This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Tuesday August 11, 2015.
The market was handed a bit of a wild card early this morning, it will be really interesting to see how this affects the market for food. China, one of the worlds largest ag importers has devalued their currency vs the US dollar by 2%. The number isn’t huge in terms of nominal value, but this is an unforeseen shock to the global markets that will take some time to digest. As you can see in the chart below, the long term trend for the Chinese currency has been to increase its value vs the dollar but that changed when the US announced intentions to end its QE program about a year ago.
Here is a good description of what is going on: CHINA LOWERS VALUE OF CURRENCY
So what does this mean? Well, in a vacuum Chinese currency strength is bearish anything that import because they now have to pay 2% more than they did yesterday. This would mean that if they were buying soybeans yesterday at x level, today they would be paying that much more for the same product. So, this should be taken as bearish off the tip. I expect that between the news that the US crop conditions are stable at a good rating and this news we could see some blood shed to the downside in a market like soybeans where we depend heavily on exports to China. Corn probably isn’t affected as much because China hasn’t been in our market for a while, but it certainly won’t help the bulls today.
Now, keep in mind that China devaluing against the USD is going to allow them to be more competitive on the world export stage and should allow them an easier path to growth over the short term. Domestically they should see a needed uptick in inflation and profitability for those who produce commodities. So longer term, this could be beneficial to a market like soybeans. But that is a long way off. The more important thing to realize is that for the first time in a while, China is taking a dovish stance against the USD. Is this a one time thing or a trend?
Short term I think gold performs well. This is basically another government throwing in the towel against the deflation monsters that exist out there and that should help precious metals come back from a beat down over the last 6 months. As far as grains are concerned, I would avoid buying strength. Look to short a post WASDE rally into the 10’s for beans and 4.20’s for corn if it would develop. I think we are going to test the 3.65/9.00 lows sometime this fall.
Stay nimble today. This is a big deal, much bigger than most of the MSM will talk about.
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