(Agrimoney) – The dollar’s retreat is turning into a bit of a trend.
The greenback lost a further 0.7% against a basket of currencies as of 09:40 UK time (04:40 Chicago time), and has now lost more than 4% from its 11-year high reached on March 13.
The decline has been fuelled by, besides simple profit-taking, some disappointing US data, most lately on durable goods orders, which has pushed back expectations for a rise in interest rates.
And, of course, for dollar-denominated commodities, a falling greenback implies upward price pressure, in improving their affordability to buyers in other currencies.
Yemen conflict
Still, there are other forces in town too, such as growing conflict in Yemen, which has sucked in Saudi Arabia.
Saudi early on Thursday launched air strikes early against Shia Houthi rebels in Yemen, in support of “the legitimate government” of President Abdrabbuh Mansour Hadi.
That has warranted the reinjection of risk premium into oil prices, for fear of some knock-on effect on Middle East oil supplies.
Brent crude rose 3% back above $58 a a barrel, earlier coming close to regaining $60 a barrel (although there has been only minimal movement yet in ethanol, important for ag traders given that the biofuel is in the US made mainly from corn.
(Ethanol for April was up 0.2% at $1.520 a gallon.)
Shares slip
Shares have performed poorly so far, heading the same way as the Dow Jones industrial average, which lost 1.6% overnight.
Tokyo stocks shed 1.4%, while Sydney shares fell 1.6% and Seoul shares dropped 1.1%.
However, there is no feel, yet, of investors reaching for the “risk off” switch which would see a general retreat in risk assets.
Indeed, there may be some further potential for commodities to benefit, given some recent talk that gains in shares have been fuelled in part by a switch out of raw materials.
‘Technicals are supportive’
Still, gains in grains were relatively, modest, although any headway at all in Chicago corn futures was notable given that they have already closed higher for four successive sessions, and are up some 8% from a March 18 low.
But having closed above their 200-day moving average in the last session for the first time in 10 months, the May contract had a crack at breaking back above its 100-day moving average too.
The lot, up 0.4% at $3.69 ¾ a bushel, was some 0.5 cents above the 100-day line.
“Technicals are supportive” for corn, said Benson Quinn Commodities, if adding that “the market is getting overbought”.
‘Large Brazil crop’
In crop terms, the market is getting support from the prospect of a US Department of Agriculture report next week on domestic spring sowings prospects which is expected to show a drop of nearly 2m acres in corn area.
“Expectations of lower acres in next week’s USDA report appear to be pushing prices higher,” CHS Hedging said.
And this when hedge funds had, as of Tuesday last week, returned to a net short position in corn futures and options, ie positioning for price falls.
Not that all is necessarily rosy for corn, with Terry Reilly at Futures International noting that a dollar which is still relatively strong still posed some threat to US exports, at a time when “the large Brazil crop that is about to come online.
“Earlier this week we were hearing Brazilian corn was $0.07-0.15 a bushel cheaper than US origin when shipped to Asia for late April into summer shipment.”
Data later
Brazilian exports are an even bigger factor for US soybean exports, and therefore Chicago soybean prices.
In fact, weekly US crop export sales are due later, with the figure for soybeans pegged at 100,000-300,000 tonnes for old crop, well below levels earlier this season before Brazil’s harvest brought fresh supplies online.
For 2015-16, some 0-100,000 tonnes in US soybean export sales are expected.
For corn, the figure for 2014-15 is expected at 400,000-600,000 tonnes, with new crop sales in line with those of soybeans.
For wheat, closer to harvest and the end of its marketing year, new crop sales are expected a little higher, at potentially 250,000 tonnes, while sales of 2014-15 are expected at 200,000-400,000 tonnes.
‘Potential Brazilian trucker strike’
Back with soybeans, prices are gaining some support over fears of a fresh Brazilian truckers’ strike next week, which would slow movement of crop to port.
Benson Quinn Commodities flagged “supportive… talk of a potential Brazilian trucker strike next week” besides “bearish… reports that soybean yields in southern Brazil and Argentina are coming in near record large”.
Meanwhile, although the USDA sowings report next week is expected to show a large increase in US soybean sowings this year, nearly to 86m acres from 83.7m acres last year, some doubts are emerging as to whether so much of a rise will actually be seen, thanks to the relative underperformance of prices of the oilseed of late.
“The corn/bean [price] spread ratio has been narrowing of late and favours corn acres over beans,” Benson Quinn Commodities said.
Rising oils
In fact, the much-watched November soybean: December corn futures ratio has actually shifted down to 2.29, from 2.47 coming into the month.
Ideas of a neutral ratio range from 2.0-2.5.
Whatever, soybeans for March were 0.3% higher at $9.81 ¼ a bushel, given support from strong vegetable oils, with soyoil for May up 1.3% at 31.43 cents a pound.
In Kuala Lumpur, palm oil added 1.3% to 2,195 ringgit a tonne, helped by firm crude oil prices. (A major use of vegetable oils is in making biodiesel.)
Latest cargo surveyor data on Malaysian exports were more positive too, showing growth of some 3.5%, month on month, for the first 25 days of March, compared with a drop of 5.5-7% as of March 20.
‘Three maybe more systems’
Back in Chicago, wheat rose 1.1% to $5.24 ½ a bushel for May, shifting with ideas of the threat of dryness to the southern Plains winter wheat crop.
“Light rain across US hard red winter wheat country over the past two days was welcome for early crop development,” Terry Reilly at Futures International said.
And there is some further rain in the offing.
“Forecasts for the southern Plains offer three maybe more systems through this region over the course of the next couple of weeks,” said Benson Quinn Commodities.
“Central Oklahoma should do alright precipitation wise.”
Not good for Kansas
That said, “current forecasts don’t’ offer the organised rainfall that is desired”, the broker added.
For Kansas, the top wheat producing state, the broker said it was “not seeing forecasts that look very good in the near term”.
Commonwealth Bank of Australia’s Tobin Gorey said: “Weather forecasters continue to expect rainfall to fall well short of requirements over the next week or so in US hard red winter wheat regions.
“So there is no change to the threat to production potential.”
