Commodities Report

March 5, 2014

 

Close March 5

Feb 19

2 week change

May Corn

4.81

4.60

+ .21

May Soybeans

14.21

13.42

+ .79

July Wheat

6.44

6.17

+ .27

June Hogs

118.10

107.60

+ 11.10

June Cattle

135.80

131.10

+ 4.70

Cdn $

90.09

90.16

-.07

US $ Index

80.07

80.21

- .14

Crude Oil

103.35

102.94

+ .41

Gold

1335

1310

+ 25

US 10 Year Notes

124-09

125-25

-        1-16

TSX Stocks

14287

14120

+ 167

Commodities were firmer across the board over the past 2 weeks and for February. Prices reacted strongly when the crisis in Ukraine accelerated. Technically, most markets are now looking much more positive, which attracts both speculative and investment money.

From the Jan, Feb lows, soybeans have rallied $1.90, while corn and wheat are up $.70 and $.90 respectively on their nearby charts. These significant gains were generally not expected by most analysts, and hard to justify from strictly a fundamental point of view.

Sure, South America lost some crop due to adverse weather, but they will still easily set new  production records.  In their preliminary Outlook Conference, USDA put the 2014 US corn yield at 165.3 bu/ac and soys at 45.2, both records. The supply side of the equation should be fine, according to USDA.

It has not been any sudden increase in demand either that’s behind the bullish markets; that’s been well documented all year. The US corn carry out is going from the drought-reduced  821 mln bu for 2012/13 crop  to 1.481 bln for 2013/14. That’s hardly a bullish scenario.

Soybean gains have been the largest. Brazil logistics are a major factor, in my opinion. They have become somewhat of an unreliable supplier, with an inferior product compared to US. This keeps China buying US supplies, even though the US is already at pipeline minimums for their carry out.

The other factor, I believe, driving grain markets is weather. North America has had one of its coldest winters in a very long time, with no letup in sight. Normally, the southern US is planting corn now, but it will be at least another two weeks minimum before they will start, given the forecasts. Yields drop off quickly there if it is not planted on a timely basis.

The Midwest is unlikely to see any early planting either. Meanwhile most of the western grainbelt is in a minor drought, including much of Iowa. Now many are expecting an El Nino event this summer, which could mean dryness for the Midwest, should it intensify.  It is a futures market, not a past market, that  we are dealing with.

The extreme cold this winter will have other affects also. The cost of heating a home has escalated sharply. This will leave households with less discretionary income to spend on all the things the advertisers tell people they should have. This will take a serious chunk out of the meagre economic growth economists are predicting. Few are venturing out to buy homes either.

It will also increase the cost for businesses, which they will be hard pressed to pass on to consumers, thereby hurting their bottom lines. The extended cold is expected to take a significant toll on North American economies for the balance of 2014.

Can we have global warming back, please?

It is a personal observation that the consumer price index,(CPI)  which  affects pay and CPP pension raises and a whole lot more is not at all reflective of the actual cost of living.  In Feb., Stats Canada stated it increased to an ANNUAL rate of 1.5 percent. Yeah, right;  it feels like it was more than that last month alone. The average person’s standard of living has been going down for years, as wage increases are not anywhere near keeping up with the true cost of the necessities of life.

Grains were not the only markets joining the bullish camp. Hogs had the biggest gains, but energy, metal and soft commodities were also higher. It is interesting that stock markets were also better, despite the Ukraine news.  Perhaps people are losing faith in paper currencies, so are buying anything to protect themselves.  This trend is already rampant in Argentina and spreading to many other smaller economies. 

 

 

- Frank Backx, HDC Forest Location Manager