Commodities Report

May 24, 2016

 

Close May 24

May 17

1 week change

Dec Corn

4.03

4.04

-.01

Nov Soybeans

10.29

10.67

- .38

July Wheat

4.64

4.82

- .18

June Hogs

79.70

82.60

-2.90

June cattle

117.80

123.55

-5.75

Cdn $

76.00

77.46

-1.46

US $ Index

95.57

94.53

+ 1.04

Crude Oil

48.67

48.66

+ .01

Gold

1229

1278

- 49

US 10 Year Notes

129-20

130-16

- 28

TSX Stocks

13924

13927

- 3

Soybeans and wheat were lower over the past week, while corn was steady and soybean meal was sharply higher. Soy meal  gained an amazing $126.00 per ton in the past 6 weeks in the actively traded July contract.

It was hard to find news to account for such a large move. Funds were no doubt a main contributor. In those 6 weeks, speculators bought 113,000 meal contracts, or 11.3 mln tons. They are very close to a record long position. That is a lot more than the 10.4 mln tons USDA says the US will export for the entire 2015/16 crop year!

US exports are gaining traction, as Brazil, the US’s largest competitor in soybeans and corn, looks to be tapped out on exports. Their double crop corn is in big trouble, and their economy is in shambles. The US has sold 99 % of what USDA says they will sell all year, with 25 % of the crop year remaining . For corn they are already at 92 % sold. USDA may need to raise export expectations.

US planting is staying ahead of normal. 86 percent of the corn is in the ground and 56 percent of the soybeans as of May 22. Normally it is 85 and 52, respectively. US winter wheat was rated 62 percent good or excellent, unchanged from the previous week, and well ahead of last year’s 45 percent.

No doubt, part of the drop in commodities generally is related to the US dollar’s recent strength. This is tied to the “great rate debate”, which seems to be leaning towards an interest rate hike in the US in June. There is also speculation more rate increases will occur for the balance of 2016.

The US labour market has improved, with their official unemployment rate down to 5 percent. Inflation at the consumer level is increasing due to higher fuel and food prices. There was no way interest rates were going lower, and now it looks like rates will begin their inevitable climb. It should be a slow climb, however.

The stronger US dollar index also caused our dollar to fall further after hitting the .80 resistance. This has helped basis once again offset some of the Chicago weakness. Most think that the Bank of Canada will not follow any US interest rate increases. This could cause the CAD to lose more of the 12 cent rally it experienced since the start of the year.

Livestock markets took a beating, especially cattle. The latest cattle on feed report showed much higher placements than traders thought. Cheaper feed costs usually translate into more meat production, and this cycle is obviously no different.  

Weather has improved for planting in Ontario. Finally there is some heat, which will help germination and the crops that are up now. The two week forecast, if accurate, should allow farmers to complete their planting. The exception may be dry beans, which are usually planted later.

The Ontario wheat crop has excellent yield potential. Unfortunately, the buyers see that also and are reluctant to push their bids. It is unusual for wheat basis to be less than the corn basis, but that may be the case even into the fall. Wheat remains the dog as far as pricing goes.  

 

- Frank Backx, HDC Grain Marketer