Commodities Report

September 27, 2016

 

Close Sept 27

Sept 12

2 week change

Dec Corn

3.32

3.40

-.08

Nov Soybeans

9.52

9.64

- .12

Dec Wheat

4.04

4.09

-.05

Dec Hogs

46.75

53.05

- 6.30

Dec Cattle

103.15

106.75

- 3.60

Cdn $

75.64

76.74

- 1.10

US $ Index

95.45

95.06

- .39

Crude Oil

44.56

46.24

- 1.68

Gold

1327

1329

- 2

US 10 Year Notes

131-15

130-18

+ 29

TSX Stocks

14577

14598

- 21

Grains drifted lower over the past 2 weeks, as harvest progressed in the US. As of Sept. 25, 15 percent of US corn was harvested; normally 19 percent is off by then. Soybeans are 10 percent in the bin. The average for that date is 13 percent.

Early yield reports are strong, especially in soybeans, perhaps justifying USDA’s record yield prediction of 50.6 bu/acre. Combined with the record acreage of 83.7 mln, US production will beat last year’s record production by 272 mln bu. Thatincrease is more than two times Ontario’s expected soybean production of 118 mln bu. for 2016!

On Sept 30, USDA will release their quarterly stocks report. For corn and soybeans, this will be the final carry outs (CO) for the 2015/16 crop year. As usual, USDA’s final number for soybeans will end up substantially below what they predicted all year.

Last Nov, they said the 15/16 soybean CO would be 465 mln bu. Even this past May, they still predicted 400 mln. Their latest report in Aug. slashed the CO to 195 mln bu. It will be interesting to see where they put the final figure on Sept. 30. USDA may not be accurate, but their pattern of overstating CO’s is at least consistent.

Ontario’s harvest is just beginning. Yields are expected to be highly variable, depending how much it rained, and when. Corn yields look to below average overall. Soybeans benefitted more from the nearly ideal weather in August and September, and could end up average or slightly above.

Livestock prices remain under pressure. US cattle placements are at a 4 year high, so it is a mainly a supply issue. Retail prices are very slow to match the decline at the farm gate. Hogs have dropped 60 percent since their 2014 high, while cattle are down 39 percent. Hogs are at their worst level in Chicago since 2009, while cattle haven’t been this cheap since 2010.

The Canadian dollar lost some ground, but remains range-bound. Our dollar is a commodity currency, and many of the raw materials we produce and export are depressed in price. Ag prices are weak, but so are energy and metal prices. In fact, the Goldman Sachs Commodity Index of 24 commodities is at less than half of its 2011 value.

Over the same 5 year timeframe from 2011 to now, the S&P 500 US stock index has doubled. One could argue that, in general, commodities are under-valued, while stocks are over-valued. There will come a time shortly when the smart money will begin buying the cheap asset class.

For now, however, deflation remains the primary concern. Central bankers the world over are attempting to get some economic growth and inflation going, but with little success. This is also keeping bond prices near record highs, and their yield near record lows.  

- Frank Backx, HDC Grain Marketer