Will it be a trick or a treat?
Sep 21, 2017
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For many of us, the approach of October conjures up thoughts of corn and bean harvest, apple picking including a few glasses of cider, (the non-hard kind of course) and Halloween with all the scary little ghosts and goblins that venture out in search of sweet treats or possibly tricks. It now turns out that for many, October, or at least October 2017, will mark the month in which the Federal Reserve will begin to unwind its monumental experiment in monetary policy by trimming the $4 trillion balance sheet. Also, revealed after the meeting was the sentiment that at least eleven of the twelve FOMC members are leaning toward another rate hike come December. Seeing that we have never seen a reverse-QE before, it would be premature to say if we are all in store for a treat or a trick this October.
Obviously, at least for a day, equity markets and the U.S. Dollar felt the news was a treat as the DJIA and S&P 500 have extended into new record highs yet again, and the dollar posted a reversal higher and the largest single-day advance of the year. While I do not know if the dollar strength was more influenced by the reversal in the QE program or the prospect of higher interest rates and we have not witnessed follow-through this morning but, do note that short-term, (daily and weekly) the dollar is quite oversold and due for a possible corrective rally, which in turn could create unwelcome headwinds in the commodity world.
Bean demand continues unabated as this morning in the daily system there was another 132,000 MT reported to be sold to China, and on the weekly report, we find sales of a whopping 2,338,100 MT or 85.93 million bushels. No surprise to see China as the major buyer with 1,403,200 MT, followed by unknown destinations with 528.8k and then Mexico at 213.1k. This means that at two weeks into the crop year and cumulative sales of 710.3 million bushels, we have already sold 31.6% of the projected 2.25 billion. To keep this in perspective though, this is actually 21% behind the same period last year. Unfortunately, we do not have the same type of positive news for corn as sales were ½ of last week coming in at 526,900 MT or 20.75 million bushels. The top purchasers were Mexico with 264.1k MT, followed by Japan at 111.6k and then Colombia with 73k. Year to date sales now stands at 434.2 million bushels or 23.5% of the projected 1.85 billion. Wheat sales were consistent at least coming through at 307,200 MT or 11.3 million bushels. This was just 3% lower than last week but still 24% under the 4-week average. The top purchaser was the Philippines with 77.9k MT, followed by Mexico at 54.8k and finally Kenya with 41.1k. Year to date, we have sold 480.7 million bushels or 49% of the projected 975 million with 37-weeks left in the year. A final note on potential wheat sales though as Australian prices on the world market have now pushed above the U.S. due to the crop issues, they have encountered this year.