One of the rules of thumb in the commodity markets is that when the value of the dollar goes up, the price of everything else goes down, according to marketing experts like Milo Hamilton, co-founder and senior agricultural economist at Firstgrain, Inc.
But these aren’t normal times, and what might have been true in the commodity markets for decades may not be true now, Hamilton said during a presentation on the rice outlook at the Mid-South Farm and Gin Show in Memphis, Tenn.
“This is a minority view that I have that the Brazilian real is at bottom,” said Hamilton, who founded Firstgrain after working for years as a buyer for Uncle Ben’s Rice and Mars. “If the Brazilian real is at bottom, that means something for all exports of agricultural products out of the Gulf of Mexico.”
Hamilton bases his belief on the Brazilian real having broken a long term down trend line, one of the tools used in technical analysis of futures prices, in its relationship to the dollar. Normally, when a commodity or, in this case, a currency tries to go lower, doesn’t and instead breaks a long term trend line, most likely it’s going up.
“And why would it go up?” he said. “Because Brazil exports a lot of agricultural products. So investors are saying where can I get in on this ag thing? One of the places is Vietnam. Another Thailand and another place Brazil.
“So because of the decades happening last week you’ve got a lot of rules of thumbs being broken. There are casts on those thumbs. And one of them is if the dollar goes up, everything else goes down. That’s not necessarily true. Now people are looking for a place to put dollars. And, if they see a place that exports a lot of agriculture, they may start buying those things.”
Price of exports
If the Brazilian real goes over 20, “I believe the price of exports of agriculture products out of Brazil will go up, and that will really help our agricultural business a lot.”
Hamilton also discussed the outlook for U.S. rice plantings in 2022. Over the last 10 years rice acreage has increased in even-numbered years and decreased in odd-numbered ones as part of a cycle, he said.
Hamilton displayed a chart depicting the ratio of rice to soybean prices. “I don't have to tell you folks probably doing both of them or maybe one or the other that when the ratio goes down for rice, the rice acreage goes down. It’s that simple. In 2021, the ratio was down, and the acreage got cut.
“It’s an even-numbered year so, of course, acreage is going up. That’s not necessarily the case. Some of my friends think it’s going down. I think it’s going down. I don’t know how much, but if it goes down too much, we short our export opportunity by 5, 10 or 15 million metric million hundredweight. If we do that, we will do it one way – with rice prices over $15 (per hundredweight.)
“That’s because they have better alternatives than rice in certain areas. So we’re going to find out what this thing is made of.”