Tim Hughes’s weekly newsletter, Dry Heat, summarizes the week’s latest activities and potential opportunities in the markets that he follows. His focus is primarily on the agricultural sector - cattle and grain futures. Contact Mr. Hughes at (602) 859-4100
Timothy Hughes | 602-859-4100 | firstname.lastname@example.org
5/10/13 General Comments
Does Asian inflation mean deflation for the West? I wrote in January about the race to the bottom for currencies. Abe went “all in” for Japan and the result has been a dramatic rise of currencies across the board against the Yen. The overnight fall of the Yen below 1.00 US has triggered neighboring countries to respond in kind. Sri Lanka cut its reverse repo and repurchase rates to 9% and 7% respectively. Then Vietnam cut its refinancing rate to 7% from 8% and Thailand is expected to cut and South Korea.
McDonald’s Corp.’s Japanese business will raise some burger prices by up to 25% this month. It will be the first increase in Japan since 2008. The hikes are part of the company’s plan to boost profitability rather than a rise in materials prices. The choice to raise prices came after the Japanese unit reported a 12% drop in operating profit last year. Is this one of the first signs of the beginning of inflation? Japan imports virtually everything from hamburger to crude oil. If Japan and other Asian countries currencies continue to lose to the US $, they have inflation and we have greater purchasing power for their goods. That is, if there are enough of US with jobs and $’s to buy things.
Silver: I haven’t written about silver for almost a month and this morning it looks like a bear flag that, if it plays out, would take May/July silver to $20 or lower. The ironic thing about the break in gold and silver is that physical demand for coins actually went up. It is almost as if all of the people who didn’t participate in the big up move in metals, decided to buy the break. Gold looks like it will go back and test the recent low.
Corn & Soybeans: Today at 11:00 am central time we have the World Supply and Demand Estimates. Unless you have been hanging out in the South Pacific, you know that this planting season has been as active as our Congress. Snow, freezes and rain have broken records and kept estimated corn planting to 5% as of 4/28. The 5 year average for this time period is 31%. Last year, by April 28th, almost 50% of corn had been planted.
“Late planting doesn’t always equal reduced yields or higher prices”, according to Rich Nelson of Allendale. He cites 1984 as a similar situation with late planting and coming off of a major moisture problem year.
The crop will be planted and bets are that the yields will be good. The real problem is that we have lost much of our export markets. High prices last year forced international buyers to shift to cheaper feed grains. The USDA’s forecast for corn exports are the lowest since the 1970’s.
Currently USDA estimates farmers to plant 97.3 million acres of corn and 77.1 of soybeans. Some analysts are expecting a shift from corn to soybeans because of late planting.
Cattle: Record beef prices seem to be happening daily and yet the June live cattle futures are very discount to cash cattle. June futures are 120.40 vs cash prices of 126.00 as of Wednesday in Kansas (down 2.00 from last week). Talk of a head and shoulders bottom on the charts in June live cattle may lend support.
Stock Index & Treasuries: The S&P continues to use bears as grist, but I still do not like a market that is forced by central planners.
Chicago Board of Trade
141 West Jackson Blvd.
Chicago, IL 60604
Tel: (800) 769-7021
SubscribeSign up to receive a daily summary of all PRICE | Market Insights blog posts