Will a Weaker Dollar Spark Grains Higher?
Oct 27, 2011
Debt resolution in the Euro-zone will have a profound global effect. Most notably, the dollar index should weaken substantially. A weaker dollar is beneficial for commodities that are U.S. dollar denominated, especially the grains and crude oil as they will become more competitive in the world marketplace. We saw a large rally in the Dow with the index up 399.76 as of the close Thursday to finish at 12,208.55. In conjunction with the dollar tanking, crude oil has spiked $6.14 a barrel for the week to settle today at $93.76. Gold has once again rallied to relatively high levels at $1,735.50 an ounce, up $95.50 this week. The grains have benefited mostly from a weaker dollar.
Corn has continued to trade in a relatively tight range and is only up 1 ¼ cents on the December contract this week settling at $6.51 ½ today. With little fresh fundamental news to give the market direction, corn has traded mostly sideways since October 11th. The $6.50 area is providing heavy resistance and a nearly finished harvest is adding pressure. Export sales fell off sharply and were reported as 677,100 MT, which is down 81% since last week.
After a sharp sell-off last week, soybeans have been the leader to the upside gaining 22 ¾ cents on the November contract to settle at $12.35. Producers and traders alike will begin to focus on South America as their planting is advancing quickly. South America is anticipating a record crop this year adding to the competition for exports. As with corn, exports were abysmal at 227,600 MT, which is down 62% from last week.
Wheat narrowed its gap with corn this week adding 12 cents to the December CBOT contract to settle at $6.44 today. Drought conditions continue to be a concern for producers in the Southern Plains keeping a solid base under prices. There is little precipitation in the forecast to alleviate the severe drought ahead of winter. Export competition remains stiff with little more than routine business being reported. Exports were 316,800 MT, which is down 21 % since last week.
Some measures were taken by the Euro-zone to alleviate the debt concerns and as a result the dollar index has plummeted to the benefit of the grains. The equity markets also enjoyed some good gains this week. Little has changed fundamentally for the grain complex with attention turning to South American planting and the dollar index.
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