DTN musings...extracted from; "Truly Spooky things"
Elaine Kub Contributing Analyst
Wed Oct 28, 2015 11:43 AM CDT
"Unless the neighbor kids stop by on their way to town, trick-or-treaters can be pretty scarce in certain middle-of-nowhere regions of rural America.
..."Or how about the power that central bankers wield over a farmer's income? Not just mild American central bankers, but European central bankers and Chinese central bankers, too. Except that I don't know what those costumes would look like, exactly.
Last week, the European Central Bank suggested that it's willing to do more monetary easing, and the euro dropped more than 2 cents in one day. The value of the euro contributes 57.6% to the calculation of the U.S. dollar index, so due to that one quasi-governmental body's comments, the global price of our own currency jumped 1.5% in a day. And due to that, there was pressure on grain prices. Commodity price tags must get cheaper to motivate buyers whenever the underlying currency gets more expensive in relative terms. Maybe soybeans and corn would have continued gaining value last week as harvest was winding down, but we can't really know how much influence the weaker euro really had. Presumably this was in the Europeans' best interest, making it easier for them to get business loans, but not so great for American commodity exporters and producers.
The other big outside market mover last week was Chinese government reports -- their retail sales and overall economy grew at better-than-expected rates: 10.9% and 6.9%, respectively. Their industrial production growth slowed to just 5.7%, however, and so hints were given that more stimulus or economic reform measures will be seen.
Reality in 2015, therefore, in many ways now resembles modern literature's definitive depiction of a dystopian hellscape. In George Orwell's 1949 novel "Nineteen Eighty-Four," the world has just three nation states: Oceania (present-day North and South America, Great Britain, Australia and the lower half of Africa), Eurasia (present-day Europe and Russia), and Eastasia (basically China and various 'stan countries over to Iran). These three major powers compete via currency wars and every other kind of war.
If we were living in that novel today, presumably U.S. farmers would fall under the control of Oceania's Ministry of Plenty. Power, as exercised by the Ministry of Plenty, included not only the planning and rationing of goods, but the releasing of economic reports which Winston, the novel's main character, must edit. Orwell wrote: "The Times of the nineteenth of December had published the official forecasts of the output of various classes of consumption goods in the fourth quarter of 1983, which was also the sixth quarter of the Ninth Three-Year Plan. Today's issue contained a statement of the actual output, from which it appeared that the forecasts were in every instance grossly wrong. Winston's job was to rectify the original figures by making them agree with the later ones ... It was merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connection with anything in the real world, not even the kind of connection that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in their rectified version. A great deal of the time you were expected to make them up out of your head."
So there's another Halloween costume idea for someone.
Beyond going back to the policy of quantitative easing, there's not much that the U.S. Federal Reserve is likely to do to fight back in a currency war between three major global powers. They can hardly drop interest rates anymore to cheapen our dollar, and they probably wouldn't want to anyway. Even if the U.S. dollar can only go up from here -- which will be a net bearish weight on commodity prices for the foreseeable future -- this will be as positive for American consumers buying foreign products as it will be negative to American commodity producers trying to export products.
Furthermore, we're not living in a novel and there are many more than three countries with policies and currencies that affect our ag products' export prospects. Despite the largest two-day rise in the U.S. dollar index since August, corn and wheat prices were surprisingly resilient last week. Perhaps that's because the euro isn't really the currency against which dollar-denominated grain exports are competing. The Ukrainian hryvnia hit a decade low in February and has been dawdling around that cheap level (22 per USD) ever since. Last month, the Australian dollar hit its lowest level since 2009 ($0.69 USD). The Brazilian real also hit decade lows in September (4.26 per USD). None of those are in the basket of currencies used to calculate the official U.S. dollar index, but the Canadian dollar contributes 9% to the USDX calculation. It too, plumbed decade lows last month, and its daily movements were flat or lower during last week's dollar surge.
Let the dollar's prospects -- especially in comparison to these other grain-exporting nations -- be part of your forward thinking once the costumes have been put away, the candy has all been eaten, the grain has all been harvested, and you are left pondering how long to wait before selling. In a year with abundant grain supplies, the seasonal tendency is to see higher prices in the spring, but it's hard to know what scary influences could weigh on the sector in the meantime.
Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.
