Category Archives: USD

Corn & Soybean Harvest, Winter Wheat Conditions

USDA showed Minnesota harvested 30%, Iowa 25% and Nebraska 20% of their crop last week. US corn is now 65% harvested and appears to be closing in on our more traditional average.

WeeklyHarvested11.03.14Corn(580)

 

 

 

 

 

 

 

 

 

 

83% of the US soybean crop has been  harvested, which is right in line with our 5-year average of 83%. In other words, there is not a lot of risk-premium left out in the field.

WeeklyHarvested11.03.14Soybean(580)

 

 

 

 

 

 

 

 

 

 

USDA maintained its 59% “Good to Excellent” rating for the winter wheat crop.  90% of the winter wheat crop is planted and 77% is emerged, both of which are ahead of the average.  As you can see the PNW and the Midwest seems to be struggling.

WeeklyHarvested11.03.14Wheat(580)

Who Will Be Challenging King Dollar?

There have been some great articles circulating as of late in regard to the US dollar keeping its crown as King. As Barry Ritholtz points out in his BloombergView article, ​t​he US dollar still makes up 60.9% of ALL foreign exchange reserves and was used in 42.1% of ALL global payments. As you can see from the chart I included below, the next largest contender is the Euro, who is dangerously close to throwing in the towel. Bottom-line, even though many of the “Doom & Gloomers” like to talk about it…there​ ​real aren’t any credible challengers at this stage of the game. (Source: Martin Wolf of the Financial Times and Barry Ritholtz with BloombergView)

What Does A Strong US Dollar Mean For Markets?

Traditionally a strong dollar has been bullish for the stock market. Since the late 1970s, the stock market has actually performed twice as well during dollar bull markets than during dollar bear markets. I should however point out there are some additional questions being raised this time around in regard to the US dollar possibly losing its reserve currency status? I’m not particularly in this camp (at least not any time soon), but we need to recognize the powers that be in other areas of the world are desperately trying to debunk the US dollar as the world’s global currency. Remember, back at the end of August, Gazprom (who is the Russian equivalent of ExxonMobil), announced it would be accepting payment for its oil in Rubles & Yuan…NOT US dollars! Obviously the US dollar will not fall from the leader board overnight, but there are certainly those in the trade who are becoming much more concerned about a longer-term transition from power. For now the US dollar remains in the midst of a major bull run and I suspect it will continue. Below are some reasons why and what the rally may mean for your investments:

  • Several Reasons Why US Dollar Is Strengthening… Improving US economy; Fed moving toward monetary normalization (no more QE) while other global central banks—notably the European Central Bank (ECB), the Bank of Japan (BoJ) and now China are aggressively easing policy; Thoughts of increasing US interest rates attracting more investment dollars; US energy renaissance means improving US trade and account deficits.
  • Benefits of a Stronger US Dollar: Lower import prices (cheaper oil, autos, etc…) equating to more discretionary spending power; Foreign travel and land purchases become cheaper for Americans.
  • Negatives of a Stronger US Dollar: This is a tough environment for US farmers because it lowers commodity prices (particularly those priced in dollars). As the dollar appreciates, commodities become more expensive for overseas buyers since they have to convert their weaker currencies into dollars, which basically works to curb or slows global demand. As you can see this makes US exports more expensive and less competitive in foreign markets. Short-term, there is some concern that third and fourth quarter corporate earnings could be hurt a bit by the dollar’s recent surge.

Interesting Perspective

I wanted to pass along some interesting thoughts from a good friend of ours, long time subscriber and professional trader.

Kevin,

I also reduced some of my short side hedge exposure this week. Like you, I’m not saying the low is in place, I’m just wanting to bank a portion of my profits and reduce my short-side risk. I’m also a little fearful we may experience a (new-crop 2015) rally back towards $4.00 in the Spring, especially if the market feels it needs to buy a few corn acres. If you consider the “BIG picture,” we had a 1.8 billion bushel corn carryout last year at this time and we were trading around $4.40. This year we are at 2 billion bushel carryout and a whole buck lower at $3.40. Yes, old-crop stocks were tighter last year and some of those wild feed usage numbers were to “restock” the pipeline, which was obviously lower than they (usda) were admitting last fall. Therefore its easier for the bears to argue this year it’s going to be tougher to reduce the carryout. On the flip side, we now have to grow 12-13 billion per year JUST TO MEET demand. That’s a much taller order to fill vs. the 6-7 billion annual consumption during the 1980’s. I’m not telling you anything you don’t already know, but simply I have become a little more careful when comparing current supply numbers to those of the past, especially “percentage wise.” The implications of production and or supply hiccups can become much larger concerns or “real” problems much faster with today’s annual consumption. The market is counting on a 13 billion crop minimum to meet demand and gets pretty nervous at the first hint of problems. Let’s also not forget the overall speed of the trade and how quickly information now travels.

Why The Landscape Is Different and What It Means For Commodities

The ECB rate cut is significant because it signals to the trade that European Central Bankers and the US Fed are clearly moving in different directions. Rember, since the crash back in 2008, every move the ECB made to lower the value of the euro was trumped by a US Fed move to lower the value of the US dollar.  There is no debating the fact the lower US dollar helped fuel the commodity supper-cycle.  Now all of a sudden the ECB and the Fed are headed in opposite directions and the US dollar is surging higher.  Many analyst believe this environment will make it extremely difficult if not impossible for commodities (as a whole) to attract NEW big money investors! Make certain you understand how the landscape is changing and what this might mean for your business and your investments.