Issues like the focus on end of the month position squaring, the lead up to this week's midterm elections in the United States and their federal reserve meeting earlier in the week – all combine for a strong past month for grain markets all around.
Following are highlights of the past month, Sept. 30, to the time of writing this piece on Nov. 2:
Based on today's close (Nov. 2), Chicago Board of Trade December corn futures have rallied 80 cents a bushel. Since gapping higher Oct. 11, prices have consolidated.
A move through either the top or the bottom end of the consolidation range will set the next major market move. On Monday, Nov. 1, the contract tested the top end of the range, as bulls still have $6 a bushel as their next objective.
Ahead of the Nov. 9 United States Department of Agriculture crop production and supply-demand report, private trade estimates forecast a small revision lower in U.S. corn production -- down into the 12.5 to 12.6 billion range. Though most, if not all, of the expected decline could be offset by lower demand in this report as exports are sluggish.
Current market fundamentals seem to be priced into the market, leaving market bulls with little to rekindle the rally for now. Seasonal trends favour firmer prices following harvest, though, as off-the-combine selling pressure eases. End users will likely, in time, need to improve cash price levels to cover demand.
However, more attention will be directed towards the need to ensure an increase in 2011 U.S. corn acreage, keeping traders watching soybean prices into the end of the year. Soybeans have more fundamental factors at work, with strong demand from China and the need for good production from South America and the possible impact of La Nina influencing weather.
January bean futures have rallied $1.18 -- a quarter from the last trading day in September to Nov. 2.
Over the past number of trading sessions, the contract has flirted with its highest closing value since early September 2008. Next resistance from the monthly chart is the 2009 high of $12.91 quarter.
I am a little wary of the MACD -- Moving Average Convergence Divergence -- indicator on the price chart starting to roll lower. However, we saw the same thing occur at the beginning of October, just before the Oct. 8 USDA report set the bull momentum afire.
What's in store for the upcoming Nov. 9 USDA report?
In making forecasts ahead of this report, there's little to go on with respect to soybeans, other than historical patterns to the U.S. production estimate, which slightly favour a decline. Anecdotal reports from harvest results are spotty at best. This report has the possibility of containing a bearish surprise, but we are going with the weight of history and looking for a slight yield decline of 0.1 bushels per acre. That's based on the mathematical expectation calculation of the yield change from October to November in years when the October crop estimate was below the September estimate. This results in a U.S. bean crop estimate of 3.403 billion bushels. USDA could be justified in raising its 2010-11 bean export and domestic crush estimates slightly, thus a reduction to USDA's bean carryover should result.
Minneapolis December wheat futures have rallied more than 40 cents from the last trading day in September to Nov. 2. On Monday, Nov. 1, the contract tested the top end of the entrenched three month trading range in the U.S., $7.80 to $7.90 per bushel region.
U.S. wheat futures have a sense of "overboughtedness," at least in my opinion. There continues to be concern about dry weather conditions across U.S. hard red winter wheat areas, but there is still time for conditions to improve and there are indications of showers in the long term forecast. This leaves demand -- which remains sluggish -- as the focal point for wheat prices.
Worries about the U.S. crop seemed to be overshadowed for the moment by uncertainty around the U.S. congressional elections and the Federal Reserve meeting ending Wednesday. Market participants are watching to see what impact these events ultimately have on the U.S. dollar.
I am wary of major political developments such as the ones of this week and their potential influence on global macro-economic issues in the immediate days ahead -- and ultimately the trickledown effect for the grain markets.
The biggest near-term determinate of health of commodity markets may in fact be developments in stock and currency markets. As long as equity markets maintain stability and the U.S. government prints more money (weighing on the U.S. dollar), commodity markets will remain well supported. But the day the U.S. government pulls it's stimulus and equities break is the day that the commodity world may falter.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.