For the first time in almost a decade, the Federal Reserve has raised interest rates. How that will impact the commodity markets was a topic covered in the Hoosier Ag Today seminar at the Indiana/Illinois Farm Show on Thursday. Bill Gentry, with Risk Management Commodities in Lafayette, says the hike in the cost of money generally is a negative for agriculture, “It is going to be a bit of a headwind for commodities in general because higher interest rates strengthen the value of the dollar, but much of this may have been anticipated by the market. It is our assessment that the dollar market has anticipated this, and we may actually see a short term drop in the value of the dollar.”
Gentry told the farm show audience that there will likely be several more interest rate hikes in the next two years and that will hurt US exports by making them cost more to foreign buyers. He does not see this being a major drag on demand, “But in the grand scheme of things, it is not going to be a game changer for commodities.”
During his presentation, Gentry predicted a likely high point in corn prices would be in the $4.20 area and near $9.00 on soybeans. He said, even with declining exports, there will be enough demand to keep prices from going too much lower, “When you look at the balance sheet, our livestock feed demand will be good and our ethanol demand will be steady.” He added the recent blend allocations for bio diesel have put some strength in the soy oil market, “I am cautiously optimistic this will be enough to sustain it for the time being.”
He said there may be an opportunity this winter for producers to price some of their 2015 crop, “There may be a short rally before Christmas and then another opportunity after the first of the year.” Gentry does not see a flood of corn coming onto the market from Argentina as some have predicted.