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Top three items to monitor for grain futures in August
After a lackluster summer rally and quiet trade in July, grain futures are likely to have a few things in store during the month of August. Here are the top three items to monitor.
1. Value of the Dollar
The value of the U.S. dollar has been tiptoeing lower for the past three months. Its value is now approaching a decade-long uptrend on monthly charts. Whether or not this uptrend holds or fails is something that trade is very eager to monitor in the months ahead. Remember, when the value of the U.S. dollar is low, it makes it cheaper for other countries to import our commodities due to currency exchange rates.
Think back to 2007 and 2011. The value of the U.S. dollar was at historically low levels, and in those years U.S. agricultural commodity exports were strong! Those years also saw significant grain price rallies due to demand. Currently, as we face the last months of 2020, some investors are concerned the money-printing being done by the Fed will trigger inflation in years ahead. Thus, some investors have been exiting long U.S. dollar positions.
2. Exports of U.S. Agricultural Commodities
For the past month we have seen steady Chinese buying of U.S. grain. Recently Chinese buyers booked their single biggest-ever purchase of U.S. corn. The U.S. Agriculture Department said on July 30 that private exporters sold 1.937 million tons of corn to China for delivery in the 2020/21 marketing year. That topped the previous largest deal to China of 1.762 million tons, reported just two weeks prior. China’s corn purchases already account for 81% of USDA’s 7 MMT corn import projection for China.
Will the buying spree continue? The aggressive Chinese bookings have boosted total corn and soybean export sales to potentially all-time record levels for July. Perhaps China will meet its end of the Phase I trade agreement after all.
While there are dry pockets in portions of the Midwest, for the most part, the crop looks good. Trade is anticipating trendline yield or better for corn and soybeans. Because of this large crop perception, prices may have a difficult time rallying during the month of August. It does appear seasonal tendency for grain trade will remain as a strong possibility. That means December corn futures, November soybean futures, and December Chicago wheat futures prices will drift lower during the month of August. Seasonally, those contracts do not find their harvest low until very late August or early September when the crop in the Southern U.S. is beginning harvest.
With the reality of a large crop coming and hopes that demand will continue to be strong, grain futures will have a battle ahead. Will the seasonal sell-off due to large supplies win? Or, will a lower dollar and increased demand win the month? Make sure you are prepared for either scenario to unfold.
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