Farmers are shutting their grain bins and the fundamental news that's driven the grain markets for the past several months is slowly subsiding. In a presentation to a crop insurance workshop in Grand Island, Neb., DTN contributing analyst Elaine Kub explained a few things that will drive the direction of the grain markets over the next couple months.
First, noncommercial traders are holding a large soybean position, that's done very well over the past few months. As investment traders look at balancing their portfolios over the next two months, they'll trim that position. The looming fiscal cliff will accelerate the process.
"They want to get out of their investment assets and into cash and that requires a lot of selling," Kub said.
The weather in South America is taking its seasonal step into the market. Traders will be closely watching planting progress and condition of the corn and soybean crops in South America. Kub highlighted that it's hot and dry for this time of year in northern Brazil's corn and soybean areas, and while it's too soon to tell if that will cut into production estimates, traders will be watching that news closely.
But in northern Argentina, it's wet and that will affect the quality of its wheat crop. The Argentine government recently revised its production estimate downwards, and that's on top of acreage reductions in Russia, the Black Sea region and Australia. Kub said it felt strange to talk about wheat being the bullish since global supplies have been so large for so long.
The third factor that could affect commodity prices is the value of the U.S. dollar. The exchange rate still makes U.S. soybeans attractive to importers, particularly China. July soybean prices on the Dalian Exchange (in U.S. dollar equivalent) were $20.94, which is still lower than S. American prices.
"There are three to four hours of daylight between those prices," Kub said, about the price difference between U.S. and S. American soybean export prices. But if the U.S. dollar gains strength, it could weaken our export advantage.
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