Commodities Report

June 20, 2017

 

Close June 20

June 6

2 week change

Dec Corn

3.88

3.96

- .08

Nov Soybeans

9.39

9.32

+ .07

July Wheat

4.72

4.35

+ .37

Oct Hogs

69.70

67.85

+ 1.85

Oct Cattle

113.50

119.05

- 5.55

Cdn $

75.56

74.36

+ 1.20

US $ Index

97.16

97.27

- .11

Crude Oil

43.58

48.17

- 4.59

Gold

1244

1296

- 52

US 10 Year Notes

126-22

126-27

- 5

TSX Stocks

15153

15477

- 324

 

Everyone knows the fundamentals on the grains aren’t bullish. In their June 9 report, USDA put the 2017/18 ending stocks to usage ratios at 14.8 percent for corn, 11.7 for soybeans and 42.2 percent for wheat. What is surprising is that the wheat carry out versus usage is by far the worst, yet wheat is now showing the most strength.

This is being led by Minneapolis spring wheat futures. Since May 16, prices have gone from $5.38 to 6.57 in the July contract, for a gain of 22 percent in just 5 weeks. This is because of dry weather in the Northern Plains, especially the Dakotas.

The spring wheat strength has finally spilled over to the Chicago winter wheat futures. The hard red spring wheat is primarily used to make bread, while the soft red and white winter wheats are used in cakes, pastries, biscuits and cereals. The latter two are the main classes of wheat grown in Ontario. With harvest only 4 to 6 weeks away, this bump in price is most welcome by local farmers.

In their latest weekly crop progress report, US corn was rated 67 percent good or excellent, unchanged from last week, but well below the 75 percent last year. Soybeans gained 1 percent to 67 in the top 2 categories, versus 73 a year ago. Spring wheat is now only 41 percent good/exc, compared to 76 percent in 2016.

Weather across North America seems more erratic and sporadic than ever. Highly variable amounts of precipitation occur even in a small area. It seems meteorologists are struggling with the unpredictability also, as even short range forecasts are constantly changing in terms of temperature and rainfall. It seems long range forecasts are a guess at best.

Corn has dropped $.15 so far this week after Friday’s report showed large speculators bought back 106,000 of their short futures position in the latest week, to be short only 65,000 now. One would have thought that that volume of buying should have caused more of a rally than it did. There is now less potential buying from this source.

In their June 9 report, USDA raised Brazil’s soybean crop estimate by 2.4 mln mt., and the market didn’t even react. I viewed that as a positive, but prices are now back below where they were right after the report. Midwest weather will determine price direction for the next 3 months.

Outside markets aren’t helping grains either. Crude oil has dropped another 17 percent since May 25, as US keeps adding drilling rigs. Seasonally crude is usually strong this time of year, as people drive more, but inventories keep growing. Cattle, metals and soft commodities were also under pressure.

The US did raise interest rates 25 basis points, as expected. The Bank of Canada hinted they will also be raising rates soon, which is a change in position for them. North America economic growth remains uneven, with the labor markets strong, but housing is weak. Further US interest rate hikes are becoming less likely. The Canadian dollar strength is impressive considering crude oil’s steep slide.  

 

- Frank Backx, HDC Grain Marketer