Europe Economy

Corn Latest Signal That 2011 Looks Like 2008: Strategist

The price of corn is the latest of a series of signals that remind investors about 2008, the year the financial crisis spread across the globe and Lehman Brothers collapsed, Simon Derrick, chief currency strategist at Bank of New York Mellon, wrote in a note Monday.

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On June 9, the front month corn futures contract hit a high on $793 before staging a "notable reversal," down 21 percent by the close on Friday, Derrick wrote.

The front month futures contract for corn hit a high of $765 on June 23, 2008, only to plunge 34 percent by the start of August, he added. 

"We are certainly not arguing is that 2011 is a carbon copy of 2008," Derrick wrote. "Nevertheless, it is apparent that a similar set of warning signals continue to emerge from a variety of different markets."

In early 2008, a clear reversal in prices of basic foodstuffs happened well before oil prices peaked in July, with a dramatic fall in wheat prices the most prominent, he reminded.

By the time that oil prices and, a week later, the dollar changed course in mid-July 2008, wheat prices were down more than 30 percent, according to Derrick.

"As we argued in early July of that year, the reason why this mattered was that it signaled a dramatic abatement in global inflationary pressures that would see investors turn from seeking out the currencies with the most hawkish central banks to, instead, favoring those with the most growth oriented monetary policy stance (or, more simply, a retreat from risk)," he wrote.

Analysts at Bank of New York Mellon have stressed the similarities between 2011 and 2008 for a few months, the most notable being the reversal in wheat prices, which have fallen about 35 percent from their peak in February.

Silver also fell 30 percent since the start of May and the Baltic Dry Index, which tracks shipping prices, is half the level it was at last September, Derrick wrote.

"While it may tell us little about what should happen this morning (it is worth recalling that the USD continued to fall all the way through until mid-July 2008), these signals only add to our view that this summer could see some telling reversals in the currency markets," he added.