When USDA released their monthly Crop Production and Supply and Demand Reports May 11, the market saw glimmers of hope amongst the nuggets of news. The shiny spots now appear to be fools gold.
Reality sets in
Markets spurted higher coming out of reports May 11, but reality struck later in the week and we are now looking at a new recent low in soybean markets and a return to the low in the corn.
Soybean prices bounced 35 cents and the corn jumped almost 15, and then it was over and prices were lower than ever. Look at the charts. July soybean futures on the CBoT had a low at 9.39-1/4 the end of March. They rallied over 80 cents to the 10.20 high of April 26. Then, they lost 82-1/2 cents by May 10. In the middle of that was the short-lived 35-cent jump in the two days after the reports. We are now back to the prices of middle March.
In similar fashion, July corn futures had a 3.51 April 27 low, bounced to 3.85 on May 12, then dropped to 3.55-1/2 by May 17. That recent 3.51-1/2 low needs to hold, or we could hunt for the old low of 3.33-3/4 put in on September 8, the harvest low.
Report reactions are always difficult to predict. Maybe there is good news, but maybe it is not good enough. Maybe it is “already in the market.” That is the usual saw we quote when prices don’t react according to the news we see.
In this case, it may simply be that the news was not good enough to overcome “outside markets,” the other phrase we shove in there to explain what may be beyond reason. This week, the outside markets were notable.
Biggest news world-wide was the bailout by the International Monetary Fund, which mostly means by money borrowed by the US and funneled through the IMF, of Greece. That country was facing riots brought about directly by austerity measures pressed by the government on the people.
Indirectly they were a result of overwhelming debt that is crushing the economy. Since Greece is part of the EUC, and uses the EURO for currency, the problems end up weakening the EURO, especially since all the news talk has focused interest on several other countries with high debt loads. Now, all of a sudden, the world currency to be respected is the US dollar.
After several years of China and oil-rich countries in the Persian Gulf pushing to use the EURO to replace the dollar as the trading standard, that idea does not look so great.
The European economy is no better than the US economy. The dollar looks pretty good again. Of course, if your business depends upon a large part of your crops being exported to other countries, a stronger dollar is not good in the short run.
Soybeans are now more expensive this week in Rotterdam, expressed in EUROs, than they were last week. That is to say, they are now worth less expressed in dollars here. And, less we feel smug about our dollar looking good again, look at the foreign debt in perspective. They now have debt equal to 1.25 times their gross national product.
We are approaching debt equal to the GNP, and projects of the course we are now on is that we could also hit the 1.25 mark in five years. Then, the strong dollar will not be a consideration, or will it be our biggest problem?