Commodities Report

July 15, 2014

 

Close July 15

June 24

3 week change

Sept. Corn

3.74

4.37

- .63

Dec Corn

3.82

4.41

- .59

Aug Soybeans

11.81

13.58

- 1.77

Nov Soybeans

10.86

12.25

- 1.39

Sept Wheat

5.39

5.81

- .42

Oct Hogs

116.00

110.85

+ 5.15

Oct Cattle

151.80

150.20

+ 2.60

Cdn $

92.77

92.95

- .18

US $ Index

80.45

80.44

+ .01

Crude Oil

99.64

106.11

- 6.47

Gold

1297

1321

-24

US 10 Year Notes

125-01

124-20

+ 13

TSX Stocks

15097

15072

+25

Grain prices dropped sharply over the past 3 weeks. The primary factor was weather, as there was plenty of moisture and no extremes in temperature. More of the same is expected over the next two weeks. Adding to the downside was bearish USDA reports causing more speculative fund liquidation.

There were 2 reports from USDA. The biggest surprise was in the June 30 stocks and acreage reports. Corn stocks at June 1 were 3.85 bln compared to 2.766 a year ago. This was 131 mln bu more than expected. Soybean stocks were a minor 23 mln bu more than expected, but still 30 mln bu less than last year.

The soybean acreage was the biggest shocker, coming in at 84.8 mln acres, compared to 76.5 mlnn last year and 82.2 mln expected. Corn acres are down 3.7 mln from last year. Overall, if you add up all the major crops, US farmers planted 5.7 mln acres more than last year. Some reduction in final acres may be forthcoming.

On July 11, USDA issued their monthly demand supply report, which included the June 30 acres. The non-surveyed yields were kept unchanged at 165.3 and 45.2, both new records. With the weather to date, chances of hitting those levels are increasing, but nothing is in the bin yet.

Using the above numbers, the 2014/15 corn carry out (CO) will swell to 1.8 bln bu from 1.233 for the current crop year. The soybean CO will soar to 415 mln bu from 140 mln for the 2013/14 crop. These would be the highest CO’s in 9 and 8 years respectively.  The wheat CO will rise to 660 mln bu from 590 for last year’s crop.

These negative fundamentals have turned crop futures into a freefall. Since May 9, Dec corn has fallen $1.34, while Sept wheat has given up 2.23 in the same timeframe. Nov soybean futures have lost $1.80 in only 12 trading days. These are huge drops, and while all grains are in oversold conditions now, any recovery is likely to be minor compared to these drops.

Local crops have generally improved with the increased moisture, although some areas to the north are being hurt by too much rain. Many corn and soybean fields are a bit behind in development because of the later planting, but are slowly catching up. Ontario still has potential to achieve at least average yields.

Understandably, farmer selling has dried up. This is helping basis levels, especially in old crop corn. Basis levels on soybeans and wheat continue to fluctuate with our dollar, which has been strong, but unable to overcome it’s technical resistance at .94. Weaker crude oil and gold should temper any Cdn $ advances, as will our economy’s lacklustre performance relative to the US.

The strongest commodity markets continue to be in the livestock sector, So far cattle and hog farmers are not expanding herds, despite strong profitability with the lower feed prices. It is only a matter of time before they do, which will longer-term translate into firmer grain prices also.  

- Frank Backx, HDC Forest Location Manager