US Dollar Rallies to 3-month High

  • Posted on: October 28, 2015

October 28, 2015 Written by Chris Robinson Corn: December corn settled down 4 cents at $3.76. Corn opened lower and traded lower as once again we had zero follow through to the upside in the wake of Tuesday’s 2-1/2 week high tick at $3.87 ½. Looking for positive action today, I can say it was nice we didn’t test last Tuesday’s 6-week low at $3.72. The market seems content to chop sideways until the USDA on November 10th which we will get in just 8 more business days. The managed funds have cut their long bet down to just over $35K contracts; this pales to over 90K contracts they had been long just 2 weeks ago. Over the last 12 weeks, CZ has been mired in a 40-cent wide trading range with $4.00 stopping northward movement, and $3.60/$3.65 providing support. Fundamentally, corn has drag from 1) China announcing a halt to buying DDG’s claiming “dumping” 2) reports of western elevators full-up with corn and 3) the lack of any South American bullish weather story and finally, 4) the US dollar climbing to its highest level in 3 months. There was a story on the wires that Brazilian imports are once again penciling out as cheaper for end-users than US corn. We may see stories of soybeans being shipped into southern ports if that price gap remains. Bulls and bears seem content to hunker down until the report on the 10th. Hedgers: If you have unpriced bushels, make sure you have a floor in place, should we “break out” to the downside of this 3-month sideways trading sludge. Ask yourself what would hurt your business worse, a sustained drop below $3.65 or a move above $4.00? Hedge accordingly. Wheat: December Chicago wheat settled down 3 ¼ cents at $5.06. Wheat opened lower and re-tested the $5.00 level in the morning, before bouncing back from that important psychological level. Tuesday’s 2-1/2 week high capped off a nice rally, spurred by some short covering and the fear that the rain from Hurricane Patricia would damage yields for our winter wheat. Just as corn has been mired in its 3-month range, wheat has suffered the same fate. Range has been wider, roughly 50 cents with stance above at $5.25 and support below at $4.75. Russia threw out a bone to the cash market today, as they came back offering to lower their export tax if their Ruble stops its melt-down. The managed funds are short just over 42K contracts of Chicago wheat. Are the funds correct to be long corn/short wheat? The USDA report on the 10th could hold the answer. Key support for wheat producers? $4.75/ 4.65 for KCZ and $4.80/4.70 for Chicago WZ. Hedgers: We are 8-days away from the USDA; Use any rallies to protect your unpriced bushels against those contract lows failing to hold. If you have sold bushels and want to keep the upside open; consider a Chicago March 5.40 call for 15 cents a bushel. You get 113 days of upside potential in case the bears are wrong and the lows are in place. Soybeans: November soybeans settled down 9 ¾ cents at $8.81 ½ which is the lowest settlement in 2 weeks. Soybeans opened lower and trended lower all day. The managed funds are still only short 10K contracts. Bulls were starved for fresh oxygen as China held off for the past 48 hours on any purchases. There was another story on the wire of elevators advising farmers that bean storage availability was drying up. With prices below $9.00 once again, farmers have been slow to sell more. Thoughts in the trade are that once harvest is completely buttoned up there might be a final push by producers to move what they won’t or can’t store. The market seems content to wait 8-more days until the USDA with range bound/sideways trade. Support for SX comes at $8.70/$8.65 with resistance above at $9.00 to $9.10. This 40 cents sideways range may bind us until the USDA forces the hand of either the producers or the managed funds. The bulls have their scopes fixed firmly on EL NINO to spur weather issue, damage yield and create urgency on the part of end users to open their check books as opposed to folding their arms and waiting for cheaper prices. Hedgers: Don’t roll the dice on the USDA. If you are storing, use any price bumps to get your puts in place. If you are selling bushels off the combine and want to re-own those bushels on paper consider a March $9.20 call for less than 20 cents a bushel. This gives you 113 days of upside participation for roughly 4 ½ cents a month. Compare that to the price you might pay per month to store the beans. Make the best decision and move on. Today was another choppy trade for the grains. The biggest concern seemed to be China demand once again moving forward. The US dollar moved to its highest level in 3-months after the Federal Reserve once again held rates unchanged. The US dollar has been range bound as well for the past 5-months. When the eventual break out comes what will that mean for US commodities? The currency issue may be the biggest “what if” the markets have to digest moving forward over the next 6 to 12 months. In the end, supply and demand eventually wins out. However, the “supply” of money via interest rate decisions is a decision that has a long tail. Could we see a grain rally from 6-year lows simultaneously with a rally in the US dollar? History has shown us that anything is possible; and very often all you need for the unthinkable to happen is to have a Nobel Prize winner or some other experts say, “Oh, that’s impossible”. For now, grain bulls will have to be watching to see if El Nino and Mother Nature can overcome a US dollar which, today at least, looks like it’s headed higher. We have another USDA report in 8 business days. Make sure you have your ducks in a row prior to that report as far as managing your business risk. If you are on the fence, call in and have a conversation with your risk manager. The more we know about your specific situation, the better we can help you build a plan of action. THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION. THIS MATERIAL HAS BEEN PREPARED BY A TOP THIRD BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICATION FOR ACCOUNTS AND SOLICIATION FOR TRADES. TOP THIRD, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. 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