MARKETS: Positioning ahead of USDA report Dated on Mar 21 2016

MARKETS: Positioning ahead of USDA report

By Ray Grabanski / Progressive Ag Today at 10:18 a.m.


Wheat started hot March 14, but the rally lost steam the rest of the week, as most of the negative weather has been built in. We saw five-week highs in wheat on March 14, but the crop has backed off those highs. Large rains in eastern Texas and Louisiana have caused concern in the southeast states of flash floods and too much moisture. Dry areas in the west have missed the rain. The U.S. Department of Agriculture reported a previous sale of 100,000 metric tons of U.S. hard red spring wheat to unknown destinations for 2015 to ’16 went to China. The news had a bullish effect on Minneapolis wheat prices to start the week. For the week ending March 17, Minneapolis lost 5.5 cents, Chicago lost 13.25 cents, and Kansas City was down 12.25 cents.

There is a wait-and-see approach with weather on the Plains. Dry weather and winter kill concerns have not changed the past few weeks, and have been the leading factor in the recent bullish run. We saw the U.S. dollar drop, and that has given grain markets a boost. 100-point drops for the dollar on March 16 and March 17 was not enough to keep wheat prices from falling. Kansas City wheat fell 13 cents on March 17 after the weather service predicted above-average rainfall for April in the dry Plains areas. We will have to see if this plunge in the dollar can spark purchases of the U.S.’s high-quality wheat.

Wheat exports continue to struggle this year, and reports from USDA did not change that. Export numbers continue the bearish trend of poor exports. Total exports in 2015 to ’16 are down 16 percent from a year ago and well behind pace of the lower number the USDA projected for this year.

Falling production estimates for the world’s winter wheat will lower stocks, but there is still almost 2 billion bushels of wheat stocks globally.


Corn traded marginally higher for the week, despite hopes a weaker dollar would push up trade. The first half of the week saw little movement, with March 14, 15 and 16 each closing within a penny of unchanged, and net gains of only a quarter cent. We did not get much direction from overnight trading. Day trade moved up prices. March 17 saw mixed trade pullback on positive overnight trade.

After March 16 news that the Federal Open Market Committee will leave interest rates unchanged at 0.25 percent to 0.5 percent, and reduce the number of rate hikes this year from four to two, trade was expected to be stronger by virtue of a falling dollar — the U.S. Dollar Index lost about 1 point March 16 after the report, and lost again March 17, placing the dollar at about 94.75. This and lowered expectations for economic growth and inflation caused the dollar to drop drastically after the report. Fundamental pressure was reintroduced into trade, and prices lost traction.

The ethanol production report came out March 16. Production was pegged at 6.99 million barrels, up 2.15 percent from the previous week and up 5.49 percent from last year. Stocks fell to 22.85, down nearly 2 percent from the previous week, but still high. Corn use was up more than 2 percent at 104.90 million bushels, bringing cumulative use up to 2,817 million bushels. Corn use now needs to average only 97.97 million bushels per week to meet USDA’s estimate of 5,225 million bushels.

Export inspections and sales were mixed. The March 14 export inspections report indicated corn exports were 31.7 million bushels, 18 percent lower than the previous week but 9 percent above last year. Total shipments have now reached 651.3 million bushels, 19 percent behind last year, compared with USDA’s estimate of an 11 percent decrease year-to-year. March 17 export sales were 50.7 million bushels, with 48.3 million bushels for this marketing year. This number is up 5 percent from the previous week, and 17 percent from the previous four-week average. Total sales for 2015 to ’16 are now up to 1,183 million bushels, 17.7 percent behind last year. USDA estimated a 9 percent decrease.


Soybeans didn’t take any direction to start the week, with a stronger Brazilian real and South America’s swift harvest progress fighting to take control of the price direction. The Brazilian currency continues to be near its six-month high, helping shrink the price difference between U.S. and South American soybeans for export.

