October 25, 2016
Close Oct 25
2 week change
US $ Index
US 10 Year Notes
Price changes were minimal in most markets, except livestock, which rebounded from seriously oversold conditions. Grains were quiet as well, with soybeans outperforming on strong exports and the soybean oil market trading at its best level since July 2014, as it followed palm oil.
Palm oil is the most widely used vegetable oil in the world, mainly due to its cheaper cost. It is highly saturated, so not as healthy as soyoil. Indonesia and Malaysia are the largest producers. There have been production problems there. At the same time, India began importing heavily, causing the spike in palm oil prices.
US soybean exports have been very strong. In the first seven weeks of the new marketing year, 58 percent of the total exports USDA thinks they will sell for the crop year are already on the books. Exports are expected to remain firm until Feb/March, when the new South American supplies hit the market.
As of Sunday Oct. 23, 61 percent of US corn was harvested, and 76 percent of their soybeans. It is a certainty that new records will be achieved. USDA updates on Nov. 9th. We would not be surprised if USDA raises the soybean yield to as high as 52.8 bu/ac., which would be an amazing 10 percent higher than the previous record, set just last year.
It will be interesting to see how the market reacts to the Nov. 9 report. If it is negative and prices don’t drop, it will be another sign that the harvest lows are likely in. Any adverse South American weather will ignite a rally, but it’s too early to be concerned, as they are just planting.
Charts are looking more positive. Much of the recent buying has come from the speculative funds. They covered 65,000 corn contracts in the latest reporting week, to be short only 69,000 now. They also bought 31,000 wheat contracts to be short 115,000. Funds are still long 63,500 soybean contracts.
In financials, the US dollar showed more strength, and sits near a nine month high. Commodities, generally, didn’t show the expected negative response. That is a positive sign for commodities, including grains. The Canadian dollar’s half cent drop correlated well with the US $ Index rise and crude oil’s small drop.
It appears the macroeconomic factors and investor money flows are gaining in importance. Grain’s individual fundamentals appear to be taking a back seat. A US dollar or stock market drop would likely be beneficial to grain markets. However, with a US interest rate hike expected in Dec., these possible outcomes may be delayed.
So it’s steady as she goes until something disrupts the proverbial applecart. It is the calm before the inevitable storm clouds move in. The longer it goes sideways, the bigger the move it can support, in either direction. ♦
- Frank Backx, HDC Grain Marketer