Dollar Fixation

Published on: 15:59PM Mar 27, 2009

Market Watch with Alan Brugler

March 27, 2009


Dollar Fixation


The US Dollar Index continued to be a major influence on grain prices, as well as the CRB Index and the stock market. All of those asset classes had strong negative price correlations to the dollar index. As the dollar rallied throughout the week, we saw sell signals in the commodities, and at least on Friday the stock market was also backing off. While it is easy to see potential inflation down the road with all of the deficit spending that is being planned, the dollar dropped sharply a week earlier on the Fed actions and was rallying back from oversold technical conditions. If other supply/demand fundamentals are fairly static, a stronger dollar means fewer dollars needed to buy a fixed amount of a commodity priced in dollars. Thus, we saw lower prices for almost all of the commodities in our basket.


The hog market lost about 2% for the week heading into the quarterly Hogs and Pigs report. Most of the selling was due to weaker pork cutout values, but we did see a little bit of position adjusting going on prior to the report as well. A smaller hog herd was expected, and that is what USDA found. The All Hogs figure was 97% of year ago. The breeding herd was down by just over 3%, and the market hog numbers as of March 1 were also down 3%. The breeding herd figure was on the low end of trade estimates, while the other numbers were comfortably within the range of trade guesses.


Corn prices declined 2.4% for the week. The loss was mitigated by a solid weekly export sales figure of 1.191 MMT, but profit taking ahead of the Planting Intentions report weighed on prices, as did increased producer cash sales and the aforementioned strength in the dollar. Feed demand continues to be a concern, with egg sets and broiler placements still running well below year ago. The Hogs & Pigs report also confirmed fewer mouths to feed, particularly in the younger weight categories.


Soybeans retreated about 2.5% for the week. Meal futures were down 5.5%, which took product value down and was only partially offset by higher soy oil futures. The Census report on Thursday showed meal stocks on March 1 at 435,000 tons. That isn’t a record, but it does suggest some difficulty in getting the product sold. Soy oil benefitted from tightening stocks of palm oil and a seasonal increase in demand for that low priced veg oil competitor. Higher diesel prices also improved the prospects for some soy oil to be used in biodiesel production. Census soy oil stocks were about as expected, at 3.027 billion pounds.


Wheat was down at all three exchanges. KC had the worst performance, losing 53 cents per bushel as a snow storm deposited some much needed moisture in the southern Plains HRW growing area.The market responded by removing weather premium. Chicago futures were also down nearly 8% on spread trading and continued weakness in export sales. Minneapolis spring wheat fell only 4.4% because of a major flooding threat in the Red River Valley that some industry types estimated could result in 500,000 acres of intended spring wheat ground being planted later to other crops. The market was still down because of the improved prospects for HRW, and because of the weak export interest.


Cotton futures dropped 1.7% for the week. The USDA export sales report on Thursday was friendly to the bulls, but commercial selling was active near the highs of the week, with the combination of futures/cash prices and a big LDP sufficient to attract bales out of loan. Several economic indicators came in a little better than the gloom and doom forecasters had predicted, but that has yet to translate to stronger clothing and textile demand. Consumers appeared to be buying electronics instead. Traders are looking for USDA to show cotton planting intentions in the 8.5 million acre range, plus or minus about 400,000 acres.


Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:


Market Watch




















% Change

May Corn







May CBOT Wheat







May KCBT Wheat







May MGEX Wheat







May Soybeans







May Soy Meal







May Soy Oil







April Live Cattle







April Feeder Cattle







April Lean Hogs







May Cotton







May Oats







May Rice








Cattle futures were down 88 cents for the week, or about 1%.  The winter storm in the southern Plains shut down some packing plants on Friday, and limited cash cattle trade. Some $83 business was reported. Northern cattle traded at $134, about $1 higher than the previous week. Wholesale prices continued to be mess, with choice again dropping below the lower quality select cuts due to a mismatch between production of cattle grading choice and the consumer (mostly restaurant) demand for those higher quality cuts.


Market Watch:  Spring training is ending, and it is the beginning of the big league season. That’s true for the grain markets as well. The opening pitch is the Planting Intentions report, due out on Tuesday morning at 7:30 am CDT. USDA will also release the quarterly Grain Stocks report on Tuesday morning. On Monday, we’ll have the usual fallout from the expiration of the April grain options on the 27th, and the weekly Export Inspections report. Weekly Export Sales is on Thursday morning, and April live cattle options are due to expire on Friday.

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