The week started out with the usual short covering for traders who plan on taking off for the holidays and was smashed on Wednesday. Several pieces of news came out on Wednesday that, when combined, cause two days of weak markets. First, the Federal Reserve raised its interest rates by 0.25% which the trade has been expecting. Second, Argentina released its restrictions on exchange rates with the dollar causing a devaluation of the Peso by approximately 40%. Trade knew this devaluation was coming but was expecting a laddered approach rather than a sudden release. Third, the US embassy in China received official notice from the Ministry of Commerce of formalizing the anti-dumping claim against US DDG. Argentina’s reduction on export taxes coupled with its devaluation of the Peso is expected to greatly increase the number of exports from the country. This news caused a major bump in the dollar and severe drops in prices with Kansas City March wheat losing $0.11 and March Corn losing $0.07.
The weak markets continued Thursday morning but were pulled up by continued short covering and a rally in the Soybeans. Fresh news from South America of dryness preventing planting in some major Soybean areas spurring a needed rally.
Markets will trade normally next week until Thursday. They will close an hour early on Christmas Eve (11:00 PM) and will remain closed until Sunday night for the normal night trading.
Wheat has continues to be a dog in the market despite a slight, pre-holiday, short covering rally. Argentina is expected to become a competitor in wheat exports in the next few months due to the elimination of the export tax on wheat and the devaluation of the Peso. Any rally in wheat futures is expected to knocked down by widened basis in the cash market in order to keep wheat values competitive in the world market. Informa increased their estimate of winter wheat production by 11 million bushel based on FSA data of increased wheat planted acres.
As producers, we often forget about the other side of the coin that is the demand side. Economic theory dictates that when prices are low, you will see new demand enter the market which in turn causes prices to increase. This demand is either new buyers entering the market thinking they can make a profitable margin from the lower input prices or from the consumer substituting to the cheaper product. There has been unconfirmed rumors of old wheat mills re-opening because margins look better.
The year is coming to an end and there were several newsworthy events this year. This article provides a good summary of the year’s major economic events and provides good links for topics that interest you. I would recommend it.