Bond Bears Beware As Ag Prices Hit Record Low

Long-end bond yields are lower and the front-end higher once again this morning as the US Treasury yield curve continues to confound by flattening. Bloomberg macro strategist Mark Cudmore suspects there is more to come... for one simple reason, so often overlooked...

Via Bloomberg,

Cheaper eats are great, but maybe not if you’re one of the many expecting a sustainable bump in bond yields next year.

Falling food prices risk wrecking the forecasts -- seen pretty much every December for years now -- for yields to climb in the new year. Ten-year Treasury rates haven’t closed a year above 2.45 percent since 2013.

 

Bond bears seem to struggle to incorporate structural disinflationary pressures that have come from technology and globalization.

 

The Bloomberg Agriculture Subindex on Monday hit its lowest level since the series began in 1991. Technology and science are making the agriculture industry increasingly efficient, and there are still plenty of production gains to be made globally.

 

 

Combined with the overhang of energy supply that’s capping oil prices -- and therefore processing, transport and distribution costs -- that means the long-term trend remains one of cheaper food prices.

 

And food prices are a key component of consumer price index baskets around the world.

 

The impact is global, real and seems to be constantly underestimated.

 

Since Saturday, China, Denmark, Norway and the Czech Republic have all released CPI prints where the annual rate was both decelerating and below expectations. Food prices were specifically cited in China’s case.

None of this is to argue that bond yields can’t spike higher for short periods, notes Cudmore, but it’s just an argument to highlight that structural disinflationary pressures from technology remain strong and shouldn’t be dismissed.

With several major central banks indicating that the marginal bias is to tighten policy, that will further crimp price rises. And that doesn’t bode well for a sustainable broad rise in developed-market yields.

Comments

4shzl wisehiney Mon, 12/11/2017 - 20:21 Permalink

I think oil and ag are second order factors.  Demographics are destiny, and in our case, extremely deflationary.   I don't know why anyone would prefer TLT to actual Treasuries.  Why pay a middleman when when you can structure a portfolio of laddered maturities to suit your needs?  I guess I'm just an old fogey who thinks old ways are best . . .   

In reply to by wisehiney

Potato Farmer wisehiney Mon, 12/11/2017 - 22:27 Permalink

Cheap food equates to hungry people.When food prices fall below parity, or the cost of production, for farmers, that lack of income cascades throughout the whole economy, creating that deflationary spiral you mention.What have we done to remedy that spiral?Debt.Not sustainable, you say?  Um...yeah.

In reply to by wisehiney

Nomad Trader Mon, 12/11/2017 - 19:58 Permalink

Highly deflationary food? Sure I'd agree with that. But what about rent and healthcare? It's my belief that the bond market is smarter than to give a rats ass what the fakeflation CPI prints each month. 

Silver Savior Mon, 12/11/2017 - 20:00 Permalink

Dude I thought this was going to be a silver article ( AG. )Like an article that could tell me that silver is grossly undervalued and stuff. Ya know to give someone else a clue maybe to buy. On second thought they still don't care. 

Global Douche Silver Savior Mon, 12/11/2017 - 21:37 Permalink

This fellow silver stacker also got click-baited, but farmer stories are dear to me. Jim Rogers has stated the average age of the American farmer is 58 now. It's even worse in Japan. Some young people are already getting out of the cities and trying their hand in organic or other sustainable farming. Some will have success if they "keep it real" and have made good contacts, keeping their clients with the freshest produce and/or meats. If the SHTF soon enough, they'll have the upper hand in bartering something of true sustainable value.Of course, Ag is grossly undervalued! You and I will share in a "told ya fuckers!" Rebel Yell at some point when the Markets overtake the Paper Ponzi. It's a matter of WHEN.

In reply to by Silver Savior

FreeNewEnergy Mon, 12/11/2017 - 20:10 Permalink

Yep, food is cheap, especially when you shoot it.Buddy of mine shot two does in a matter of five seconds the other day. He's pretty proud (guy's a former MP, and a dead-eye). Plenty of venison this winter.BTW: eggs, even store-bought are good for you. Who knew?

CRM114 Gods Mon, 12/11/2017 - 21:11 Permalink

Raw food prices, flour, steak, etc, are dropping. Junk and processed food is spiking.The industry, and Government, knows that the majority can't or won't cook.Bake your own bread, make your own pies, etc. It tastes way better, costs a lot less, and does you good. Takes me 2 minutes to fill my bread machine, and I easily save all my cooking and prep time because I go to the shops half as often as you do.

In reply to by Gods

Global Douche CRM114 Mon, 12/11/2017 - 21:28 Permalink

It's so hilarious! Hamburger Helper is less than 2 bucks and makes a decent, filling meal if you have a pound of ground beef, a cup of milk and some hot water. It takes some time and work to prepare the dish, but that's too much for too many Americans nowdays, especially with housewives essentially as extinct.Maybe Rosie the Robot will "do the fixin's" for her lazy, sloven humans.

In reply to by CRM114

lil dirtball CRM114 Mon, 12/11/2017 - 22:08 Permalink

> 2 minutes to fill my bread machine

ACK! B-b-b-bread machine?

While I applaud your determination to make yourself some quality food - and it does do you good - mind, body and soul - you need to unload this demonic technology and unchain yourself from the (((yeast))). The 'Rapid Rise' stuff is absolutely toxic. And the shit is expensive.

Learn sourdough. It's free. It's easy. It's natural and alive and is gentle on your blood sugar. It's unlimited to variety and variation ... and it's just flour and water.

You can buy some starter (you'll only buy it once) or you can just make your own. There are mountains of info on the net. Keep it in a pint mason jar in the fridge and feed it some more flour and water once or twice a month (you'll feed it every time you bake). It's a lot more durable than advertised.

And after giving your 'machine' to the Salvation Army (or, better, just send it to the dump so as to not tempt some other innocent soul with its machinations) get one these:

https://www.ebay.com/sch/i.html?_sop=10&_nkw=kitchenaid+k5-a&_sacat=0&_…

They're KitchenAid K5-A mixers, made in the 60's and 70's. They literally don't make these workhorses like this anymore. All metal gears ... they'll run forever and you won't be chained to all the limitations of your bread 'machine'.

This is a passion of mine - I hope you'll at least consider the above and learn some new skills. The net is loaded with people willing to help.

In reply to by CRM114