Growers may want to brace themselves for a rocky few days in the commodity markets.
Thanks to the news that Great Britain voted to leave the European Union, the grain and soy markets opened sharply down Friday. By midmorning, November soybean contracts had plunged 26 cents and December corn had slipped more than 12 cents.
The outcome of the Brexit vote also boosted the U.S. dollar, making American commodities more expensive and less competitive on the world market.
The Brexit vote and its impact on the markets “is not the best thing in the world for producers who have been looking for the market to come back,” says Naomi Blohm, senior market adviser at Stewart Peterson. “They have may have missed their pricing opportunity unless USDA comes back with a friendly report. The big rally is probably gone because of Brexit.”
How far could prices fall? For new-crop soybeans, she expects the market to find support at $10.50.
The good news? Blohm says the market will likely only trade the results of the Brexit vote for the next few days. “Brexit trumps the markets for the next two to three days, and then weather and the USDA report takes center stage,” she predicts, referring to the June 30 Acreage report. “We need a friendly report—the trade is expecting a million fewer acres of corn and a million more acres of soybeans—and hot and dry weather.”
Terry Roggensack of the Hightower Report agrees. "The impact of the surprise vote is clearly bearish short-term, but this impact should be priced in very quickly. There should be 'less' uncertainty by Monday," he says. "The weather maps continue to show improving conditions ahead as the five-day models show good rains for dry areas like Nebraska, Missouri and Arkansas ... For now, the market sees bearish weather and bearish outside market forces. The huge speculative long position of speculators just adds to the bearish tilt."
Blohm urges producers to pay attention to the value of the U.S. dollar, which will affect grain, soy, cattle and hog markets.
Blohm says the dollar should find some stability around the stronger levels of this winter, which will have a negative impact on demand. “It will lessen exports,” she acknowledges. “But we were still exporting every week.”
Beyond that, the Brexit vote will continue to have ripple effects on the markets. Other countries may start to wonder if they should leave the European Union. Trade deals could become more difficult. Markets could become even more complicated to monitor and predict if our globalized world returns to a more fragmented state. “Things are really changing,” Blohm said.