November 10, 2015
Nov 10, 2015
2 week change
US $ Index
US 10 Year Notes
The US dollar index is an important market indicator and often sets the tone for many markets, including grains. It reveals how the US dollar is doing against a basket of currencies, with by far the heaviest weighting against the Euro. It currently trades near a 13 year high, and is now up 25 percent in the past year and a half.
The main reason for the strength is that the US economy is performing better than most others in the world. The recent strength can be attributed to the possibility that the US will raise interest rates in Dec, especially after they announced that their unemployment fell to 5 percent in Oct., the lowest since before the economic crisis in 2008/09.
The US dollar also tends to rise when there is fear or trouble in economies and markets. When the 2008 meltdown happened, the US dollar rose over 25 percent, as everyone fled to the safety of the US dollar, even though the whole problem originated in the US banking system.
Part of the US dollar rally now could be that the smart money is again scared. Commodities and currencies are the first to show the effects when investors go to the safety of the US dollar. Many commodities are priced in US dollars around the world, and a strong US dollar subdues those markets.
Grain prices have also been big contributors to the general deflationary commodity trend. Then USDA came out on Nov 10 and increased yields again, which pushed prices lower yet. Nearby soybean prices are very near the Sept low of 8.58. Breaking that would put soybeans at their lowest levels since March, 2009.
USDA raised the corn yield 1.3 bu/ac to 169.3. They also lowered exports 50 mln bu and ethanol by 75 mln, resulting in an increase in the projected carry over (CO) to 1.76 bln., 199 mln more than forecast last month. This is slightly higher than the 1.731 bln CO for last year’s crop. There is lots of corn in the US and the world.
The soybean yield was raised 1.1 bu/ac to 48.3, another new record. Exports were raised 40 mln bu because of the fast pace so far this marketing year. However, the CO was raised 40 mln bu to 465 mln, due to the higher production. The CO for the 2014/15 crop was 191 mln, so ending stocks are growing substantially with the crop just harvested.
The wheat CO was raised 50 mln bu to 911 mln on a reduction in exports of 50 mln. This will be the highest CO in 6 years. World stock levels are also burdensome, so prices are likely to remain under pressure for a while yet.
Wheat acres in Ontario are the highest in years, and the crop is in excellent shape heading into winter. There is no doubt the amount of wheat planted is due to the beautiful fall we experienced, and the fact that acres were down the past 2 years. Unfortunately, this is reflected in a basis of only .40 over, making harvest delivery prices under $6.00 now for soft red. ♦
- Frank Backx, HDC Grain Marketer