Dan Gramza gives Picking Alpha a brief review of the USA grains markets and what June 2017 will bring to the markets.
Q.: Do you think there are grains or other Agri contracts that were negotiated while Donald Trump was visiting Saudi Arabia?
D.G.: The information we have so far is the primary focus was on financial agreements for defense, technology, and energy. I have not seen any information regarding the agricultural markets as part of the discussions. It is important to remember that the budget is the president suggestion and after Congress gets through with it, the final budget rarely ever looks like what the president has suggested.
Q.: There is a serious threat of farm budget reduction in USA by about 38 Billion Dollars. How does this debate affect the USA grain prices?
D.G.: I do not see a tremendous impact on USA grain prices with this budget reduction. If this reduction does include new limits on crop insurance premiums and caps for commodity payments, it will be critical for farmers to understand that this risk can be offset by using futures and options hedges. It is important to remember that this proposal will find little support in rural America or on Capitol Hill. Previous proposed reductions in crop insurance by prior administrations were rejected by Congress.
Q.: If there will be a dramatic change of prices after this reduction, how it will affect USA export of grains?
D.G.: If there would be a dramatic change in prices after this reduction, the key factor for the farmer will be the protection of their pricing using hedging techniques and the US dollar exchange rate at the time of sale, which could also be hedged to protect the farmers product prices.
Would it give Canada an advantage (especially with CETA)?
D.G.: The CETA program deletion of over 95% of the duties between the EU and Canada will provide an advantage for Canadian agricultural goods. An important factor here to keep in mind is the impact of the Canadian Dollar Euro exchange rate versus the US dollar Euro exchange rate.
Q.: With recent heavy rains in Midwest, floods in Canada and on the other hand predictions of very dry and hot summer, what is the picture with grains markets? Is there a particular situation with one of the grains: corn, wheat soy beans etc?
D.G.: The challenges of the recent Midwest weather is an accurate measure of how much of these products have been planted and current crop conditions.
Q.: In June what traders have to look out for on the grain market?
D.G.: The focus should be on corn and corn growth in July to get a feel for the condition of the corn crop and potential production.
Q.: Should we prepare for a very volatile summer
D.G.: The expected US weather patterns in combination with a stronger dollar can result in high volatility over the next few months.
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.