios have rarely been so high (Figure 2). Will the level of inventories further pressure prices and send wheat below $4.00, or even $3.00 per bushel?
Since losing its parliamentary majority in June 2017, British Prime Minister Theresa May’s Conservative Party has been hanging by a thread, propped up by coalition partner, the Democratic Unionist Party (DUP) of Northern Ireland. Even under the best of circumstances, keeping the coalition’s grip on power was a difficult task. For starters, the government must negotiate Brexit, which was already complicated without the DUP advocating special arrangements for Ireland. Making matters worse, European Union (EU) leaders told Britain “to go back and try harder,” saying that Brexit negotiations haven’t advanced far enough on issues such as the status of EU citizens living in Britain and the payment Britain will make to Brussels when it leaves the EU and Northern Ireland to advance the discussions to Britain’s future commercial relationship with Europe or a post-Brexit transition period. While there is some hope that Britain will soon agree to a £60 billion divorce fee, the negotiations haven’t gotten past square one.
Adding to May’s woes is tabloid-worthy discord within her cabinet. Andrea Leadsom, the Leader of the House of Commons, denounced Michael Fallon, the Defense Secretary, for making “derogatory comments of a sexual nature” towards her, prompting his resignation. This dispute triggered an eruption of unrelated allegations of inappropriate conduct within parliament. While these controversies touch all major parties, the government is taking the brunt of it.
Given the fragility of the current government, markets should probably be thinking carefully about the next Prime Minister and the potential impact on the U.K. economy and currency. In fact, even if things in Westminster were going swimmingly (which they aren’t), markets should probably be looking to the next elections anyway. As is the case in democracies, U.K. voters have a way of turning against incumbents. In the past century, there have been 26 general elections. In those 26 elections, the incumbent party or coalition of parties expanded their popular vote margin in only five of them and lost support in the other 21, including each of the past eight elections (Figure 1).
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An inherent tension exists between the two major purposes of money. Currencies that are perceived as great stores of value, such as gold and bitcoin, make for poor mediums of exchange. By contrast, currencies that are effective mediums of exchange, such as fiat currencies used the world over, can make for dubious stores of value. Where a currency falls on the store of value versus medium of exchange spectrum influences its usefulness as a unit of account and a standard of deferred payment.