How Will the Market Behave This Holiday Season?

November 19, 2015 05:00 AM
How Will the Market Behave This Holiday Season?

Last December, the market gave farmers an early holiday gift, as corn prices rallied to the highest level in almost six months. Unfortunately, such generosity is unlikely to happen this holiday season.

“Last year, we had a bit of a different setup,” explained Allendale’s Brian Splitt, speaking on U.S. Farm Report. “The crop was starting to get smaller, and demand was getting bigger, where right now, the crop is still getting bigger. The bean demand was increased (in the last USDA report), but corn demand was decreased, so most likely if we are going to see a rally that is worthwhile, it might be from a change of perception in the U.S. dollar.”

Hedge fund decisions aren’t helping the situation either. “I think the general money flow right now has been negative, so if there’s some profit-taking in the end of the year on the dollar, that might be something that brings in some money flow,” Splitt said. “But it’s just hard to get too excited about any major price rallies between now and the end of the year.”

It leads analysts to expect a choppy market in the weeks ahead. With big carryouts in corn, wheat and soybeans, “ultimately for us to see a big boost in the near term is going to be a battle,” said Craig VanDyke of Top Third Ag Marketing, also speaking on U.S. Farm Report.

He’s concerned that those numbers will keep on getting bigger. “Historically, USDA does tend to raise yields as we move forward into January, so I would expect that to continue to grow,” VanDyke said. “As far as how much, I doubt we’ll see as big a jump as we saw in the soybean yields moving in to January, but yes, big crops get bigger, and that continues to be the storyline in the yield reports that we’ve had. Obviously the yield numbers that the USDA is coming up with continues to prove that this crop is going to grow.”

Watch the U.S. Farm Report segment here:

Another wild card: the Fed’s upcoming decision on interest rates.

“The market right now is in anticipation of a rate increase by the Fed,” Splitt said. “Until we get that official announcement, that will give traders reason to continue to buy dips in the dollar.”

That short-term approach should begin to shift once the Fed reveals its December decision. “Historically, when we’ve seen a low-rate environment start to transition to where we are seeing a rate increase, we do get the dollar to back off for maybe a six-month period of time,” Splitt said. “Whether it goes back up or down after that might depend on the year, but maybe that provides a little bit of … hope for the first and second quarter of 2016 if the dollar (softens) and brings some money flow into commodities again.”

But it might also provide to be just that—a very tiny bright spot with limited positive impact for producers.

Watch more of the U.S. Farm Report discussion on how the Fed decision might affect commodities here:

“I ultimately think the dollar’s going to maybe force the Fed’s hands in a way,” VanDyke said. If the Fed only slightly boosts interest rates, “will the perception rip the dollar lower … and will commodities take note” he asked. “With such a small increase in the interest rate, that … might take some time for the dollar to actually find a level where it will become more competitive globally.”

He added: “While the initial breakoff might support commodities in the near term if the dollar does take effect on that Fed rate raise, but whether it be December (or) the beginning of next year, it’s all up in the air.”

Do you think the Fed will raise rates in December? How big (or small) do you think the impact on the commodity markets will be? Let us know in the comments. 

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Spell Check

Chappell, NE
11/19/2015 09:18 AM

  The only generosity I saw last year was the check I wrote for property taxes.

Western, NE
11/19/2015 08:16 AM

  Rates have no where to go really, but up. That might make our commodities more attractive for export provided the dollar does fall, but how many hedge fund investors will pull their money from the funds if there appears to be a safer investment elsewhere with higher interest rates? Will the dollar really fall if rates increase?

asdf, MN
11/19/2015 06:52 PM

  Best thing a farmer can hope for is the colapese of the dollar. Commodity prices and land will rise. This is more likely the case because of the imf vs interest rate increase. The increase will help the cause though.