We have a rather dreary start to this new week as grain and soy markets are generally soft. Newswires are sparse with “market” specific information and with the macros exerting a negative influence, i.e., higher U.S. Dollar, it becomes easy to just cling onto last week’s negative information from the USDA. That said, in the overall picture, we just continue to churn in a large sideways pattern.
Late last week the Climate Prediction Center issued an update for the ongoing La Nina and predicts that there is a 65 to 75% probability that it will continue (below average sea surface temps) throughout the winter months, which of course would be spring/summer in South America. Granted, there is nothing in this prediction that would assure that crop development problems would be serious in the southern hemisphere, but ignoring the potential for this to occur, should be done at one’s own market peril. AgRural currently estimates that bean planting in Brazil has reached 57%, and while that is still behind last year, is right on the historical average.
The commitment of traders reports is delayed until today due to Veterans Day being observed last Friday. While one can only imagine that it will show that managed money increased their short in the grains, it will be interesting to see if we set new records for the year.
Indicative of the growing significance and volume of trade in the region, the CME announced they are set to launch a Black Sea Wheat contract and Black Sea Corn contract on the 18th of December, assuming there are now problems with regulatory approval. Considering that Russian is stepping into the position of the world’s largest wheat exporter, it makes you wonder what took so long.
Albeit not huge, it was nice to see exports sales announced this morning. The USDA reported sales of 135,000 MT or Soybean cake and meal to the Philippines this morning.
One final story this morning which really has less to do with the world of commodities but technically could impact us all and this concerns interest rates and more specifically the yield curve. Seeing that the Fed has bumped short-term rates higher and is beginning to unwind its balance sheet this should be expected, but with 10 and 30-year yields actually declining, it can present new challenges and potentially some warnings. For the banking/financial services industry as the spread between deposits and interest earned narrows so does profit potential and offers little incentive for long-term investors. While the yield curve itself is still positive, (it can invert) it has slipped to the lowest level in a decade, and more than a few economists warn that this could be a precursor for an economic slowdown. For us here in the ag sector though, that prospect may not be completely discouraging as it could take a bit of the investment glimmer away from equities and move that move money back in our direction, and potentially send the US dollar lower once again.