Commodities Report

November 22, 2016

 

 

Close Nov 22

Nov 8

2 week change

Dec Corn

3.51

3.54

-.03

Jan Soybeans

10.30

10.11

+ .19

Dec Wheat

4.08

4.15

- .07

Dec Hogs

49.20

47.00

+ 2.20

Dec Cattle

109.50

102.60

+ 6.90

Cdn $

74.34

75.23

- .89

US $ Index

101.08

97.97

+ 3.11

Crude Oil

47.83

44.89

+ 2.94

Gold

1212

1274

- 62

US 10 Year Notes

125-26

129-16

-3-22

TSX Stocks

15066

14657

+ 409

The U.S election win by Trump was a major surprise, as was the response in most markets. Most felt a Trump victory would cause a sell-off in stocks, commodities and the US dollar, as a new level of uncertainty crept into the picture, especially in terms of trade and immigration.

However, the US dollar suddenly shot up to its best level since 2003. Trump’s proposals of sharp tax cuts and infrastructure spending are likely to result in an expanding US economy and an uptick in inflation.

This also helped US stock indices hit new record highs. Longer term interest rates rose sharply, with bonds showing their largest losses since 2013. Gold dropped $80.00 from its high to its lowest level since February. Not quite the reaction all the pundits predicted with a Trump victory!

Grain prices remain very resilient also, especially soybeans, which are at their best level since August.  Even the very bearish USDA report issued Nov 9 couldn’t send prices down much.  If a market refuses to go down on negative news, the path of least resistance is usually to the upside.

The US soybean yield was raised more than expected by 1.1 bu/acre to 52.5 bu., breaking last year’s record by over 9 percent. This put the carry out to 480 mln bu., compared to 395 mln predicted last month and only 197 mln for last year’s crop.

The corn yield was bumped up a surprising 1.9 bu/ac, to a new record of 175.3 bu. Usage was also raised, however, so the ending stocks “only” rose 82 mln bu., from last month’s estimate to 2.403 bln bu., compared to 1.731 bln for the 2015 crop.

Brazil soybean planting is much ahead of last year. Early planting usually translates to better crops. It will also likely increase the amount of second crop corn planted after the beans come off. This is known as safrinha corn, and it makes up 65 percent of Brazil’s total corn crop. This too is obviously being ignored by futures at this moment. Argentina planting isn’t going as smoothly, however.

Funds sold 66,000 corn, 30,000 soybean and 18,000 wheat contracts in the latest report, issued Fri. Nov. 18. Even this selling couldn’t dampen futures, as commercials, aka grain companies, were buying. This is to cover the strong export sales that are happening in soybeans and corn.

There appears to be a rotation going on with investor dollars. The US bond market is $40 trillion in size, twice the size of the US stock market. $700 billion in bonds are traded daily, vs. 200 bln in stocks. Investors and foreign governments like China and japan are selling US bonds now.

Some of the funds generated by the bond selling are filtering into the stock and commodity markets. If it continues, it would help underpin grain values. These dollar flows can easily trump grain fundamentals, at least in the short run.   

 

 

 

- Frank Backx, HDC Grain Marketer