Commodities Report

February 3, 2015

 

Close Feb 3

Jan 20

2 week change

March Corn

3.86

3.90

- .04

March Soybeans

9.87

9.83

+ .04

March Wheat

5.14

5.36

- .22

April Hogs

66.45

74.70

- 8.25

April Cattle

150.65

151.45

- .80

Cdn $

80.52

82.60

- 2.08

US $ Index

93.59

93.04

+ .54

Crude Oil

53.05

47.11

+ 5.94

Gold

1264

1295

- 31

US 10 Year Notes

130-05

130-03

+2

TSX Stocks

15098

14316

+ 782

S&P 500

2039

2017

+ 22

 

Grains were lower over the past 2 weeks, but rallied strongly today (Feb 3) to trim losses, and in the case of soybeans, actually close a bit higher. Weather in Brazil isn’t perfect in all growing regions. It is the dry areas in the north and western crop areas that are of the most concern. Brazil soils are coarser than our clay soils, so timely rains are more critical there.

There are also some concerns about the safrinha (double crop after soybeans) corn crop in Brazil. They planted their soybean crop later than normal, and now they are heading into their dry season, so acres will likely be reduced. The high input costs for corn are also a deterrent to more corn acres.

Despite the overall weakness in Chicago, Ontario cash prices have held in better than expected due to the Canadian dollar weakness. The Bank of Canada, in a surprise move, dropped the bank rate from 1 percent to ¾ %. The effect of this on the Canadian economy will be marginal at best, as chartered banks did not even drop their primes. However, the CD accelerated downward nonetheless.

The Canadian Government wants the dollar lower. Economic performance numbers are dropping sharply, especially in the manufacturing sector. Energy is relatively important to Canada, and everyone knows what that market has done. There’s to be an election this fall, and dropping the currency is the easiest way to try to make things look better. Avoiding a recession is priority number one.

Corn acres will likely fall in North America this spring also. Fertilizer prices have kept firming, especially in Canada, because of our dollar’s drop. Carry outs in North America are comfortable with last year’s record yields, but the ethanol mandate is still in place, and demand remains on solid ground. The market may be becoming fearful of too large a drop in corn acres.

Perhaps analysts have become too pessimistic also. I would say 90 percent of what I read and hear is negative for grain prices. Whenever everyone is leaning one way, markets often fool the majority and head in the other direction. That could be the reason for the sharp move today. I wouldn’t be surprised if the lows hit on Feb 2 hold into spring.

Central banks are still stimulating economies in a huge way. Quantitative easing is still rampant in Europe and interest rates remain near zero, and still easing in countries like Canada and Australia. Fiscal spending is out of control the world over. The US dollar is still the most sought after asset, as money gravitates to safety.

Fiat currencies are only viable as long as everyone has confidence in them. The collapse of the German Mark, and the hyperinflation that ensued, in the early 1920’s is likely the best example of what can happen if that necessary faith is lost. Right now, we are a long way from that type of scenario, and, hopefully, lessons were learned.  However, the massive debt that governments have created and continue to operate on will have to be reconciled sometime. 

- Frank Backx, HDC Grain Marketer