Commodities Report

September 30, 2014

 

Close Sept 30

Sept 16

2 week change

Dec Corn 

3.21

3.44

- .23

Nov Soybeans

9.13

9.82

- .69

Dec Wheat

4.78

4.97

- .19

Hogs

108.00

106.95

+ 1.05

Cattle

160.40

156.30

+ 4.10

Cdn $

89.08

90.85

- 1.77

US $ Index

86.12

84.04

+ 2.08

Crude Oil

91.16

95.05

- 3.89

Gold

1211

1237

- 26

US 10 Year Notes

124-20

124-10

+ 10

TSX Stocks

14961

15546

-585

All my  articles have been the same story since last spring. Corn and wheat topped in May, while soybeans began their precipitous decline on June 30, when USDA raised acres sharply. There wasn’t even a hint of a weather scare all summer. The only abnormality was coolness in many growing areas, but even that bullet was dodged in most areas.

The drop from the spring high was $3.40 for soybeans, $1.93 for corn and $2.69 for wheat. Record yields of 46.6 bu for soybeans and 171.7 for corn are predicted, and likely attainable if early yield results are any indication. Some are expecting even bigger numbers in the October crop report.

Carry outs will grow sharply with the increased production, even with generally strong demand. US corn demand is expected to match last year’s record of 13.6 bln bu., while US soybean demand will surpass last year’s by 200 mln bu. Much of that will come from increased exports, especially from China.

While Northern Hemisphere grain pipelines are being refilled with the large crops, the Southern Hemisphere gears up for their next production cycle. Brazil and Argentina will plant record acres of  soybeans again, even with the sharply lower prices. It is now to the point that they will lose less planting soybeans than planting corn, so that is what they will do.

South American producers have not forward contracted much of their anticipated 2015 production. There was never a great opportunity, especially compared to prices over the past 6 years. Argentine farmers would rather sit on their soybeans than turn them into a currency that loses 20 to 30 percent of its value yearly due to high inflation.

Production costs are escalating there as well. Fertilizer, seed and chemicals are all increasing. Meanwhile, their lack of rotation is causing more disease and insect problems. Soybean Asian rust is expected to be serious this year. Often producers will have to treat the crop 3 to 4 times to prevent yield loss. Then when they get the crop off, they have to deal with their logistical issues.

It is estimated Ontario producers have sold only 10 percent of the corn they will harvest shortly and 30 percent of the soybeans. Obviously any sale made looks better than the current market. Hopefully yield will make up for at least some of the lack of price. Marketing is always a tough job, but becomes increasingly difficult under the current circumstances.

Basis is holding, but lately is ignoring the fact our dollar is under pressure. The lack of farmer forward selling only means more crop will be in farmers’ hands, and will have to be sold during the balance of the marketing year. This could limit the basis advances that normally occur after harvest is done. The risk to store is decreasing as prices drift lower, but storage charges can easily eat up any potential market gains also.

Also hurting all commodities is the relentless US dollar strength. It is now at a 4 year high on the expectation that US interest rates will notch higher. The US economy is improving faster than Canada, the EU, Japan and most other jurisdictions in the world. The stronger dollar makes it more expensive for importers to buy any commodity that is priced in US dollars, including crude oil, gold and even grains.  

 

- Frank Backx, HDC Grain Marketer