MarketsFarm — Week-long rallies for grain futures on the Chicago Board of Trade (CBOT) were disrupted by the U.S. Federal Reserve’s latest key interest rate announcement on Wednesday.
The Fed revealed it is raising its key interest rate by 25 basis points in its ongoing fight against inflation. While the central bank acknowledged inflation is slowing, it is still elevated and more rate hikes this year will be needed.
Terry Reilly of Futures International in Chicago said there was broad-based selling of commodities on the CBOT earlier in the day and today’s Fed announcement was previously anticipated by traders.
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“The decision on the rate hike was unanimous. Now the market looks for indications for future decisions,” he said.
The focus now, according to Reilly, is weather and crop conditions.
“They were under significant pressure earlier, but I think people are returning to the Argentine situation,” he said.
The U.S. Department of Agriculture’s (USDA) attaché on Wednesday cut Argentina’s soybean production estimate to 36 million tonnes, 9.5 million less than USDA’s January estimate, due to ongoing drought in the country. Argentina’s corn crop will also be affected by dry weather conditions. Meanwhile, Brazil is anticipating a record soybean crop of 153 million tonnes.
“There will be a little bit less crush and a little bit less meal available through the export market, which is supportive for the meal market here in the U.S.,” Reilly said, adding that a backlog of grain vessels moving out of Ukraine on the Black Sea is giving support to wheat prices.
While he believes the Fed’s rate hike may cause some price movement in the short term, Reilly said the trade’s focus will quickly return to South America.
“We might see widespread commodity selling that might be triggered by weaker equities, but I think the trade’s going to be more focused on South American weather,” he added. “For wheat, I think we’ve got to keep an eye on precipitation in the western Great Plains, where it’s still been under drought conditions.”
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
