The rise in algorithmic trading and the U.S.-China trade dispute have combined to hurt crop growers, according to a J.P. Morgan Research study published Tuesday.
Even as yields climbed over the past decade, some longer-term investors exited agricultural markets, Tracey Allen, agricultural commodities strategist at JPMorgan Chase & Co. in London, said in the study. European pension funds withdrew funds from the sector in 2013 over concerns they were inflating food prices.
“In my view, this has accentuated the impact of price-trend followers in the market,” Allen said. “These days there are very few long-term investors holding positions based on a specific view on the commodities.”
That dynamic was illustrated when the U.S.-China trade dispute worsened earlier this year, Allen said. The spat helped send a Bloomberg index of grain returns to a 42-year low. But a historic patch of wet weather that stalled plantings in the U.S. has helped bring the market back to its fundamentals.
“When you have incidents like the U.S.-China trade war, there’s no confidence from the major market participants and prices can go into large selling spirals,” Allen said. “It has taken Mother Nature to drag agricultural markets out of their historic slump.”