Commodities Report

March 28, 2017

 

 

Close March 28

March 14

2 week change

Dec Corn

3.82

3.84

- .02

Nov Soybeans

9.72

9.95

- .23

July Wheat

4.38

4.46

- .08

June Hogs

72.45

79.20

- 6.75

June Cattle

111.60

106.90

+ 4.70

Cdn $

74.83

74.15

+ .68

US $ Index

99.96

101.38

- 1.42

Crude Oil

48.44

47.68

+ .76

Gold

1248

1203

+ 45

US 10 Year Notes

124-09

122-30

+ 1-11

TSX Stocks

15592

15407

+ 185


Unlike last year, March has not been kind to grain farmers. New crop corn, soybean and wheat prices have dropped 26, 63 and 38 cents, respectively, since the start of the month. This has been fundamentally and technically driven.

Most think the yields in South American have grown even beyond the increases that USDA predicted in their March 9 report. Corn planting in the Deep South in the US is ahead of normal, and US wheat areas are getting beneficial rains. There are few problems in the world’s other major producing areas either.

Funds have been aggressive sellers, as some key shorter term moving averages have been broken. Selling begets selling with the speculative crowd, especially now that corn and wheat are at their worst levels in 2017, while soybeans haven’t traded this low since last fall.

It isn’t a total surprise that soybeans have been the weakest. Even now the new crop soybean to corn ratio is 2.55 to 1. This still favors higher soybean acreage this spring. USDA will update prospective plantings in their March 31 report.

This report has often caused large swings in price immediately after its release. The report also includes the quarterly stocks of grains on hand, as of March 1, which is halfway through the marketing year for corn and soybeans. This gives important clues about the demand side of the equation.

Some believe that President Trump’s inability to push through changes to Obamacare may also mean he will have difficulty in passing other parts of his agenda. This would have repercussions in many of the financial markets, such as interest rates, stock markets and the US dollar, which can have an effect on grain prices also.

What SHOULD limit further downside pressure in grains is that even before this latest drop, USDA expects 2017 net farm income in the US will be the lowest since 2009, at $62.3 billion. Adjusted for inflation, it is expected to be the lowest since 2002. That means that, collectively, farmers will make very little with the current cost, revenue structure.

This could get even worse if Trump gets his way, as he wants to cut USDA’s budget, which includes direct payments to farmers, by 20 percent. Chicago ag prices are near the lower end of the last 10 year’s trading range, and costs on inputs (seed, fertilizer)and equipment, and land have increased dramatically.

Fortunately, Ontario farmers have been somewhat insulated from this with the weaker Canadian dollar. It isn’t that far from its lowest level since 2005. This also makes inputs more expensive, but the effect on grain and livestock basis far exceeds the added input costs caused by the weaker dollar.  

 

- Frank Backx, HDC Grain Marketer