Commodities Report

January 17, 2017

 

 

Close Jan 17, 2017

Dec 30, 2016

2 week change

March Corn

3.65

3.52

+ .13

March Soybeans

10.69

10.04

+ .65

March Wheat

4.34

4.08

+ .26

Feb Hogs

65.50

65.80

- .30

Feb Cattle

119.35

116.00

+ 3.35

Cdn $

76.66

74.49

+ 2.17

US $ Index

101.19

102.35

- 1.16

Crude Oil

52.91

53.56

- .65

Gold

1214

1151

+ 63

US 10 Year Notes

125-04

124-07

- 29

TSX Stocks

15481

15331

+ 150

Grains were all firmer since the start of the New Year aided by the USDA report that was issued January 12th. While carry outs (CO) are still rising sharply from last year, they will not be going up as much as what traders’ had expected prior to the report.

Soybeans led the way, rising $.64 in the three days following the report, to a new 6 month high.  The US yield was lowered by .4 bu/ac to 52.1. This is still an amazing 8.5 percent above the previous record which was hit the previous year. The lower production allowed the projected CO to fall to 420 mln bu from the 480 mln predicted last month.

420 mln bu is still more than 2.15 times the CO for either of the previous two crop years. This makes the resilience of the soybean price all the more remarkable. In fact, prices are now up over $2.00 or 23 percent since Jan 1, 2016. There are a few reasons.

USDA’s recent track record on the soybean CO hasn’t been good. In the Jan report the past two years, they pegged it at over 400 mln bu. It ended up at under 200 mln by the end of both crop years. Maybe the new 420 mln bu CO will keep coming down like it did the past two years?

There are some problem areas in South America (SA), especially Argentina. Some areas are too dry, and some are too wet, which is preventing planting. It is getting very late for them to plant now, and the forecast is calling for more rain this week in the wettest areas. Crop estimates are already down 4 mln mt.

 Traders remember SA’s soybean crop in 2016 went down drastically during harvest, which allowed soybean futures to rally from $8.49 on March 1 to 12.08 by June 6 last year.  It also left their pipeline empty, which they will need to rebuild this year. What if they don’t?

There also appears to be some new money entering the commodity markets. Large speculative traders have always liked to trade soybeans because of their higher volatility. Now index funds (investors) are also entering the commodity space in bigger numbers. Commodities are still cheap compared to stocks and bonds.

The corn yield was lowered to 174.6 bu/ac., This is down .7 from the previous report, but still a record. This lowered the CO to 2.355 bln bu, versus 2.403 estimated last month and 1.737 bln for the previous crop year.

Wheat usage was dropped causing a 43 mln bu rise in the ending stocks to 1.186 bln bu. However US winter wheat acres are at the lowest in the US since 1909. Wheat futures gained 18 cents since that news. The US is but a residual supplier to the world export markets in wheat anymore.

The Canadian dollar has been strong lately. The fundamentals are mostly negative, with slower economic growth here vs. the US. Our governments’ carbon taxes will only make things worse. Higher US interest rates should also create headwinds. However, investment inflows into our currency due to  rising energy and metal prices may become the overriding force.

Donald Trump takes over the white house on Jan 20. What he says and does will have a huge effect on financial markets, which will have a ripple effect on the grains also. 

 

- Frank Backx, HDC Grain Marketer