November 24, 2015
Close Nov 24
2 week change
US $ Index
US 10 Year Notes
It was another quiet two weeks in the grain patch. This can be viewed as a minor victory for the bulls, considering the news was mostly negative. The US dollar index continued strong, and energy and metal markets eased further. The Argentina election should have been bearish, but prices refused to break down further.
Argentina has a new President, who promised to reduce or remove the prohibitive export taxes they impose on grain and soybean exports. The argument was that this would give farmers there an incentive to aggressively sell their stockpile of crops into the export market. He also wants a lower currency (peso), which will also make Argentine grain more competitive.
The soybean market’s initial reaction to the election result was to push soybean futures to a new 6 ½ year low. However, by the end of the trading day, (Mon Nov. 23), prices reversed, and closed 7 cents into positive territory on a daily key reversal. This is positive technical action. At a minimum, the shorts in the market should be worried.
An old market saying is “oats knows”. History shows that oats can often lead changes in the more major crops, and in both directions. It is interesting that oats have rallied over $.43 since the $2.10/bu low hit on Oct 5. That puts the 7 week change at over 20 percent. Oats are still very cheap, but this rally at least helps producers of that crop.
South America is still planting, and it is staying mostly wet in the south and dry in the northern and interior growing regions. The key weather month is February there, so there is no reason for alarm. China’s brisk pace of soybean imports has slowed, and year to date US exports are now behind last year for the first time. USDA expects a 7.5 percent reduction in US soybean exports.
The Goldman Sachs Commodity Index chart shows the extent of commodity deflation that has occurred since June 2014. Then the index stood at 669. Now it is 338, so it has lost nearly half its value. Nearly every commodity group contributed, but metals and livestock took the biggest hits, followed by energies and grains. This index bottomed at 305 at the depths of the 2008/09 economic crisis.
The big international event was obviously the terrorist attacks in Paris. Thankfully, the reaction in most markets was muted. However, the fallout will likely be negative economically, as a new level of fear permeates society. The world, as it did on 9/11, 2001, became a less safe place in most peoples’ minds.
Energy markets were again weak, as crude oil tries to hold the strong support at $40.00. Inventories keep growing, as exporters fight for market share. The lower the price goes, the more they all have to sell to maintain their revenue stream. Natural gas prices, too, remain very depressed, which is a nice plus for users of that commodity.
The Canadian dollar lost ground due to the weak prices of many of our raw materials. The strong US dollar index is also a factor. However, our dollar hasn’t made a new low for 2 months now, as there appears to be support at current values. Grain basis values are at their best levels for the current crop, and are being supported by a lack of farmer selling, especially in the US. Producers there don’t have the advantage of a weak currency. ♦
- Frank Backx, HDC Grain Marketer