As summer is almost over, we are asking Dan Gramza to give us a snapshot of what is happening on USA grains market and how NAFTA negotiations will change it.
Q.: The USDA WASDA and Crop Production report from August 10th has sent as media declares the markets in red, can you comment on this?
D.G.: The recent reports indicate possible high grain production levels. However, what is expected and what we get when it comes to harvest can be two different things. It makes sense to be currently short ag markets but I think it is important to be on guard for a rally over the next couple of months as we go to year end.
Q.: How do forecasts of lower prices of soya in US affect the futures?
D.G.: The expected behavior for soybeans is for lower prices. However, powerful support levels could be found between $9.00 and $8.50 and form the basis of a rally into year end.
Q.: How is current NAFTA negotiations affecting grain markets?
D.G.: I do not think the NAFTA negotiations have a great impact currently on the grain markets because the final terms and conditions are unknown.
Q.: In your opinion which scenario of re-negotiations can be most beneficial for US grain markets if at all?
D.G.: The renegotiations that preserve the current US agricultural relationships with Mexico and Canada. In 2016, Canada imported $23 billion of US agricultural products and was the number one importer and Mexico imported US$17.9 billion.
Q.: Mexican grain companies already have developed some new ties with South American grain growers and they are going to develop them neglecting any outcomes of NAFTA renegotiation, how it can affect US grains futures?
D.G.: Mexico is a deficit ag producer and imports are essential. It would be cumbersome to replace the US ag supplies with grain from other sources because of the high volume imported from the United States. Once there is a decrease in US ag exports, it can be very difficult to recover that loss volume.
Depending on the terms of the NAFTA agreement and the US dollar exchange rate the expectation is that Mexico will continue to purchase grains from the United States but the volume would be reduced and this will have an impact on demand for US ag products and could put downward pressure on prices.
The uncertainty of the outcome of NAFTA renegotiations necessitates them looking for other supply sources. The location and infrastructure, such as direct rail connections to the US grain markets has made the U.S. a logical trading partner.
Q.: Today (AUG17) all grain futures in US look south, is it a trend or market reaction to negotiations?
D.G.: In my opinion, it is the market’s reaction to high potential supplies rather than the NAFTA discussions.
Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC. He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains.