Grains are off to a solid start today as the U.S. dollar sinks lower yet following the FOMC announcement to leave interest rates unchanged for now.
This news has collapsed the dollar below 96.0 and it has since fallen below 95.0 today, down 1.1%. The Brazilian real is up 2.6% on the day, Russian ruble is up 1.4%, the euro is up 1% and the Canadian and Australian dollars are up 1.3%. A shift in currency valuations in this manor is bullish to grains. Struggling through the year with a strong U.S. dollar, American exports have suffered as the dollar priced domestic grain out of the international market.
Soybeans held their own yesterday as the market anticipated statements from the FOMC. Following the announcement to hold interests steady, the U.S. dollar experienced a collapse and what was a sharp selloff in the real turned into a slightly higher trading day. This rally in soybeans has been mostly related to currencies as the fundamentals have not suddenly turned bullish.
In fact, favorable weather in South America may likely increase selling pressure as South American producers are experiencing a decline in their domestic prices as well as fresh grain being moved out of the field. Make sales into this rally as it feels like a short-term event caused by a short-term story. The currencies likely will correct back to more recently seen levels and in turn a bearish story it may become. Consider covering some sales with short-term cheaper calls for further participation in the rally, but do reward the board.
Corn is lacking the excitement of soybeans as a less sensitive crop to currency fluctuations, however it is a reluctant follower for the time. Corn remains my most bullish argument, however it is a longer term argument. Until planting intentions, the start of planting, and the start of the growing season for the major corn producing regions of the United States, this market will likely remain sluggish.
With a near 17 cent recovery from recent lows, a pullback may be in store. However, the “funds” sitting on a record net short position may soon feel the need to defend their profits earned and begin to reduce their net shorts if the market runs out of willing sellers, which may be plentiful as grains reach to recent highs.
Wheat is also lacking in excitement. Trading off its session highs but still higher on the day, wheat has a bullish weather story in the making but also hesitation as a foreign cargo of wheat is on route to the U.S. east coast. Of all the grains, wheat is the last thing that U.S. suppliers have plenty to go around. If making sales, make them cautiously and consider covering with calls. While a call will not capture the full value of a rally, cash/hedge sales on a percentage will not suffer the effects of a pull back.
Crude oil is also making new highs that haven’t been reached since January 2004. Pushing above its 100-day moving average in the April contract, the story line consists of OPEC nations agreeing to a potential production freeze with or without Iran… So the crude oil/OPEC dance looks like it will continue.