Commodities Report

July 5, 2016


 

 

Close July 5

June 28

1 week change

Dec Corn

3.58

3.94

- .36

Nov Soybeans

10.77

11.20

- .43

July Wheat

4.32

4.43

- .11

Oct Hogs

72.10

71.95

+ .15

Oct Cattle

114.05

113.00

+ 1.05

Cdn $

77.16

76.48

+ .68

US $ Index

96.12

96.30

- .18

Crude Oil

46.75

47.66

- .91

Gold

1357

1318

+39

US 10 Year Notes

133-27

133-08

+ 19

TSX Stocks

14184

13814

+ 370

 

Markets dropped over the past week, with selling accelerating after the US July 4 holiday. A large move isn’t uncommon right after that day. Improving weather and continued good crop ratings caused the long speculators to head for the exit door all at once.

Newton’s first law of motion states an object in motion will stay in motion unless an external force acts upon it, This usually applies to markets as well, as uptrends and downtrends often go further in both directions than what is justified by the fundamentals.  

On June 30, USDA released their stocks and acreage reports, and the initial response in soybeans was very surprising. Soybean stocks at June 1, three quarters through the marketing year, were put at 870 mln bu., 40 ml above trade expectations. That is 40 percent more than a year ago, and the third highest ever for that date.

The 2016 soybean acres were put at 83.7 million, a new record for the US, although slightly less than pre-report guesses. So what did soybeans do on this mostly negative news? They jumped $.40 per bushel, which had most analysts and traders scratching their heads.

Then reality set in and soybeans have now dropped $.80 since the close after the June 30 report. It has been said markets rise in a stair step fashion, but fall like an elevator to lower levels. That certainly seems to be the case in soybeans now.

Corn fell $.13 on the day of the report. This was justified by the new fundamentals. Corn stocks were put at 4.722 bln bu., 200 mln more than expected. That is the highest US corn inventory on June 1 since 1988.

Corn acres were pegged at 94.1 mln., which is up 7 percent from last year, and the third highest since 1944. Apparently US farmers did not switch as many acres to soybeans as what everyone expected. Corn has suddenly lost $1.00/bu. since its high on June 17, wiping out all the gains made since April, and then some.

US June 1 US wheat stocks were put at 980 mln bu, as expected, so this will be the final carryout for last year’s crop. Acres were over a million more than expected. Strong yields, a strong US dollar and stiff competition from other producing countries has wheat trading at levels last seen at the grain market bottoms in 2007.

What is also confusing is that the report said US farmers planted 228.6 mln acres to the three main crops. The acreage report in March had acreage at 225.4, which is very close to the 225.3 acres planted in 2015. So where did the 3.2 mln acres come from? Ontario planted “only” 5.71 mln acres to those same three crops in 2015.

Brexit’s impact appears to be short lived. Stock markets fell hard initially, but the Toronto TSX index has recovered all those losses in the past week. In fact, it rose 3 percent last week, its largest weekly gain in 2016. Long term interest rates plunged to new record lows. Mortgage rates are following.

This tells me the global economy is not operating on all cylinders. The Chinese yuan has dropped to a five year low versus the US dollar, as they try to maintain their market share in manufactured goods. A currency war cannot be ruled out which would have negative repercussions for trade.  

 

 

- Frank Backx, HDC Grain Marketer