Commodities Report

February 14, 2017

 

Close Feb 14

Jan 17

4 week change

Dec.  Corn

4.00

3.93

+ .07

Nov.  Soybeans

10.23

10.20

+ .03

July Wheat

4.76

4.63

+ .13

June Hogs

79.50

78.95

+ .55

June Cattle

104.65

108.55

- 3.90

Cdn $

76.60

76.66

- .06

US $ Index

100.71

101.19

- .48

Crude Oil

53.30

52.91

+ .39

Gold

1224

1214

+ 10

US 10 Year Notes

124-07

125-04

- 29

TSX Stocks

15794

15481

+ 313

Grain price changes in the attached chart are now for new crop. Prices were steady to a bit firmer compared to my last report 4 weeks ago, although there was volatility in between. South American weather is still the market’s primary focus.

Crops are grown over such a wide geographic area there that analysts can focus on whatever fits their story. Some areas are too wet, and some are too dry, which is always the case. The general consensus is that weather has improved of late, and crop estimates are increasing for both corn and soybeans.

The weather market there maybe isn’t over, however. You only have to go back to last year, when late season wetness and a delayed harvest hit both Argentina and Brazil. From March to early June, 2016, soybean prices surprised everyone by rallying $3.60 per bushel, while corn added 92 cents. This is unlikely this year, but this is the seasonal strong time for grain prices.

USDA’s monthly demand/supply report was a non-event, as the soybean carry out (CO) was left unchanged at 420 mln bu., which is more than twice the CO of any of the previous eight years. The corn CO was reduced a minor 35 mln bu. World wheat stocks were unexpectedly reduced 4.7 mln mt., which helped wheat prices recover.

The resiliency in crop prices is surprising considering the relatively burdensome fundamentals. Dec 2017 corn futures hit $4.00 yesterday for the first time since late June last year. This likely reflects the fact corn will lose acres to soybeans in the US (and Ontario) this spring. New crop July wheat futures are at their highest since last August, as the US planted the fewest acres since the early 1900’s.

Also supporting prices is exports. US corn exports are up 67 percent from last year, and unshipped sales of 803 mln bu. is a record for this date.  Soybean exports are up 15.5 percent from last year’s record pace, and they have sales on the books for another 384 mln bu. Wheat exports are up 25 percent from a year ago.

This is the time of year importers turn to South American supplies, however. How quickly they can get the crops to the ports will be important to short term price direction, as we witnessed last year. Just in time delivery is being applied to agriculture. This can cause short term spikes in price. South America’s logistics remains their Achilles heel.

Investor and speculator asset allocation will continue to be a theme throughout 2017, in my opinion. Commodities remain cheap on an historic basis, and money is likely to flow to that sector. President Trump’s proposed policies of huge tax cuts and infrastructure spending will contribute to this trend, as higher inflation becomes more likely.

Hogs and cattle are up 30 and 20 cents per pound respectively since the fall. Crude oil isn’t far from its highest level since July, 2015. Gold is up $100. per ounce since December, while copper has gained 45 percent so far this year. Even diverse futures markets like cotton, sugar and lumber are showing spectacular gains lately.

The grains haven’t been immune from this buying from outside sources either. Nor has the Canadian dollar, which is still considered a commodity currency because of our abundance of natural resources. It has rallied over 3 cents from its low late in 2016. More gains are likely if raw material prices keep firming.

Our currency is a small one by international standards. If even a small percentage of US dollars or Euros gravitates to our dollar, the effect could be relatively large. However, the threat of higher US interest rates through 2017 and poorer economic performance compared to the US may temper some of the possible gains.  

- Frank Backx, HDC Grain Marketer