Weak Dollar and Weather Concerns: Grains Trend Higher
May 08, 2009
Holders of the dollar are becoming increasingly concerned about their investments. The dollar continued it’s free fall today. This is in reaction to the feds aggressive posture on supporting interest rates at the 4% level. The fed has over 300 billion in reserve to buy T-bills and bonds in an effort to keep mortgage rates low. Holders of the dollar see this as manipulation of the dollar, many are choosing to convert dollars into things, such as commodities. I would suggest this is a big reason behind why China is trying to stock pile bean inventory. I’ve also been hearing another reason as well. There is talk that China plans to increase their domestic production of pork by 25%. This will explode their demand for corn and bean meal. Obviously, the bigger the stocks they have on hand the lower the price impact will be on their profitability of operation.
So the corn market traded higher today on the weaker dollar and the growing concern that wet and cool conditions could persist for longer than expected time period. Concern is growing on a daily basis that some corn acres will not get planted and bean acres will increase. A private advisory service released numbers that suggest that bean acres are going to grow and corn acres decline around the 2 million level by the final June report. This also was a support factor for higher corn prices and stable at best bean values.
Overall, if you’re a seller in corn right now you might want to consider rolling all futures into long puts for the next 45 days just in case planting delays get really serious. As for beans it’s going to take a solid close above $9.92 to get the market excited. This will only occur if planting delays continue and solid yield declines are expected. I can’t start to argue this line of thinking until we are well into June.
As to hogs, concern about the flue outbreak has now peaked. Science is coming to the aid of hog producers. The issue will be if China and other importing countries start buying again or are they using this as an excuse to not import our products and justification for building up their own domestic supply? As I said earlier in the week the real impact on the meats could be if the swine flue outbreak comes back with a more aggressive strain this fall like it did in 1918. If we get a solid technical recovery in the meats as I expect I can’t underscore the prudence of having a floor in place for fall and winter inventory on a nice June summer price high.
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