Commodities Report

December 6, 2016

 

Close Dec 6

Nov 22

2 week change

March Corn

3.61

3.59

+.02

Jan. Soybeans

10.48

10.30

+.18

March Wheat

4.07

4.27

- .20

Feb Hogs

57.45

55.55

+ 1.90

Feb Cattle

110.80

110.20

+ .60

Cdn $

75.35

74.50

+ .85

US $ Index

100.49

101.08

- .59

Crude Oil

50.93

47.83

+ 3.10

Gold

1168

1212

- 44

US 10 Year Notes

124-16

125-26

- 1-10

TSX Stocks

15118

15066

+ 52

 

Soybeans were higher, while corn was mostly steady and wheat was the weak link again compared to two weeks ago. Eventually the prices of the weaker commodities should gain on the stronger ones, as usage increases and production decreases in the lower priced commodities.

The wheat/corn spread is only $.46 in Chicago, and a mere $.31 at Ontario elevators. Most of Ontario’s wheat is therefore going to the feed trade. Least cost rations will put in wheat at this small price difference, and the high levels of vomitoxin in some of the Ontario corn makes this a no brainer for feed mills. Last year’s Ontario wheat was excellent quality.

The soybean: corn ratio is also out of whack. It takes over 2.9 bushels of corn to equal 1 bushel of soybeans in Chicago. At Ontario elevators, it is 3.07. Normally it is 2.25 to 2.50. Already in the US there is talk US corn acres will fall by 4 million next spring. Ontario farmers seem to want to grow more soybeans also.

The relative strength in soybeans can be tied to two main reasons. Some of the key growing areas in Argentina are too dry, preventing planting and hurting the crops that are planted. The South American weather market is officially on.

Large speculators have bought more soybean contracts than they have sold in 7 of the past 8 weeks. They are now long 135,000 contracts. Index funds, which includes exchange traded funds or ETF’s are also in a buying mood, purchasing 50,000 contracts since the rally that started during harvest. There is no doubt dollar flows to soybeans is causing or at least sustaining the current up move.

Crude oil rose sharply after OPEC and some other oil producing countries agreed to curb output. History shows that this rarely works to support prices. This will be the case even more so now that the US produces so much through their fracking. It isn’t that difficult for them to add rigs if the price of crude oil goes up.

The Canadian dollar didn’t gain much on crude’s advance, however, as the US dollar index remained very strong. This is keeping pressure on most currencies. Even the Chinese yuan hovers near a 6 year low. This obviously helps China maintain its export competitiveness. President-elect Trump has hinted he may do something about this.

Gold and bonds remain weak. Things to watch for over the next 2 weeks are the USDA demand /supply report on Dec 9, and whether the Federal Reserve raises interest rates when they meet. The consensus is for a minor ¼ percent rise. A few think it could even be a ½ point rise, which would be bearish to most markets.

 

 

 

- Frank Backx, HDC Grain Marketer