European crisis' flight to quality has led to over a 6% increase in the US dollar Index futures in the last 6 weeks. This recent flight has raised the question of whether the cheap dollar we have experienced since 2004 is vulnerable to a larger shift and as a result a return to 3.00 per bushel corn, 30.00 crude and $400 per ounce gold. While the charts still leave room for a test of 2009 and even 2006 highs if recent flight continues, I believe the aggressive "quantitative easing" policies designed by a well-known historian of the "Great Depression" and current chairman of the Federal Reserve will continue to create a floor for US dollar priced commodities.
Below is a chart overlaying a continuous US dollar index futures (IDX) chart and the Continuous Commodity Index futures (CI). Note while the (CI) crashed during the onset of the US financial crisis, the next run-up in the US dollar in the spring of 2010 resulted in a sideways move in the (CI). I believe this will be the likely result which would take the (CI) into the 450-500 price range. This range in the (CI) corresponds to $3.50-$4.00 per bushel corn, $65-$75 crude and $1000-$1200 gold during this period. Of course, the (CI) is a reflection of 17 commodity futures that are continually balanced and each individual commodity has many other factors in price that may cause it to trade apart from the overall "commodity trade"
Chart Source: FutureSource
The EURO crisis also brings to light how our exchange-traded commodity futures markets offer producers, end-users and speculators including hedge funds the ability to efficiently hedge or speculate on futures exchanges through futures commission merchants in times of extreme price volatility that may largely impact household or corporate profits. We may take for granted the ease of opening an account with a registered futures clearing merchant and hedging 100k bushels of production with a phone call or key stroke, but this process has taken over 100+ years in the U.S to develop into what it is today.
Next week, Ryan Nolan of RJO Futures is lecturing at the "International Visitor Leadership Program" arranged by the Institute of International Education (IIE) and sponsored by the U.S. State Department. This program is designed to among other things, explore how U.S. food commodities are regulated and marketed from farm-to-table and for international export. Participants are young leaders from the ages of 20-35 from 20 countries including Afghanistan, Egypt, El Salvador, Ethiopia, Haiti, Kenya, Serbia and Uganda.
Most of the countries participating do not have access to domestic futures' exchanges for price discovery and futures commission merchants for customer due diligence and efficient execution. These countries resemble what the U.S. market may have been 80 plus years ago. Most countries do not have the transportation, liquidity, insurance, government policies or subsidies the U.S. futures markets have developed over time. RJO Futures is excited to assist in this educational program.
Series 3 Licensed
Senior Commodities Broker
Jeff began his career in 1992 as a runner at Geldermann Inc. After several years clerking in the corn futures and 30-year bond open-outcry pits, he made a transition "upstairs" as a broker at First American Discount Corp. After working five years with an upstart brokerage in Chicago, he joined MF Global in 2006. In November 2011, he moved to RJO Futures. He graduated in 1992 from Loras College, Dubuque, IA, with a B.S. in finance..... Read More