A favorable weather forecast in Brazil will keep harvest ahead of pace, and is not favorable for soybean futures. But political and economic uncertainties know how to move the markets. For the week ending March 17, soybeans were up 2 cents.

Soybeans took a step back March 15, as we saw profit-taking after reaching three-month highs. We received reports the soybean harvest is ahead of the five-year pace in Brazil, and Brazil is 57 percent harvested for soybeans.

A nice run in the real has been helping shrink the price difference between U.S. and South American soybeans for export. National Oilseed Processors Association soybean crush numbers for February came out March 15. The average estimate for crush was 138.8 million bushels, compared with 147 million last year and 150.5 million last month. NOPA crush came in at 146.18, lower than last month, but higher than analyst estimates.

May soybeans closed higher later in the week, holding on to a gradual uptick as we come off a more than 40-cent rally the past few weeks. USDA announced 3.7 million bushels (100,000 metric tons) of U.S. soybeans were sold to unknown destinations for 2015 to ’16. The sale is welcome news, but more is needed to show the U.S. can stay competitive in that global market.

USDA will release quarterly ending stocks and acreage reports March 31.

Soybean weekly export inspections were 28.2 million bushels for the week ending March 10. Inspections for 2015 to ’16 total 1.480 billion bushels, which is down 7 percent from the previous year, but ahead of pace needed for USDA estimates.

Soybean export sales were 31.6 million bushels for the week ending March 10. That brings marketing year totals to 1.595 billion bushels, 8 percent behind last year’s totals of 1.761 billion bushels for the same week last year.


Canola futures, as of March 17, were up about $3.10 (Canadian) for the week, at $466.50 per metric ton (Canadian) for the May contract. The Canadian dollar gained 0.0135 at 0.7698. This brings U.S. prices to $16.29 per hundredweight a 34-cent gain for the week.

Cash bids in Velva, N.D., finished the week up 43 cents at $15.97 per hundredweight for March and April. Enderlin, N.D., bids were up 37 cents at $16.42 per hundredweight. Hallock, Minn., bids were up about 30 cents at $16.17 per hundredweight for March and $16.35 for April, and up about 60 cents at $15.88 per hundredweight for September.

Prices have improved. Charts show May canola futures could see resistance at $475 per metric ton (Canadian), but beyond that, there is no resistance until $490. November futures see chart resistance at $485, then relative freedom until $495. Cash prices have jumped because of improving canola futures and the improving Canadian dollar. The Canadian dollar was below 0.6900 mid-January, but has risen. As long as oil shows stability, the Canadian dollar should continue to improve.


Cash sunflower bids in Fargo, N.D.,

were up 10 cents at $16.05 per hundredweight for March and April.

Soybean oil net gained 1.29 cents for May contracts, bringing the price up to $33.40 per hundredweight as of March 17 afternoon.

Dollar Falls Most in 7 Years; Dow Erases 2016 Loss on Rate Path

Dollar Falls Most in 7 Years; Dow Erases 2016 Loss on Rate Path

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Deep Dive Into Fed Policy and U.S. Economy

The dollar posted its biggest two-day loss since 2009, oil topped $40 a barrel for the first time in three months and U.S. stocks erased losses for the year as the Federal Reserve’s scaled-back path for interest-rate increases sparked demand for riskier assets.

The Bloomberg Dollar Spot Index extended its drop past 2 percent since the Fed’s Wednesday decision to set a higher bar for when it may raise rates again. Rallies by industrial, raw-material and energy stocks helped the Standard & Poor’s 500 Index climb all the way back from a loss that reached 11 percent in a month ago. Dollar-denominated commodities from copper to zinc surged, while crude rallied 4.5 percent. Emerging-market assets jumped to the highest since December.

