Commodities Report

March 29, 2016

 

 

Close Mar. 29

March 15

2 week change

May Corn

3.73

3.69

+ .04

May Soybeans

9.16

8.92

+ .24

May Wheat

4.76

4.77

- .01

June Hogs

83.00

83.35

- .35

June Cattle

125.45

130.25

- 4.80

Cdn $

76.44

74.84

+ 1.60

US $ Index

95.21

96.68

- 1.47

Crude Oil

38.28

36.40

+ 1.88

Gold

1239

1231

+ 8

US 10 Year Notes

129-31

128-12

+ 1-19

TSX Stocks

13414

13555

- 141

 

Grains were stronger but remain range-bound awaiting US weather developments and USDA’s prospective plantings and stocks report to be released March 30. Outside markets were also relatively quiet, despite increased international tensions and political uncertainty.

What looked to be an early spring has suddenly changed with the recent forecasts. Temperatures through mid-April are expected to average well below normal through the main growing areas, with all types of precipitation. A frost in the Southern Plains may have caused some winter wheat damage also.

No major surprises are expected in the USDA stocks report, which estimates US supplies at March 1, half way through the marketing year. Carry outs are certain to be at burdensome levels, so even numbers less than traders’ expectations will likely have a muted response in Chicago.

More corn and soybean acres than last year are likely, while US wheat acres will be the lowest in decades. Corn is expected to show a larger increase than soybeans. It seems if there is a yield kick with good weather, farmers feel more confident it will come from corn. Weak fertilizer prices also favor corn acres.

The soybean chart is looking technically bullish. The weekly chart had its best close since August with March’s 60 cent rally. It is hard to justify this from a fundamental point of view. Perhaps crop futures are following the metal and energy markets to their higher levels. Commodity inflation nearly always leads consumer inflation.

Speculators have been large recent buyers of crop futures. In the past 2 weeks, they covered 77,000 short corn contracts. In the last 3 weeks, they bought 150,000 soybean contracts, to be long 16,000 contracts now. Considering the level of buying, the price reaction was relatively minor. Commercials (grain companies) were willing sellers, limiting the upside.

South America is adding greatly to world corn and soybean supplies again, pushing world carry outs to record levels. They are well into their harvest, but enter a new weather market, as they have just finished planting their double crop (safrinha) corn. However, it is North American weather that will be the main driver for price for the next 6 months.

The Canadian dollar rose 1.5 cents over the past 2 weeks, as it is in the resistance zone up to the .78 area. The correlation with crude oil is still very strong, as it gained almost $2.00 per barrel over the same time frame. Ontario basis levels lost 5-10 cents since my last report.

Livestock markets have been showing strength lately, especially hogs, with futures up nearly 20 cents per pound since November. Prices are now at 9 month highs. It is a demand story, as fast food restaurants feature pork, and exports are strong. The March 25 USDA hogs and pigs report showed no expansion by farmers, so hopefully prices can at least maintain their recent gains through the summer.

The US hinted they may not be raising interest rates any time soon, due primarily to weakness in other economies. Perhaps another reason is that they wouldn’t mind a weaker US dollar to win back some manufacturing and exports. Considering how much the US $ went up since 2014, a further drop wouldn’t be a surprise.  

 

- Frank Backx, HDC Grain Marketer