Commodities Report

August 18, 2015

 

Close Aug 18

August 4

2 week change

Dec Corn

3.77

3.79

- .02

Nov Soybeans

9.04

9.43

- .39

Sept Wheat

4.94

4.94

0

Oct Hogs

66.25

67.15

- .90

Oct Cattle

147.25

148.10

- .85

Cdn $

76.57

75.76

+ .81

US $ Index

97.04

97.74

- .70

Crude Oil

42.95

45.75

- 2.80

Gold

1117

1087

+ 30

US 10 Year Notes

127-20

127-26

- 06

TSX Stocks

14195

14481

- 286

 

Grain prices were mostly weaker again over the past two weeks, with soybeans showing the largest losses on improved growing conditions. The biggest story was the USDA report, issued August 12. Yields were sharply higher than expected, so prices reacted sharply downward. So far, however, markets were able to hold above the May lows on the charts.

The US corn yield was put at 168.8 bu/ac, over 4 bu more than what was expected and the second highest yield ever. Most of the extra bushels were added to the carry out, (CO) which is now projected to rise to 1.713 billion bu.  Traders thought it would be 1.424 bln.  Corn prices dropped 19 cents that day.

The soybean yield was pegged at 46.9 bu/ac; second only to last year’s 47.8. Traders had thought it would be only 44.5. Acres were reduced a less than expected 800,000. The 2015/16 CO was raised to 470 mln bu., 169 mln more than traders thought. This year’s CO was put at 240 mln bu, but a year ago USDA said that number would be 430 mln., proving again USDA estimates are moving targets.

The Pro Farmer crop tour has just begun, and many think their findings will dispute the numbers USDA just released. In the wet year of 1993, the crop reports kept getting smaller with each subsequent report, with a limit move up in the October report. It wouldn’t surprise me if the yield forecasts on Aug 12 will be the highest ones for this crop year.

Weather in August has been near perfect, however. The wettest areas needed rain on a weekly basis, and that is what they got. Ontario crops too benefitted from the near ideal growing conditions lately.  Hay and wheat crops turned out better than expected. Perhaps corn and soybeans will as well. They sure look better than they did 6 weeks ago.

When North America begins harvest in a month, South America will begin their planting season. The Brazil economy is in shambles, causing their currency, the real, to accelerate its downtrend. Four years ago, a real was worth $.64 US., now it’s worth $.29. Most of their ag inputs need to be imported, so their costs have gone up dramatically. Corn acres are likely to drop 10-20 percent as a result, with most of those acres going to soybeans.

The threat of currency wars to benefit trade heightened when China devalued their yuan by a minor 2 percent against the US dollar. It was the psychological impact that affected markets, and  luckily, the fallout did not last long. Hopefully it is not the start of a trend, as everyone loses should it accelerate.

Crude oil made a new 6 year low, as exporting countries pushed up production to try to offset the lower prices. Energy prices are likely to stay subdued for years, which should keep deflationary trends intact. Ethanol is also trading near its 2009 low. However, China has begun importing ethanol from the US and Brazil. This should be helpful to this market if volumes increase.

The Canadian dollar has stabilized after breaking its 2009 lows. However, the trend remains lower. Political and economic factors will most likely lead to continued pressure on our currency. This should continue to support grain basis values. Old crop corn basis is showing the most strength, as supplies appear to be tightening. 

 

- Frank Backx, HDC Grain Marketer