Commodities Report

December 20, 2016

 

 

Close Dec 20

Dec 6

2 week change

March Corn

3.50

3.61

- .11

January Soybeans

10.05

10.48

- .43

March Wheat

4.03

4.07

- .04

Feb Hogs

64.00

57.45

+ 6.55

Feb Cattle

115.50

110.80

+ 4.70

Cdn $

74.87

75.35

- .48

US $ Index

103.29

100.49

+ 2.80

Crude Oil

52.23

50.93

+ 1.30

Gold

1133

1168

- .35

US 10 Year Notes

123-04

124-16

- 1-12

TSX Stocks

15293

15118

+ 175


Grains were weaker over the past two weeks, led by soybeans. The price of soybeans was a bit out of whack compared to corn and wheat. Unfortunately for farmers, the correction in the inter commodity spreads occurred by the drop in soybeans, not by new strength in corn and wheat.

The catalyst for the drop was rain in many of the dry areas of Argentina. A couple of the larger producing provinces of Buenos Aires and Cordoba were the driest in 20 years from late October until the rains last weekend. As of Dec 20, 70 percent of their soybeans were planted, 7 percent behind normal.

Some of these rains also filtered into the southern areas of Brazil. This has many analysts increasing their estimates of the soybean crop there to well over the record 102 mln mt that USDA is predicting. The last 2 years they produced about 97 mln mt. per year. So like the US did in 2016, they could easily blow away their previous record.

So why are soybean prices still hanging around 13.00? The South American crop still hasn’t entered its critical production phase, so there are no guarantees there. Agriculture is unique in that most areas only produce one crop a year. It’s different than energy and metals where they can easily increase or decrease production whenever they want, even on a daily basis.

The demand story is also very supportive. So far this crop year, US export shipments are up 19.5 percent from last year’s record pace. US export sales are already at 80.5 percent of what USDA says they will sell all year, and we’re less than four months into the marketing year. USDA always underestimates exports.

The soybean market is a favorite amongst speculators, likely because of its higher volatility. The managed money (large speculators) remain stubbornly long  over 120,000 contracts. Commodity index funds are also buying. They are now long 145,000 contracts, near their longest position in five years.

The Ontario basis has also been relatively strong. A year ago, our dollar was .7221, versus .7487 now. Yet the new crop soybean basis was $2.70 a year ago, versus 2.65 now, which means the US basis is much higher than it was a year ago. One would expect the current new crop basis would be $.30 less with our dollar that much higher.

The bottom line is that USDA says the US soybean carryout will rise from 197 mln bu for last year’s crop to 480 mln for the current crop, or 2.43 times as many.  HDC’s current board price is 12.75, while a year ago it was 11.70, despite the less bullish fundamentals now.

Selling soybeans at or near $13.00 may not be a bad idea. It’s well into the profit zone, and even more so for producers who have Identity Preserved soybeans. You never go broke taking a profit. Plus next year, it looks like North American farmers will plant even more soybeans.

Livestock markets had a strong rebound the past two weeks, bringing some holiday cheer to that sector. The US dollar and stock markets continue their relentless gains since the US election. It appears, so far, that investors believe Trump can deliver on “making America great again”.

I would like to wish my readers good health, happiness and prosperity for 2017. It’s shaping up to be an interesting year! 

 

- Frank Backx, HDC Grain Marketer