Commentary for September 22, 2011
Fed Starts Operation Twist, Markets Crumble
Ben Bernanke and the Federal Open Market Committee (FOMC) announced the new measures being taken to boost the economy, which is know as Operation Twist, Wednesday. In reaction, the Dow had a major sell-off today and is down 775.26 on the week finishing trade Thursday at 10,733.83. Oil has tumbled $7.56 a barrel for the week to settle at $80.41 today. Gold, surprisingly enough sold off to the tune of $78.90 an ounce closing at $1,733.80, while the dollar index has soared to 7 month highs. The grain markets were not spared the massive meltdown.
Corn blew through more technically significant levels after the FOMC announcement and in conjunction with harvest pressure and weak demand. The grain has lost 42 cents this week ending today’s session at $6.50 on the December contract. Better than expected early yields, lackluster demand, and global economic jitters has led the market lower.
Exports did see an uptick and was reported as 627,400 MT, up 29.5% this week.
Soybeans fell through the lower end of the multi-month trading channel, down 72 ½ cents on the week to $12.82 on the November contract. The abysmal macro economic situation is taking its toll on the oilseed and export sales continue to be lost to South America. Adding to the problem is a strengthening dollar index, which has made soybeans less competitive in the export arena. Evidence appears from exports that were down 22.5% at 235,300 MT.
Wheat continues to slide lower losing another 54 ½ cents thru Thursday to close at $6.33 ¾ on the December CBOT contract. Heavy export competition, ample world supplies and a strong dollar index has pressured the market to a 2 ½ month low today. Commodity funds have contributed to the sell off, dumping about 6000 contracts today. Exports were reported as 886,100 MT, which is up 88 percent from the previous week and 63 percent from the prior 4-week average.
Massive risk aversion took hold of the equity and commodity markets after the FOMC released their newest plan to stimulate the slowing economy. It is clear now that the bull run is all but over for the time being, especially in the grain markets. A strengthening dollar, weak demand, and harvest pressure will keep a lid on prices in the near term. Attention will now turn to next Friday’s Quarterly Grain Stocks report.
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