Commodities Report

July 11, 2017

 

Close July 11

July 3

1 week change

Dec Corn

4.14

3.96

+ .18

Nov Soybeans

10.43

9.81

+ .62

Sept Wheat

5.53

5.55

- .02

Oct Hogs

69.20

71.20

- 2.00

Oct Cattle

114.85

115.10

- .25

Cdn $

77.48

77.01

+ .47

US $ Index

95.71

95.63

+ .08

Crude Oil

45.05

46.83

- 1.78

Gold

1215

1222

- 7

US 10 Year Notes

125-05

125-04

+ 01

TSX Stocks

15112

15182

- 70

Soybeans are the new market leader, adding $1.40 per bushel since June 23. The drought that hit the Northern Plains and caused a $2.75 price spike in Minneapolis wheat futures is moving into the western grain belt, including Iowa. The two week forecast is for hot temperatures and below normal rainfall for most of the Midwest.

The magnitude of the price rise is somewhat surprising if you go strictly by the current fundamentals. The US had record soybean yields 3 years in a row, with last year’s blowing away the previous record by an amazing 8.5 percent. Brazil’s production has grown from 75 mln mt in 2010 to 114 mln for their 2017 crop, yet another record for them.

US acres are a record at 89.5 million, but the market is still concerned. The US soy carry out is expected to be 495 mln bu., the highest since 2006. If the US ends up at 4.5 bu per acre below the trend line yield of 48 bu., the ending stocks would end up at 90 mln bu., which is where it ended up after the 2012 drought. Prices hit their all-time high that year at $17.95.

One cannot entirely rule out that possibility if the current forecast extends well into August. With global warming, the Northern Plains (and Canadian Prairies) are growing more corn and soybeans. Irreparable damage has already occurred in those areas. Iowa and Illinois are by far the two largest producing states, and the forecast for them is worrisome.

As of July 9, only 65 percent of US corn was good or excellent, down 3 percent from last week, and compared to 76 percent last year at this time. Soybeans are 62 percent good/exc., down 2  from the previous week, and 71 percent a year ago. These ratings will only get worse if current weather forecasts are anywhere near accurate.

However, forecasts can change on a dime. Weather markets are fickle. Taking advantage of rallies with higher and higher priced incremental sales makes “cents” from a marketing point of view.

Fueling the stellar gains was speculative buying. They bought 67,000 corn, 42,500 soybean and 25,000 wheat contracts in 4 trading days, ending July 3. That’s 672 mln bu.!  In soybeans, they were short a record number of contracts before this $1.40 per bu rally started. Index funds are also buying corn.

Outside markets were quiet. The Canadian dollar was a bit higher, anticipating an interest rate rise on July 12. There is still gridlock in Washington. The US dollar, stocks and bonds are going nowhere. Grain prices are the largest movers, which attracts more speculative interest.

Soybeans are suddenly at a 4 month high, with grower prices back over 12.60. Corn is at a 1 year high with prices back near $5.00. Wheat seemed doomed with the huge carry outs, but is at a 2 year high in Chicago. With the decent local yields which are likely, wheat suddenly isn’t that bad a cash crop again. 2018 prices are near 7.00; a good place to reduce some price risk. 

 

- Frank Backx, HDC Grain Marketer