2014 Year End Review

January 6, 2015

2014 was more of a deflationary year than inflationary for commodities. Crops were all lower, led by soybeans. Prices did trade much lower during the year, but bottomed on October 1, 2014, reducing the losses substantially.

It was hard to pinpoint the exact reason why corn, soybeans and wheat rallied $0.99, $1.69 and $2.11 from the lows, respectively, before succumbing to some year-end profit taking. The US had record corn and soybean crops, so it surely was not a supply issue. The demand side, especially on the export side, was strong, as buyers responded to the lower prices.

Obviously, US weather overall was decent to achieve their record yields. Ontario was a different story. The planting season ran late due to excess moisture. The summer was cooler than normal, with adequate moisture in most areas. Harvest ran late as the fall was also wetter than normal. Yields for most producers were less than normal, but mostly above crop insurance payout levels.

Quality was an issue with the 2014 Ontario corn crop, as much of it wasn’t physiologically mature before the first frost came. The trade is learning to work with the abundance of grade 3 and 4 corn out there, but much of it is being discounted from the regular price, albeit at manageable discounts.

The Canadian dollar dropped almost 10 percent which greatly aided basis values on all grains and red meats. A year ago basis on C/S/W were -$0.30, +$0.45 and -$0.30, while now they are +$0.55, +$1.30 and +$0.95, respectively. Basis basically bailed out the Ontario cash crop farmer in 2014.

The biggest commodity story of 2014 was the collapse of crude oil, as it lost nearly half its value since June. The repercussions will be felt throughout 2015. Consumers will benefit, which will give them extra disposable income to buy other things that business will need to produce. That will help most economies, and should underpin the strong stock markets into 2015. However, there are serious deflationary implications that could cause some unexpected problems, especially for energy surplus countries like Canada.

Another consequence of the crude drop is that interest rates will stay lower for longer, and that is obviously good for borrowers. However, it appears many inputs that farmers purchase are steady or higher than a year ago, despite the lower crude and crop prices. Fertilizer is, on average, about 15 percent more expensive, and seed costs have not dropped. Machinery is more expensive also. Much of this is related to the cheaper Canadian dollar, so it is a double edged sword. 

- Frank Backx, HDC Grain Marketer