By: Dan Hueber –
Grain and soy markets appear to have settled down as we prepare to finish out this week, but it will have not turned out to have been a very pleasant one for those producing these crops. Were we to close right now, December corn would be down 16-cents for the week, November beans minus 11-cents and December wheat off just over 8-cents. There is a bit of irony here in the fact that the market that is suffering the heaviest loss is the market with the most positive fundamental picture. While there could be a disruption, such as positive news from US/China negotiations which are rumored to begin again, or maybe big weather delays, but as a whole trade focus next week will likely just be on harvest.
Brazilian farmers should soon be in the field planting away and not only is there discussion of increased acreage, evidently they are not wasting any time getting this next crop sold. According to consultants, Safras & Mercado they have already priced 22.8% of next years’ expected production, which is about double the same time last year. I should add though that the average for this time of year is nearly 26%, so this is not out of the ordinary. Providing a little extra incentive this year though has been a strong U.S. Dollar against the Real, which has reached levels not seen witnessed since late 2015 and prior to this not since 1994. Seeing that the price paid to farmers there is based on the US currency, it would seem they have more than enough incentive to plant all they reasonably can.
African swine flu is in the news again this morning but this time the stories are not coming from China but rather Belgium. Evidently wild boars that have died have tested positively for the virus, heightening the threat it will spread now across Western Europe. There have already been problems in Eastern Europe and as I have commented previously, the outbreak and spread in China I understand is far more widespread than official reports and with no vaccine, there is little defensive outside of destroying infected animals. If this does become a major issue in western Europe, it could really place China is a difficult situation. When you consider 2/3rd of the meat in the Chinese diet is pork, and a potential source of imports could now have a problem, it would seem to suggest they may have little choice but to look to the US for supply. Granted, none of this is positive for the grain/soy trade but it could be a godsend for the US hog industry that has already been punished severely this year with all the trade squabbles.
In case you had not noticed already, there is one commodity market that has been on the rise; Crude oil. A larger than expected draw down in U.S. inventories surprised the trade and combined with threats of sanctions against Iran and anyone who does business with them, evidently scared the shorts. Thus far, the Brent market is just pressing against the spring highs around $80 but a violation of that could open the door for a run to the $90/95 realm. If that were the case, I am not sure if it would translate into increased interest in commodities in general, but it certainly could not hurt, particularly if it were accompanied by a breakdown in the U.S. Dollar.