Good Quarter for Commodities

Published on: 14:28PM Mar 31, 2016

It would appear that one of the leaders, if not the leader of the of the 1st quarter 2016 commodity rally may have finally reached the end of its rope, that being the crude oil market.  This should really come as no surprise as there have been more than enough warnings issued by the likes of Goldman Sachs, Barclays and others pointing out that the underlying fundamental situation has changed little thus far and the rally unsustainable.  Interestingly enough, crude oil will actually close nearly unchanged for the quarter but this after rallying more than 50% from the January lows.  The biggest gainer in the commodity world for the quarter will have been iron ore which should be up around 25% (should be good indicator of economic expansion) and of course gold which stands around 16% higher and I understand will mark one of the largest quarterly gains since 1986.  As for the U.S. Dollar?  It is set to post one of the largest quarterly losses in over five years.  

Anyone who has been reading our comments with regularity knows that we have been looking for this initial burst of strength in commodities to soon exhaust but unlike our friends in the investment world, we do not believe that will usher in the new bear trend but rather a corrective retracement within the range already established.  While it is difficult to detect in every individual commodity, low prices are serving their economic function by discouraging production and stimulating demand and of course ultimately that leads to steady to higher prices. Of course, that process can be painfully slow, especially for those whose livelihoods are dependent on this sector.

For the Ag world, report day has finally arrived and we are just a few hours away from seeing what Uncle Sam has to offer us in the planting and grain stocks reports.  The Wall Street Journal is the latest to issue survey results for the report which come in as follows; Corn acreage 90.047 million acres, beans at 82.946 million and wheat at 51.659 million.  As for grain stocks, they have come up with 7.822 billion for corn, 1.569 billion in beans and 1.356 billion for wheat.  As always, the reaction to the report is a much above where the figures fall into line with the estimates at the raw numbers themselves. 

Rains look to continue from the south right up through the Midwest into the weekend so spring work remains on hold for a large swath of the nation.  Granted, it is always difficult to garner much market excitement in the spring from too much rain as we know how rapidly crops can be planted not to mention the “rain makes grain” mentality of many.  Regardless, this very well could be just one more element that will render expectations of above trend-line yields incorrect for this coming crop year.

Seeing that I am away and writing earlier than normal, I will not cover export sales this morning but subscribers will receive an update as soon as they are released.  Realistically, the number will be overshadowed by the quarterly reports this week anyway.