Commodities Report

May 31, 2016

 

Close May 31

May 24

1 week change

1 month change

Dec Corn

4.09

4.03

+ .06

+ .14

Nov Soybeans

10.56

10.29

+ .27

+ .48

July Wheat

4.65

4.64

+ .01

- .24

June Hogs

80.45

79.70

+ .75

- 1.25

June Cattle

121.10

117.80

+ 3.30

- 6.15

Cdn $

76.25

76.00

+ .25

- 3.25

US $ Index

95.78

95.97

- .19

+ 2.77

Crude Oil

49.20

48.67

+ .53

+ 2.51

Gold

1217

1229

-12

- 74

US 10 Year Notes

129-23

129-20

+ 3

-12

TSX Stocks

14099

13924

+ 175

+ 159

 

Grains were once again firmer over the past week. Demand for US supplies is increasing with the reduction in the Argentine and Brazilian soybean and corn crops. The biggest move has been in soybean meal. The heavy rain in Argentina not only wiped out about 5 mln mt of soybean production, but also resulted in poor meal quality. They are the world’s largest meal exporter.

Prices were also firmer for the month, except for wheat. See chart. Volatility has increased dramatically since March, and thankfully for Ontario farmers, it was mostly to the upside. Funds were a contributor to the price gains. They are now long 75,000 contracts of corn, 197,000 soybeans, but still short 118,000 wheat contracts. 

Many think Brazil will have trouble meeting their export commitments on corn, as their double crop corn crop suffers due to drought. This has pushed Chicago corn to its best level since last July, and up 40 cents since May 10.  Soybeans haven’t been this high in Chicago since August, 2014. 

The resilience and magnitude of the move in the soy complex in particular is somewhat surprising.  Perhaps it is the fear that La Nina will cause a drought this summer and traders want to be on the bandwagon just in case? Commodities in general are still relatively low priced compared to stock markets, which aren’t far from record highs. Interest rates are still low, so some investor money is gravitating to commodities. 

Wheat prices fell through May, as US winter wheat yields look strong and harvest begins in the Southern Plains. Wheat is working into feed rations at these prices, and with funds still short, it becomes more likely that wheat prices will begin to outperform soybeans and corn on a relative basis. 

A wet pattern has developed in large portions of the Midwest, although planting progress is still ahead of normal. As of May 29, 94 percent of US corn and 66 percent of US soybeans were planted.  Last year was very wet in June. (I’m sure we all remember that). Final US yields were still strong, so rain makes grain is likely still the prevailing mentality.. 72 percent of US corn is good or excellent; last year it was 74 at this time. 

An unusual divergence is happening between crude oil and the Canadian dollar lately. In May, crude oil rallied 15 percent, while our dollar lost over 5 percent. It appears the CAD is following most currencies to lower ground, as expectations increase that the US will unilaterally raise interest rates in June. 

Hensall’s basis levels rose sharply since May 1, with soys up$ .65, corn plus .23, and wheat + .20. Much of this is currency related, but there is strong demand for Ontario crops from the US, as the eastern US grain belt had subpar yields in 2015. 

The US economy is doing better. In April, consumer spending rose a full percent, the largest increase in nearly 7 years.  This was mainly due to them having some excess cash because of the weak energy markets.  Autos sales were strong on 0 percent financing incentives. It seems consumers would rather spend than pay down debt. 

- Frank Backx, HDC Grain Marketer