We are finally moving past the season of headlines about headlines. That week between Christmas and New Year’s Eve always tends to bring news pieces that summarize the top stories of the preceding year. I always enjoy those summaries — it’s a great way to jolt your memory about what forgotten societal obsessions were going on months ago, and it’s a great way to assess your own feelings about life over the past year.
Following close on their heels was the next headline phenomenon — predictions for the new year. What will be the top headlines of 2017? (A question that is only too easy to prophesy incorrectly.) I find those pieces less entertaining, and less useful, than the year-in-review variety.
Nevertheless, I was scanning headlines at the start of this week, and something did catch my eye that reminded me just how powerful headlines can be.
“Bitcoin Digital Currency Passes $1,000 Mark,” the bold print shouted at me.
“Oh boy! $1,000!” I thought, and then, before I could help myself, “I wonder if I should buy some?”
It didn’t take me long to remember that bitcoin had been above $1,000 before, as recently as 2014, and then it collapsed, and it will likely heave and collapse a few more times in the future. But if it had never reached that nice, round, headline-friendly number this week — $1,000 — then those headlines never would have been written, and I would never have been reminded of bitcoin’s existence, even as a dim, fleeting thought. No one writes headlines about cryptocurrencies that happen to be worth $984.32.
Similarly, even though virtually no one actually trades the Dow Jones Industrial Average or really cares about the aggregate performance of those particular 30 companies, it’s still the equity index that’s been getting all the attention over the past couple of weeks. Like a will-they-or-won’t-they romantic couple on a soap opera, the Dow Jones Industrial Average keeps teasing its obsessive onlookers — will today be the day it breaches 20,000? No? Maybe tomorrow? Never mind that absolutely nothing is different about a world with a DJIA at 19,999 versus a world at 20,001. Never mind that the S&P 500 Index has consistently failed to extend any upward momentum since its Dec. 13 high. No, the Dow Jones near 20,000 — that’s what gets the headlines. This is fascinating stuff to the human psyche, and I’m as guilty of it as anyone.
So, I wondered, are the agricultural commodity markets affected by this spectacle?
Of course they are, although it can be difficult to measure. Think about who is active in the futures markets. In grain contracts, the largest group of participants are the bona fide hedgers — grain exporters, ethanol plants, cattle feeders, co-ops, farmers, etc. Those traders don’t particularly care if the price of corn is $3.83 1/4 or $4.00, and they sure don’t care if the market is earning headlines in the newspapers, just as long as they’re still earning their profit margins. Similarly, there are speculative traders whose buy- or sell-signals get triggered by pure mathematics or weather or outside market influence (again, blind to the psychological difference between $3.99 1/2 and $4.01 1/2). Then there are some long-only index funds that will buy and hold grain futures whether the price tag is melodious on the tongue or not, although it probably helps gin up some business for them when the newspapers carry headlines about grain prices going higher. The people those headlines really affect are the discretionary traders, i.e. funds or personal accounts directed by human decision-making.
There’s no really good way to parse out the scale of their participation in the grain futures markets compared to the larger population of traders who don’t really care about round numbers and headlines. Nevertheless, I was able to illustrate some movement of money coming in and out of the grain markets whenever grain markets become a hot topic for journalists, then fall back out of favor.
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By charting the number of Google searches for the phrase “corn futures,” we can see those historical moments when the market suddenly captured public attention — months like June 2008, September 2010, and of course, July 2012. Total open interest in the corn futures market — the number of futures contracts that have been either bought or sold and not yet closed out for profit or loss — frequently ebbs and flows at the same time as public curiosity about corn prices. But not always. For instance, there was no corresponding peak in futures trading open interest during that drought summer of 2012, even while Google searches about corn futures were extremely popular, and even while the prices themselves skyrocketed.
What I found most interesting from stacking these three quantities on top of each other — the numbers of times that “corn futures” get searched on Google, the amount of outstanding total open interest in corn futures trade, and the underlying price of the front-month corn futures contract — was which of those measures was the leader. And usually it was the Google searches. During the past decade, it seems like public interest in the term “corn futures” seems to burgeon about a month right before corn prices themselves top out.
Unfortunately, this is less helpful to look at right now, when all three quantities seem to have been hovering along in a sideways fashion since 2015. But it’s promising to see that someday we might be able to really prophesy a future headline, or to follow a sudden surge of grain market headlines with a positive reaction.
Here’s hoping for a stimulating 2017!
Elaine Kub is the author of “Mastering the Grain Markets: How Profits Are Really Made” and can be reached at firstname.lastname@example.org or on Twitter @elainekub.