Actions by central banks to stimulate growth has fueled a rebound in risk assets from equities to raw-material prices, after almost $9 trillion was erased from global stocks at the start of the year. The Fed’s updated projections on Wednesday implied two quarter-point increases this year, down from four forecast in December. Chair Janet Yellen said Wednesday that the general slog of growth world-wide is why “a slightly lower path for the federal funds rate will be appropriate.” Norway cut rates Thursday, following similar moves in recent weeks by the European Central Bank and Bank of Japan. Switzerland and the U.K. left interest rates unchanged.

“This is a strong rally and the main catalyst is the return of easy money,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The Fed announcement yesterday was the latest sign that central banks are going to continue with stimulus. This is putting downward pressure on the dollar, which favors commodities.”


The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, sank 1.1 percent at 2:28 p.m. in New York, after losing 1.1 percent in the last session.

South Africa’s rand and Brazil’s real were among the biggest gainers in emerging-market currencies, jumping at least 2.9 percent. Currencies from other commodity-producing nations also strengthened. Australia’s dollar advanced 1.3 percent after the nation’s jobless rate unexpectedly declined, while New Zealand’s currency strengthened 2 percent after fourth-quarter economic growth beat projections.

“In the very short term, risk currencies — Asia, commodity currencies — will do well as other risk assets including stocks and oil benefit from the Fed’s dovish stance,” said Mansoor Mohi-uddin, senior markets strategist in Singapore at Royal Bank of Scotland Group Plc. The more interesting trend will be how other central banks respond in the next few weeks, he said.

The British pound rose 1.6 percent versus the dollar after the Bank of England left interest rates unchanged on Thursday and maintained current stimulus levels. The Norwegian krone appreciated 1.5 percent after a cut in borrowing costs.


The S&P 500 added 0.8 percent, as the measure wiped out losses for the year. The Dow jumped 1.1 percent. Caterpillar Inc. jumped 2.5 percent, helping boost industrial shares even after a first-quarter outlook that was well below analysts’ estimates. Mondelez International Inc. slid 2.4 percent after Pershing Square Holdings Ltd., the publicly traded security of Bill Ackman’s activist hedge fund, cut its stake.

A report today showed fewer Americans than forecast filed applications for unemployment benefits last week, illustrating the Fed’s view of a stronger labor market.

The Stoxx Europe 600 Index lost 0.1 percent, as the euro rose against the dollar. A gauge of lenders fell for a third day, led by Banco Popolare SC. Glencore Plc and BHP Billiton Ltd. rallied, boosting a gauge of commodity producers.


The Bloomberg Commodity Index, which measures returns on 22 raw materials, climbed as much as 2.1 percent, headed for its highest close since Dec. 4.

All six metals advanced on the London Metal Exchange, supported by a weakened U.S. currency. Copper for delivery in three months jumped 2.7 percent to the highest level since November, as exchange inventory fell 3.7 percent, the biggest decline since May 2014.

West Texas Intermediate added as much as 4.6 percent to $40.23. U.S. output slid to the lowest level since November 2014 and inventories expanded by 1.3 million barrels, the smallest increase in five weeks, data showed Wednesday. Major oil-producing nations plan to meet April 17 in Doha to discuss a commitment to freezing output, Qatar’s energy minister said.

Emerging Markets

The MSCI Emerging Markets Index of stocks jumped 3.7 percent, rising a second day. Benchmarks in Russia, Dubai, Abu Dhabi and South Africa advanced at least 0.9 percent amid gains in raw-material prices.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong climbed 2.4 percent to a two-month high and the Shanghai Composite Index rose 1.2 percent.

A gauge of 20 developing-nation currencies climbed for a second day, rising 1.6 percent. The index is up 3.8 percent since Dec. 31, heading for its biggest quarterly gain since 2012, led by rallies in Russia’s ruble and Brazil’s real.


Government bonds climbed after the Fed’s dovish tone. The yield on the 10-year Treasury note fell one basis point to 1.90 percent.

Italy’s 10-year bond yield fell six basis points to 1.27 percent, while benchmark German 10-year bund yields slid eight basis points to 0.23 percent. The yield on U.K. 10-year gilts lost seven basis points to 1.45 percent.

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