Commodities Report

May 12, 2015

 

Close May 12

April 28

2 week change

Dec Corn

3.76

3.83

- .07

Nov Soybean

9.31

9.54

- .23

July Wheat

4.81

4.76

+ .05

June Hogs

85.00

80.40

+ 4.60

June Cattle

151.60

151.20

+ .40

Cdn $

83.30

83.07

+ .23

US $ Index

94.40

96.05

- 1.65

Crude Oil

60.40

57.07

+ 3.33

Gold

1192

1212

-20

US 10 Year Notes

126-29

128-29

-2-00

TSX Stocks

15051

15328

-277

S & P 500

2096

2105

-9


Grain prices remained range bound over the past two weeks. Planting progress has been rapid. US corn, as of May 10, was 75 percent planted, and 29 percent had already emerged. Soybeans were 31 percent in the ground, normal for that date is 18. Overall conditions have been good for germination and early growth. There will be no lack of moisture going forward if the current two week forecasts are accurate.

On May 12, USDA issued their monthly demand/supply reports. The 2014/15 corn carryout (CO) was raised 24 mln bu to 1.851 bln. Soybeans were dropped 20 mln to 350 mln bu. Wheat was raised 25 mln to 709 mln. All these changes were minor, and very close to pre-report expectations.

USDA also provided their initial look at 2015/16 CO’s. They put corn at 1.746 bln, down 105 mln from this year, mainly on reduced acres. Soy CO for 15/16 was guessed at 500 mln bu., up 150 mln from the 14/15 crop and 57 mln more than expected. The new crop wheat CO was put at 793 mln, up 84 from the previous year and 43 mln more than thought.

Soybeans dropped immediately after the report. This was not a surprise considering what USDA predicted, and because soys have held up much better than corn and wheat since April. Obviously there are a lot of factors, especially weather, that will change these numbers. USDA is notoriously high in their initial estimates.

The Canadian dollar continues to receive support from the crude oil market, although it is not gaining the same, percentage wise. Crude has rallied from $42.03 in mid-March to 60.40 now. Over the same time the CD has gone from .78 to .8342, or 7 percent. Meanwhile the Euro has bounced 19 %.  So while our dollar is strong, it is not when compared to most other currencies.

Obviously, the reverse side of this is the weak US dollar. The US $ index broke above 100 in March, its highest level since 2003, and now sits at 94.40. This is still, however, well above its level of 80 in March 2014. A weaker US dollar is generally beneficial to commodity prices, and crude oil has been the best performer in that sector.

There appears to be a whiff of inflation entering the scene, after the deflationary trends prevalent since the economic crisis of 2008. This was inevitable with the amount of monetary and fiscal stimulus that has been thrown into world economies since that event.

Inflation usually starts at the commodity level, and while it isn’t rampant by any measure, it does seem to be building. Another sure sign that inflation is increasing is that bond yields rise. That has been the case over the past few weeks. It looks more and more like the inevitable rise in longer term interest rates is beginning.

It is a trend that can feed on itself. Rates are very unlikely to go up dramatically, as the world economies wouldn’t be able to handle it, with debt so rampant.  However a rise of 1 or 2 percent cannot be ruled out in the short run. Considering US 10 year bonds are not much over 2 percent, any rise is a large percentage change.

Perhaps grain prices will also contribute to the potential increasing inflation. The level of short positions by speculators in all grains is still very much on the high side of normal, and should be a supportive influence as North America enters its critical growing season. Needless to say, farmers would appreciate it, with most input prices maintaining their strength.  

- Frank Backx, HDC Grain Marketer