Commodities Report

January 15, 2014

 

Close Jan 15

Dec 31

2 week change

March Corn

4.26

4.22

+ .04

March Soybeans

13.18

12.93

+ .25

March Wheat

5.67

6.05

- .38

Feb Hogs

86.70

84.75

+ 1.95

Feb Cattle

138.50

135.30

+ 3.20

Cdn $

91.21

93.89

- 2.67

US $ Index

81.16

80.16

+ 1.00

Crude Oil

94.43

98.48

- 4.05

Gold

1239

1186

+ 53

US 10 Year Notes

123-30

123-04

+ 26

TSX Stocks

13765

13581

+ 184

The long awaited and highly anticipated USDA January report was a pleasant surprise to the corn market, a disappointment for wheat and mostly neutral for soybeans. However, markets quickly turned back to trading South America (SA) weather.

The corn yield was cut to 158.8 bu/ac, from 160.4 reported in Dec. Traders had expected an increase. Harvested acres were raised 500,000, however, so production only dropped 64 mln bu. Demand was raised 100 mln bu for feed and 50 mln for ethanol. The net result was a drop in the projected carryout (CO) to 1.631 bln bu compared to 1.792 mln predicted in Dec. However that is still nearly double the 821 mln bu CO for last year’s crop.

The soybean yield was tweaked higher by .3 bu/ac to 43.3. This was offset by a 30 mln bu increase in usage, so the CO was left unchanged at 150 mln bu, versus 141 mln for the previous crop. These numbers were in line with trader expectations.

The wheat CO was raised to 608 mln bu from 575 in Dec.  on a drop in feed use. However, the US CO will still be lower than last year’s 718 mln. This will be the fourth year in a row the CO has dropped. World stocks are going the other way, however, and were increased 2.4 mln mt., largely due to increased Canadian production.

By the close of report day, corn rallied $.21, soys gained 5 and wheat fell 15. There was little follow through since the report in corn, likely because 1.6 bln bu is still a very comfortable CO. The price action  is disappointing to the bulls, as Argentina corn production estimates are dropping due to dryness there during pollination.

Soybeans did continue to rally lately on this same dryness however. Also supporting soybeans was relentless demand, especially from China. Wheat has stabilized after the large drop on report day. I suspect wheat may actually outperform corn and soybeans in the short run, as traders are short a record number of wheat contracts.

The other big news story so far in 2014 is the precipitous drop in the Canadian dollar. The 2.67 cent drop added $.40 to the soybean and .15 to the corn and wheat basis in the past 2 weeks. This puts cash soybeans back over the $14.00 mark, a level most thought was behind us.

New crop beans are “only” 11.40, so a large $2.60 discount to old crop. Meanwhile Hensall Co-ops new crop corn board price is 7 cents higher than old crop. Wheat is pretty much the same price for both crop years. The big discount in new beans is mainly due to increased acres in SA. It appears NA farmers will likely follow suit. It was reported Monsanto’s soybean seed sales are up 16 percent from last year.

The range of estimates for SA production is getting wider, as weather is highly variable. It will be the weather over the next 6 weeks that will determine the final result, as most soybeans are in the flowering and pod setting stages now. Soils there generally do not have the moisture retaining capacities of our clay soils, so nothing is guaranteed yet.

Trade was mixed in the outside markets, with stock markets continuing to trend higher. The poor employment report in the US (even worse one in Canada) made traders think the Federal Reserve would be less likely to cut back on quantitative easing, which has been supporting the low interest rate environment. The Bank of Canada will keep rates here as low as possible, as our Federal Government talks down the Canadian dollar to try to get the economy going. 

- Frank Backx, HDC Forest Location Manager