Not only did the grain and soy shorts go home feeling disappointed and dejected last Friday, they are having a little extra salt rubbed into their wounds this morning. The USDA delivered a report more negative than even the most bearish of the bears was hoping for and while the immediate response was as would be expected, prices rebounded smartly for the close and we have witnessed nice follow-through strength here this morning. There is never a signal that is absolute but as I have commented many times in the past, when a market fails to react to news in the manner that would be expected, odds are good that you have pushed too far in that direction. All that said, if we are to see much in the way of price action in the opposite direction, we are going to need to find a stimulus.
One possible aid could yet come from the U.S. Dollar. While the pressure is not significant this morning, this market is lower and appears to have at least failed at short-term resistance levels. We have yet to press through any key levels of support, but indicators point down and it would appear that we could have the stage set for a second wave lower that could carry us back down to the base of support that has held this market for the past year around 93 cents. By no means would I suggest that such a break would translate into a major advance in grains and beans but it would potentially remove enough ammunition from the bear that it would encourage a little more pre-harvest short-covering.
Another factor that could provide at least temporary support is the crude oil market. OPEC has called a meeting for next month to discuss possible production freezes in an effort to stabilize and boost price levels. This time the architect of last years’ plan to squeeze out high cost producers, The Saudis’, now appear to be the strongest proponent of setting caps once again. Unlike the old days though, when the Saudi’s basically could dictate the policy for OPEC, there are a number of members who are standing up in opposition, mainly Iraq and Iran, and of course they have major outside producers such as Russia and the US who could care less what they think. I do not believe this will lead to a major advance in the crude market but we do have prices continuing with the recent recovery and it would appear there is room for a little more strength as we push out into early September.
Keep in perspective that none of these possible external factors will necessarily produce a rally in the grain and soy markets and even if they do, I would not expect anything major. That said, if they do it could present a decent pre-harvest bounce that producers who need to move product before the end of the year could try and reward.
This commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own. The Hueber Report is a grain marketing advisory service and brokerage firm that places the highest importance on risk management and profitable farming.