Commodities Report

January 19, 2016

 

Close Jan 19, 2016

Dec 31, 2015

2 + week change

Mar Corn

3.64

3.58

+ .06

Mar Soybeans

8.81

8.71

+ .10

Mar Wheat

4.74

4.70

+ .04

Feb Hogs

62.85

59.80

+ 3.05

Feb Cattle

128.25

136.80

- 8.55

Cdn $

68.71

72.33

 

US $ Index

98.90

98.70

+ .20

Crude Oil

29.60

37.04

- 7.44

Gold

1089

1060

+ 29

US 10 Yr Notes

128-16

126-00

+ 2-16

TSX Stocks

11996

13010

- 1014

2015 was the worst deflationary year since 2008, and the trends in many markets have accelerated so far in 2016, especially in the energy complex, currencies and stock markets. This is looking more and more like the climax blow-off after an extended downtrend. Grains fared much better than most other markets, eking out small gains since Dec 31.

Grain prices were helped somewhat by USDA’s crop report issued on Jan 12. The final corn yield for 2015 was reduced to 168.4 bu/ac, down .9 bu from last month, but still the second largest in US history. However, exports were lowered so the carryout (CO) was raised to 1.802 bln bu from 1.785 in the Dec report.

The soybean yield was lowered .3 bu/ac to 48 bu., still a new yearly record. The CO was lowered to 440 mln bu from 465 estimated last month. A year ago, the CO was 191 mln., so ending stocks are still 2.3 times what they were for the previous crop.

The US wheat CO was raised 30 mln bu to a burdensome 941 mln. However US winter wheat plantings were put at 36.6 mln, 2.7 mln less than thought. Keep in mind the US only grows 8 percent of the world’s wheat, so this isn’t that bullish globally. It also means more corn and soybean acres next spring.

Also supporting grains is that speculators are short a near record number of contracts in crop futures. Their record short was in mid-June last year, and the big rains in the eastern grain belt started the ball rolling. Corn, soybeans and wheat rallied $.90, 1.36, and 1.13 by mid July on the spec short covering.

The devastation in some of the “outside” markets was extreme. Crude oil collapsed another 20 percent since the start of 2016. The TSX stock index fell over 8 percent, its worst start in a new year ever. Even the US S&P 500 fell 8 percent, while China’s stock market is in a freefall, plummeting 7 percent on 2 separate days.

While lower energy prices are helpful to importing countries, the effect on exporters is severe, as bankruptcies increase, threatening the still fragile world banking system. Exacerbating the situation is that many foreign countries and companies borrowed money in US dollars, as US rates were low. However, the US interest payments are very expensive now, as most world currencies are very weak, especially for emerging economies.

The Canadian dollar downtrend has also accelerated, dropping another 5 percent, or 3.62 cents so far in 2016. Crude oil was the main driver, but speculation is increasing that the Bank of Canada (BOC) will cut interest rates another ¼ point this week. If they do, the net affect will be negligible on borrowing costs, but it could have the BOC’s desired psychological affect.

Grain basis values rose a minor 15 cents on corn and wheat but soybean basis popped 40 cents so far in 2016, putting board prices for both old and new crop over $12.00 again. The C$’s weakness has been the savior for Ontario’s grain prices. Unfortunately, it will also affect input prices down the road. For now, though, our weak dollar is a huge bonus for farmers.  

 

- Frank Backx, HDC Grain Marketer