By: Dan Hueber –
What is with these grain and soy markets? Overall the news is rather uninspired and certainly nothing that could be really deemed “bullish”, we have a monthly USDA report lurking just ahead and yet we have rallied back once again and are flirting with upside breakout territory. If common sense (fundamentals) would not dictate otherwise I would almost say these markets are acting as if there was something bullish brewing beneath the surface. At least that is what the recent activity by funds would seem to suggest. Of course, what would they know? While I do struggle a bit with thinking we can continue to accelerate from here at this time, but also believe this is positive reinforcement for the longer-term trend in the commodity markets.
A year ago when the commodities began to rally, crude oil was the undisputed leader of the pack but that market has really been quite stagnant for the past two months and appears to be teetering on the edge of a downward correction. While I may be mistaken, it would appear to me that taking its place here in early 2017 has been gold. While by no means a runaway advance, since the post-election break we have seen spot gold futures advance right at 10% and more critically have seen the weekly indicators turn positive in the process. Keep in mind that it is gold that investors will turn to in time of uncertainly and I cannot help but think that the pressure we have been witnessing in the US Dollar, the protectionist rhetoric emanating from Washington and now other nations, the potential for the return of inflation and the seeming rise in global tensions is behind this advance as well as the renewed interest in other commodities. I would reiterate that I do not believe these and other factors will be a positive for equity markets which continue to flirt around record highs.
Actually, it is not that the ag world is devoid of positive news. China’s National Grain and Oils Information center has revised its estimate for domestic corn demand higher for the crop year. They now project that total usage will reach 179.6 MMT, which is up 500k MT from their last estimate and would be 21 MMT above last year. The reason for the revisions? Increased usage in the livestock sector after anti-dumping duties have been placed on DDG’s. Granted, this was not a major adjustment but rising markets are fed via gradually improving fundamentals and overtime, they can add up to something positive.
Last but possibly not least, the apparent increased tensions and fighting in Eastern Ukraine has unsettled grain markets. While it did not turn out to be a long-term game changer, if you recall the last time fighting really broke out in the country was back in early 2014. At that time, spot wheat futures rallied more than 33% over 14-weeks as the trade tried to sort out what kind of impact the fighting could have on that country’s ag sector.