Commodities Report - Year in Review

December 31, 2016

Year Change from 2015 to 2016

 

Close Dec 30/16

Dec 31/15

Year Change

Percent

Corn

3.52

3.59

- .07

- 2.0

Soybeans

10.04

8.71

+ 1.33

+ 15.3

Wheat

4.08

4.70

- .62

- 13.2

Hogs

65.80

59.80

+ 6.00

+ 10.0

Cattle

116.00

136.80

- 20.80

- 15.2

Cdn $

74.49

72.33

+ 2.16

+ 3.0

US $ Index

102.35

98.63

+ 3.72

+ 3.8

Crude Oil

53.56

37.04

+ 16.52

+ 44.6

Gold

1151

1060

+ 91

+ 9.0

US 10 Year Notes

124-07

125-29

- 1-22

- 1.3

TSX Stocks

15331

13010

+ 2321

+ 17.8


Corn and wheat were weaker, but soybeans were higher over the past year. The price performance was better than expected, considering the serious deterioration in the traditional fundamentals. Livestock markets were mixed, while outside markets were generally firmer.

While final US yield numbers won’t be out until January 12, there is no doubt all three crops will all easily set new yield records. Corn and soybeans had its three highest yields ever in the past three years. Soybeans blew away their previous record set last year by an unprecedented 9.4 percent. Wheat yields were 20.6 percent ahead of last year, and broke their previous record by nearly 12 percent!

There is no sector of the economy more dependent on climate and weather than agriculture. None is even close. It is discouraging to hear all the negativity from the media and governments about the bad side of global warming. There is no denying temperatures have been rising for many years.

In fact, 2016 was the warmest year in history. It is more than coincidence that the record yields were influenced by the record temperatures.  There is no doubt genetics is also partially responsible, but I believe global warming is the biggest contributor. If we had global cooling, yields would suffer, prices would rise, perhaps sharply, and starvation would escalate.

The demand is also at record highs, but the new crop corn carry out will still rise 38 percent, while the soybean carry out will end up at an amazing 2.4 times higher than last year according to USDA.  Surprisingly, soybean prices still managed to gain over 15 percent for the year.

Fund buying, both by speculators and investors, was supportive. Soybean oil was in high demand due to lower palm oil production and strong demand from India. South American needs a big crop after last year’s smaller crops, and nothing is guaranteed from there as of now. The record demand needs to be fed.

Livestock prices were volatile. Both hogs and cattle had a wide $.48 per pound swing in price from their yearly high to low. The good news is that prices recovered nicely from the extreme lows hit last October. Hopefully that trend will continue into 2017.

The Canadian dollar started 2016 on a low note, but rallied 12 cents by May before losing about half of those gains by year end. This obviously caused huge basis swings, especially in soybeans and wheat. Our dollar’s 3 percent gain for the year pales compared to crude oil’s 44 percent gain.

This is because the US dollar was so strong against all currencies. This trend accelerated after Trump’s election victory. The US raised rates in December, and expectations are for more rate hikes in 2017. More fiscal spending in the US may replace the monetary stimulus which has kept the US economy going since the 2008 meltdown.

There are a lot of uncertainties heading into 2017. Trump will have a major impact. His tough talk on trade could have repercussions, especially for China, whose currency is at an 8 year low. There will be elections in Italy, France and Germany in 2017. Will the EU hold together? Many think there could be a rotation of money into commodities from stocks and bonds.

The only guarantee is high volatility, as uncertainty seems higher than normal.

As usual, any opinions expressed are my own, and not necessarily those of HDC. 

 

- Frank Backx, HDC Grain Marketer