Commodities Report

January 4, 2016

The Year in Review

 

Dec 31, 2015

Dec 31, 2014

Yearly Change

% Change

Corn

3.58

3.97

- .39

- 9.8

Corn basis

.95 + March

.55 + March

+ .40

+ 72.7

Soybeans

8.71

10.19

- 1.48

- 14.5

Soybean basis

2.90 + March

1.15 + March

+ 1.75

+ 152.2

Wheat

4.70

5.90

- 1.20

- 20.3

Wheat basis

1.30 + March

.90 + March

+ .40

+ 44.4

Hogs

59.80

81.20

- 21.40

- 26.4

Cattle

136.80

163.55

- 26.75

- 16.4

Cdn $

72.33

85.97

- 13.64

- 15.9

US $ Index

98.70

90.27

+ 8.43

+ 9.3

Crude Oil

37.04

53.27

- 15.87

- 29.8

Gold

1060

1184

- 124

- 10.5

US 10 Year Notes

126-00

126-26

- 26

- 2.1

TSX Stocks

13010

14632

- 1622

- 11.1

 

2015 will be remembered as a deflationary year for commodities. The fallout from the 2008/09 economic meltdown was still being felt, with slow world growth rates, and most sovereign nations continuing to live on borrowed money. The US dollar was in favor, as investors opted for safety, rather than risk. Markets individual fundamentals also contributed to the weakness.

In Chicago, crop prices lost between 10 and 20 percent over the course of the year. A rally occurred from mid-June to mid-July, as portions of the Midwest (and Ontario) experienced excess rains. However Mother Nature cooperated for the rest of the growing and harvesting seasons, resulting in very strong yields. Prices finished very close to their lows for the year.

Fortunately for Ontario farmers, basis made up for the Chicago losses. The Canadian dollar lost over 13 cents or 16 percent against its US counterpart. The main reason was the weak commodities, especially in the energy and mining sectors. Slower or no economic growth in Canada, and rising interest rates in the US were also factors.

The net effect was that Ontario producer board prices were steady on corn, up a bit for soybeans but lower for wheat by $.80. Despite wheat’s relative weakness, Ontario farmers planted a lot more acres to wheat because of the beautiful fall weather and to get crop rotations back in line.

Ontario crops turned out much better than most thought possible in June, when the rains wouldn’t stop. Corn yields in Ontario were estimated at over 170 bu/ac for the first time ever. Soybean yields were affected more by the early excess moisture, and came in close to average for the province, with huge variances even in a small area. Overall, Ontario cash crop farmers should be thankful for 2015.

Livestock prices in Chicago fared even worse than crop prices, with hogs down 26 percent and live cattle falling 16 percent. Cattle prices were especially volatile after starting 2015 near record highs. A nice recovery in December trimmed cattle’s losses substantially. As in grains, Ontario producers were buffeted from much of the Chicago drops due to the Canadian dollar’s weakness. The cheaper feed prices also helped profitability.

The biggest loser in the commodity complex was again the energy sector, with crude falling another 30 percent. Higher US oil production and OPEC countries fighting for a market share that isn’t growing made this a supply problem as well. Prices have now retreated very close to the lows hit in early 2009. In June, 2014, prices traded over 107/barrel, so the year and a half slide is massive.

The US dollar index gained sharply for the second year in a row, contributing to the general commodity downtrends. Many key markets are priced in US dollars around the world, including crude oil, gold and even soybeans and corn. While most currencies sank in 2015, the Russian, Brazilian and Argentine currencies all fell over 30 percent. Unfortunately, these are all large grain exporters, and this gives them an advantage over US sources. 

US interest rates did rise 25 basis points in December, the first hike in over 9 years. However, the longer term bond market showed little net change, as worries persist about how strong the US economic recovery really is. US stock markets were only slightly weaker for 2015, while the resource dominated Canadian TSX lost 11 percent for the year.   

 

- Frank Backx, HDC Grain Marketer