Commodities Report

August 2, 2016

 

Close Aug 2

July 26

2 week change

Dec Corn

3.34

3.40

- .06

Nov Soybeans

9.53

9.74

- .21

Sept Wheat

4.01

4.15

- .14

Oct Hogs

60.70

63.55

- 2.85

Oct Cattle

114.45

113.75

+ .70

Cdn $

76.36

75.74

+ .62

US $ Index

95.05

97.15

- 2.10

Crude Oil

39.34

42.86

- 3.52

Gold

1364

1321

+ 43

US 10 Year Notes

132-19

132-04

+ 15

TSX Stocks

14441

14552

- 111

The trend is your friend. Once a trend is in place it often goes further than one would expect. This works in both directions. The 2016 grain markets are proof of this old market saying.

Weather has been non-threatening all season in most parts of the Midwest. There was some extreme heat, but its affects were generally mitigated by ample moisture. Corn and soybeans are much ahead of normal in development.

On top of that, the crops are seeing some of the best conditions in decades. US corn is 76 percent good or excellent; a year ago it was only 70. Soybeans are 72 percent in the best categories; last year they were only 63. In 2015, the US had huge yields. USDA will update production on August 12.

An exception to the good crops in most of the Midwest is in the eastern grain belt, which includes Ontario. Rains have been extremely spotty. The areas with a downpour are doing well, but often you only have to go a few miles and conditions there will need rain soon to achieve strong yields.

Some die-hard bulls are suggesting the corn may not be as good as it looks from the road. The extreme heat may have hurt pollination, resulting in poor tip fill and smaller cobs. Only time will tell if this will be a factor, or only wishful thinking for price.

The price declines in Chicago have been huge, anticipating record yields. From the June high, corn, soybeans and wheat have dropped $1.16, 2.31 and 1.30 respectively.  Prices have given back all their gains. Wheat made a 10 year low, but is trying to hold support at the psychological $4.00 level.

Funds sold another 40,000 corn contracts in the latest weekly report, to be short 46,500 now. They have sold 319,000 soybean contracts in the last 6 weeks, or nearly 1.6 billion bushels. Speculators are now short 143,000 wheat contracts, a new record.

The correlation between grain prices and fertilizer prices remains strong. All 3 main fertilizer ingredients are down sharply from just a month or 2 ago. Prices are now the lowest in many years. It may be a good time to build soil reserves.

Despite crude oil’s drop from over $51 per barrel in June to under 40 recently, the Canadian dollar is showing some life, gaining marginally in the past week. Ontario crop farmers do not want to see any further appreciation in our currency, considering the Chicago drops.

Hog and cattle farmers don’t want to see a stronger dollar either, as basis will erode under that scenario. Livestock futures have also been under pressure since June. Deflation is definitely prevalent in most commodity markets, despite a drop in the US dollar index.  

Gold is one exception, as it has risen nearly 14 percent since June. That market thrives on uncertainty and fear, which seems to be a growing theme with investors. Recent US economic numbers have been disappointing lately and worries about European banks are increasing.  

 

 

- Frank Backx, HDC Grain Marketer