Commodities Report

October 27, 2015

 

Close Oct 27, 2015

Oct  13

2 week change

Dec Corn

3.80

3.85

- .05

Nov Soybeans

8.91

9.12

-.21

Dec Wheat

5.08

5.19

-.11

Dec Hogs

61.05

66.75

-5.70

Dec Cattle

140.45

137.10

+3.35

Cdn $

75.36

76.87

-1.51

US $ Index

96.90

94.74

+2.16

Crude Oil

42.95

46.70

-3.75

Gold

1166

1166

0

US 10 Year Notes

128-30

128-28

+ 2

TSX Stocks

13685

13864

-179

Crop prices drifted lower over the past two weeks, as harvest progressed rapidly. As of Sunday Oct 25, US corn was 75 percent combined, while soybeans were 87 percent off, well ahead of normal. There are larger than normal piles on the ground, especially in the western grain belt, but farmers remain reluctant sellers.

Last time I mentioned that the Chinese government would not skimp on importing food. From Jan to Sept this year, they imported 4.5 mln mt corn, which is up 80 percent from a year ago. Unfortunately, 85 percent of their purchases were from the Ukraine. US soybean exports are 74 million bu ahead of last year at this time, even though USDA expects they will decline by 168 mln bu versus last year.

The European Union had a hot dry summer, so they could turn into an importer of corn also, instead of an exporter. Argentina is usually a large exporter, and their crop could be down 20-25 percent on less acres. So the demand story on corn could surprise positively going into 2016.

When it was announced speculators had sold short 36,000 contracts of wheat in the previous week, prices rose sharply. They are now short 96,000 contracts, their second largest short position ever. When the managed money gets to extremes like this, prices usually head in the opposite direction, and often quickly.

South America weather has improved, so planting is getting closer to normal for this time of year. Their growing season will be watched closely. Current projections for Brazil’s crop is 100 mln mt, which would be a new record four years running. This level of production is built into current prices. If there is a deviation, odds favor less production, not more.

Argentina is having elections and the outcome could affect soybean prices. Currently there is a 35 percent export tax on soybeans there, so farmers are sitting on 20 mln mt., much of it in silo bags.  They’re storing the beans as a hedge against inflation and a declining currency. One party running wants to sharply reduce the export tax. This would cause a sudden surge of beans entering the world market, should they win.

Energy prices are again on the defensive, led by natural gas, which is very near a 13 year low. This has caused our dollar to give back 2.5 cents of its recent 3.6 cent rally. Local basis levels are on the rise again, except in corn. The pipeline is getting full quickly in Ontario, and movement is hard to come by.

World stock markets fared better after China cut another 25 basis point from lending rates, to stimulate their economy. The Canadian market was an exception, with its high commodity weighting. There is also monetary stimulus going on in Japan and the European Union. It appears the US will be the first country to raise interest rates, and that decision keeps getting postponed further into the future.   

 

- Frank Backx, HDC Grain Marketer