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As a whole, commodity markets are beginning this final week of September with a minor dose of pressure. Really that would seem quite understandable in the grain/soy complex as harvest is beginning to gear up in areas where excessive rainfall has not been received, but those areas seem to be far and between. I have been traveling for the past couple weeks and gauging form the crop progress before I left I really expected to see a reasonable amount of harvest activity completed but a quick couple hundred mile trip in Northern Illinois and Southern Wisconsin over the weekend revealed that was not the case. A very limited amount of corn had been cut, most of it for silage, but nothing that I could see for beans. I recognize it is still early but when places like Cedar Rapids, Iowa are bracing for river flooding it would certainly be a tell-tale sign that fields in that area remain quite drenched. I will be traveling out across Iowa later this week and it will be interesting to see what progress has been made, or not, by then.
The soft action in the grain/soy market cannot be blamed on the macros this morning as they are leaning to the supportive side. The dollar is weak, gold higher as is crude oil. While I would certainly not expect to see any runaway advance on the news, but crude does appear to be encountering a bit of nervous buying due to the fact that OPEC has kicked off a meeting in Algeria this morning to discuss possible ways to support the crude market. Considering that the Saudi’s and Iran see very little eye-to-eye and beyond that Russia has already expressed they see no reason to limit production, it hard to imagine something positive forthcoming from the event but of course, markets will always be skittish about a surprise. All that said, just from a technical perspective this market appears to have at least a short term positive outlook.
While this will probably not impact most of you directly, it is interesting to note that the Federal Reserve is tightening the financial screws a bit more on banks that trade in the physical commodity world. This has really been an ongoing discussion/process since the world experienced the financial meltdown but little by little capital requirements have been ratcheted higher for institutions that are invested in businesses and services that would be considered outside of normal banking activities, i.e., commodity trading. The rationale of course would be if the Federal Government in backing these institutions then they had better be well capitalized against an unexpected financial disaster which could of course include an oil spill for example. While it turns out that many of the major traditional banks have already be actively downsizing these type of investment ventures there were two that had been exempt from the rules; Morgan Stanley and Goldman Sachs. This would make sense as prior to the 2008 financial, neither of these firms were technically federal chartered institutions and only became so as a means to be eligible for TARP money. Note that Morgan Stanley has already been spinning out of commodity investments and currently has holdings of around $193 million (down from $9.6 billion five years ago) but Goldman maintains holdings of around $7.2 billion and will no longer be exempt under the old rules. Here were are nearly eight years out from the financial meltdown and continue to feel the aftereffects throughout the commodity industry. Are we all safer because of them? Time will tell but it would seem that the playing field is about to become a bit more even.