Newsletter Archive

Prices swing with strength of dollar

Heart to Heart, February 2010 Connections

by Scott Stabbe

The much anticipated January 12th USDA Crop Production, Grain Stocks, & Supply/Demand Report, was to say the least, a bit of a shocker after many ho-hum reports. Along with wheat, we saw the corn numbers jump unexpectedly and the market reacted accordingly. We saw a limit lower on the CBOT. The report had U.S. carryout on corn increased, but the world corn stocks decreased again for next year to record low levels. This seemed to be ignored by the market. The USDA did come out later to say they would resurvey some of the cornbelt states— Illinois, Michigan, Minnesota, North Dakota, South Dakota, and Wisconsin— again for final corn production numbers to be released in March. Then, as if the report was not enough for the market, the Chinese Government came out with additional tightening of their monetary policies. That also weighed on the markets as crude oil dropped hard, although still double what it was a year ago, along with all commodities. “Toto I don’t think we’re in Kansas anymore.” We are dealing with a world economy and all the fun that goes along with it.

So, I wonder if the funds are having as much fun playing in the commodities markets as they thought they would. It just does not seem reasonable or possible for a struggling economy to have a big rally in any commodity that is not having a substantial supply shortage, whether it is corn, beans, or crude oil. Eventually fundamentals will win out, or so you would think, no matter how much money is thrown at a market. It may take longer for the fundamentals to take back the market, and it can be bloody until that happens. The grain markets, however, seemed to be higher than the actual crop. Demand would have indicated they should have been and had been that way for a while so a correction was due. If you are holding for $5 corn it may be a while unless the funds can do their magic (never say never) or we have a substantial weather issue with the crop this spring or summer.

We continue to see the strength or weakness of the dollar swing the commodity prices nearly as much as any supply and demand news. As we have seen numerous changes in government policies that have caused the dollar to gyrate back and forth, we have also seen the markets react just as wildly. It seems there are additional influences on the markets daily that were not there previously. That has added to the problem of finding any kind of a trend to the markets. No wonder the options are so spendy. By the way, I have seen some articles on Cap & Trade and how it will affect the agriculture industry. I do not think anyone knows for sure other then guesses. But if you need something to put you to sleep try to read some of these bills and figure out how they will work.

Once again, we need to caution everyone about checking their bins as we have seen some damage come in already. The problem is it is not just the bins that were not dried. Some of the guys are seeing problems showing up in bins where they dried the corn. Whatever you do, just don’t assume that the grain is ok because you dried it. Core or level all your bins and check them weekly. We have seen snow blow into everything this year. Remember that a peaked bin is just like a chimney taking the heat up to the peak and working back down as the air flow is cut off. There is nothing worse than the price dropping and getting a big damage discount on top of it.

Thanks again for your patronage.