Commodities Report

December 8, 2015

 

Close Dec 8

Nov 24

2 week change

March Corn

3.74

3.70

+ .04

Jan Soybeans

8.76

8.64

+ .12

March Wheat

4.81

4.89

- .08

Feb Hogs

57.10

57.50

-.40

Feb Cattle

126.35

132.50

- 6.15

Cdn $

73.62

75.24

- 1.62

US $ Index

98.42

99.54

- 1.12

Crude Oil

37.80

42.94

- 5.14

Gold

1070

1075

- 5

US 10 Year Notes

126-10

126-31

- 21

TSX Stocks

12945

13427

- 482

 

Corn and soybeans were higher the past 2 weeks in more volatile trade. Some dryness in key soybean areas of Brazil resulted in buying by speculators who were short. Soybean oil was the leader to the upside, rising over 20 percent in 2 weeks. The higher US renewable fuels standard for 2016 and huge purchases by India were the main reasons for the soy oil gains.

Meanwhile deflation persisted in other commodities, especially in the energy sector. OPEC met and couldn’t agree to cut production levels, causing a further 12 percent drop in price in the last 2 weeks. This is good for consumers, but much more so in the US than in Canada. Gas prices here don’t seem to follow crude oil, especially when it drops.

In financial markets, the US dollar index finally weakened. A huge 2 percent drop happened on Thurs. Dec 3, after making a new 12 year high earlier that day.  The Euro rose 3 percent, for one of its largest daily moves ever. The big question is if this is a reversal of recent trends or just a one day correction. Only time will tell, but the implications will be significant.

It seems more likely that the US will raise their interest rates on Dec 16 for the first time in nearly 10 years. The economy there is performing well in most sectors, except for manufacturing. Their unemployment rate is 5 percent and housing is showing good growth and rising prices. Their stock markets reflect the improving economic outlook, but it did sell off the past 2 days.  

History shows that the US dollar often loses after they begin raising interest rates. An easing US dollar would be a positive for commodities, including grain prices. It is interesting that commodity index traders (aka hedge funds) increased their long positions in corn and soybeans fairly dramatically in the report released last Friday.

The other big news for Ontario grain farmers was our dollar sinking to a new 11 year low, as it followed the crude oil market. Basis firmed, but mainly on soybeans. Corn basis remained subdued, as Stats Canada predicted a new record yield for Ontario corn at 170.3 bu/ac, and 16 percent higher production than last year. If accurate, Ontario had a higher average yield than the US. USDA’s next report is Dec. 9.

Volatility has increased dramatically in the past 2 weeks, especially in the macroeconomic markets. This often happens near tops and bottoms when long term trends end or reverse. Sometimes there is a final blow-off in the direction of the main trend. It is too early to say this is happening now, but some of the recent moves make this a possibility.

The news and psychology is decidedly negative right now, with many calling for crude to fall to the 20’s and our dollar to go under 70. Most analysts are also negative on grains for fundamental reasons. This line of thinking is usually a necessary condition at market bottoms.

As always, keep in mind these are strictly the opinions of the author. Heeding this could be hazardous to your wealth!

I would like to wish my readers a blessed Christmas, and good times with family and friends during the Holiday season.   

 

- Frank Backx, HDC Grain Marketer