Analyst: Strong Dollar, Large Supply
by Matthew Weaver
DTN grain market analyst Darin Newsom predicts continued lower prices for wheat and corn
unless the U.S. dollar weakens or large supplies are affected by weather.
The wheat cash market currently faces downward pressure from a strong dollar and large global stocks, DTN senior analyst Darin Newsom said in a webinar. Wheat is the most vulnerable to moves in the value of the U.S. dollar, he said.
"There's too much wheat on the world market with too strong of a dollar," Newsom said.
He expects continued large global wheat stocks through spring. Ending stocks are expected to increase to 239 million metric tons, up from 214.5 million metric tons in 2015.
"It is not a good recipe for us to be able to move much wheat at this time," Newsom said. "The only thing that is really going to change prospects is the dollar's got to come down."
As of March 1 one U.S. dollar was worth 114 Japanese yen, up nearly 14 percent from a year ago. Japan is a large customer of U.S. wheat.
A drop in the U.S. dollar could increase overseas demand for U.S. wheat, Newsom said. When the value of the dollar goes down compared to other currencies, the price of U.S. wheat decreases overseas.
For new crop hard red winter wheat on the Kansas City market, some buying could re-enter the market as temperatures in the Plains increase and winds and dry conditions continue. Prices could top $5 per bushel, up from a contract low of $4.59 per bushel, Newsom said.
"Throw in the potential for a spring freeze, the market's going to get even more excited," Newsom said.
Soft white wheat, primarily produced in the Pacific Northwest, ranged from $5.34 to $5.45 per bushel March 1 on the Portland market, according to the USDA Agricultural Marketing Service. Prices a year ago were $6.9775-7.60 a bushel.
Wheat and corn prices are often tied together. Large corn supplies remain while export demand is slower than expected, Newsom said. The chance for a seasonal price rally relies on planting delays caused by wet weather across the Corn Belt. But an expected increase in planted corn acres and larger beginning stocks than expected could limit potential buying interest.
The Federal Reserve Board of Governors also meets in mid-March. If interest rates don't increase, the dollar could begin to weaken, which would provide support for grain prices. Gold and crude oil markets are beginning to turn bullish despite bearish fundamentals as money re-enters the markets, which Newsom sees as a good sign.
"In order for the same thing to happen to grain, we need to see the dollar break down," he said. "That could be the trigger to get some investment money back into grains."
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