The Dollar, Europe and the USDA Crop Production Report created an oh my situation this week for grains.
First on most people’s minds from a fundamental mindset is Monday morning’s release of the USDA Crop Production Report. "Somebody is going to be surprised," says Jerry Gulke, president of the Gulke Group. Trade ranges leading up the report are anywhere between 143 and 152bu./acre, he says. Gulke believes USDA will come in somewhere in the 150 bu./acre range, at least for this report. He does anticipate that the number will continue to drop as the fall harvest progresses and the nation’s corn crop fully develops.
Click to hear Gulke's full audio comments.
Regardless of the numbers USDA releases at 7:30 CT Monday morning, the news can’t be considered as bearish. "If (corn drops) 3 bu./acre that’s 240 million bushels. Suddenly you’re back in the 500 million bushel carryover."
But that is where the bearish news comes in to play. A weak economic outlook in Europe is probably severe enough that he expects USDA to see enough reason to drop demand to bring carryover projections back up to the 700-800 million bushel area.
For much of the week, the market’s focus though was on President Barack Obama’s jobs speech and the state of the U.S. economy. But now recent developments in the European economy is creating concerns over the ability of foreign customers to buy U.S. commodities as the dollar appears to be strengthening.
Click for the weekly commodity moves and trader committements.
"Suddenly you have European problems. There’s a lot of uncertainty and if you’re in one of those countries, there’s a danger that Euro may not be worth be much. Although we’re in bad shape here, we are bad but they’re badder. That’s apparently attracting more people to the dollar."
With already high commodity prices on the board, even a 10% increase in the value of the U.S. dollar can have a significant impact on foreign customers’ ability to buy U.S. commodities. "I look at it and say that if the dollar would just appreciate 10%, 10% of $14.00/bu. beans is $1.40. And $7.00/bu. to $8.00/bu. corn is another 80 cents."
Gulke believes this will put foreign customers back into the European markets, creating further declines in U.S. demand for all commodities.