(BAS/AG)"
Elaine Kub Contributing Analyst
Wed Oct 28, 2015 11:43 AM CDT
"Unless the neighbor kids stop by on their way to town, trick-or-treaters can be pretty scarce in certain middle-of-nowhere regions of rural America.
..."Or how about the power that central bankers wield over a farmer's income? Not just mild American central bankers, but European central bankers and Chinese central bankers, too. Except that I don't know what those costumes would look like, exactly.
Last week, the European Central Bank suggested that it's willing to do more monetary easing, and the euro dropped more than 2 cents in one day. The value of the euro contributes 57.6% to the calculation of the U.S. dollar index, so due to that one quasi-governmental body's comments, the global price of our own currency jumped 1.5% in a day. And due to that, there was pressure on grain prices. Commodity price tags must get cheaper to motivate buyers whenever the underlying currency gets more expensive in relative terms. Maybe soybeans and corn would have continued gaining value last week as harvest was winding down, but we can't really know how much influence the weaker euro really had. Presumably this was in the Europeans' best interest, making it easier for them to get business loans, but not so great for American commodity exporters and producers.
The other big outside market mover last week was Chinese government reports -- their retail sales and overall economy grew at better-than-expected rates: 10.9% and 6.9%, respectively. Their industrial production growth slowed to just 5.7%, however, and so hints were given that more stimulus or economic reform measures will be seen.
Reality in 2015, therefore, in many ways now resembles modern literature's definitive depiction of a dystopian hellscape. In George Orwell's 1949 novel "Nineteen Eighty-Four," the world has just three nation states: Oceania (present-day North and South America, Great Britain, Australia and the lower half of Africa), Eurasia (present-day Europe and Russia), and Eastasia (basically China and various 'stan countries over to Iran). These three major powers compete via currency wars and every other kind of war.
If we were living in that novel today, presumably U.S. farmers would fall under the control of Oceania's Ministry of Plenty. Power, as exercised by the Ministry of Plenty, included not only the planning and rationing of goods, but the releasing of economic reports which Winston, the novel's main character, must edit. Orwell wrote: "The Times of the nineteenth of December had published the official forecasts of the output of various classes of consumption goods in the fourth quarter of 1983, which was also the sixth quarter of the Ninth Three-Year Plan. Today's issue contained a statement of the actual output, from which it appeared that the forecasts were in every instance grossly wrong. Winston's job was to rectify the original figures by making them agree with the later ones ... It was merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connection with anything in the real world, not even the kind of connection that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in their rectified version. A great deal of the time you were expected to make them up out of your head."
So there's another Halloween costume idea for someone.
Beyond going back to the policy of quantitative easing, there's not much that the U.S. Federal Reserve is likely to do to fight back in a currency war between three major global powers. They can hardly drop interest rates anymore to cheapen our dollar, and they probably wouldn't want to anyway. Even if the U.S. dollar can only go up from here -- which will be a net bearish weight on commodity prices for the foreseeable future -- this will be as positive for American consumers buying foreign products as it will be negative to American commodity producers trying to export products.
Furthermore, we're not living in a novel and there are many more than three countries with policies and currencies that affect our ag products' export prospects. Despite the largest two-day rise in the U.S. dollar index since August, corn and wheat prices were surprisingly resilient last week. Perhaps that's because the euro isn't really the currency against which dollar-denominated grain exports are competing. The Ukrainian hryvnia hit a decade low in February and has been dawdling around that cheap level (22 per USD) ever since. Last month, the Australian dollar hit its lowest level since 2009 ($0.69 USD). The Brazilian real also hit decade lows in September (4.26 per USD). None of those are in the basket of currencies used to calculate the official U.S. dollar index, but the Canadian dollar contributes 9% to the USDX calculation. It too, plumbed decade lows last month, and its daily movements were flat or lower during last week's dollar surge.
Let the dollar's prospects -- especially in comparison to these other grain-exporting nations -- be part of your forward thinking once the costumes have been put away, the candy has all been eaten, the grain has all been harvested, and you are left pondering how long to wait before selling. In a year with abundant grain supplies, the seasonal tendency is to see higher prices in the spring, but it's hard to know what scary influences could weigh on the sector in the meantime.
Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.
(BAS/AG)"
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