Commodities Report

July 25, 2017

 

Close July 25

July 18

1 week change

Dec Corn

3.82

3.91

- .09

Nov Soybeans

9.93

10.02

- .09

Sept Wheat

4.74

5.04

- .30

Oct Hogs

66.85

67.90

- 1.05

Oct Cattle

112.80

116.90

- 4.10

Cdn $

79.98

79.26

+ .72

US $ Index

94.06

95.63

- 1.57

Crude Oil

47.88

46.59

+ 1.29

Gold

1250

1243

+ 7

US 10 Year Notes

125-19

126-03

- 16

TSX Stocks

15209

15139

+ 70

 

Soybeans, corn and wheat lost ground over the past week, in continued volatile trade. While there are still some dry areas, recent rains have alleviated drought stress in other key areas. As it is in Ontario, some areas are getting dry, while others wish the tap would turn off for a while.

Action today (July 25) was very disappointing. USDA released their crop ratings yesterday, and conditions deteriorated more than expected. Corn is 62 percent good or excellent (g/e), down 2 percent from last week, and compared to 76 percent last year, when the US had record yields.

Soybeans lost another 4 percent out of g/e, to be at 57 percent, versus 71 last year at this time. Despite the much larger drop in ratings than expected, soybeans surprisingly dropped $.43 off its daily high the day after the report.

Much of the corn in the US is in the key silking stage, and temperatures are expected to be below normal for the next two weeks, which is beneficial for pollination. 69 percent of US soybeans are flowering, while 29 percent are setting pods. August is the key month for soybeans.

The August 10 USDA report will be interesting, as it is the first surveyed estimate of yield. Most think corn will be in the lower 160’s, compared to 170.7 last year. Soybean yields are expected to be 46 bu/ac., versus the record of 52.1 set last year.

That will tighten up the balance sheets on both commodities, but with the large carry outs from the previous years, there will not be an acute shortage either. The weather the next two months will still have the largest say in where everything ends up.

At the start of 2017, I thought the US stock market would come down and some of those dollars would gravitate to commodities and be a supporting influence to grain prices. So far, that hasn’t happened. The S&P 500 is up over 11 percent so far this year, while the Nasdaq index, which includes more technology stocks, is up a whopping 22 percent.

Meanwhile Dec corn is up only 5 cents since the start of the year, while Nov. soybeans have added only 16 cents. Our dollar is up 5.5 cents so far in 2017, so Ontario cash grain prices are actually lower than what they were at the start of the year.

People with savings need to park the money somewhere, and obviously the stock market is still the preferred place. Interest rates remain low, and many solid companies are paying higher dividends than the yield on bonds.

Corporate earnings have been strong, despite the fact the economy is growing slowly. Rather than investing the profits into capital expenditures like new plants or equipment, or hiring more people, they are hoarding the cash. US corporations are currently sitting on nearly $2 trillion in cash, much of it overseas.

Many companies are buying back their own shares, which usually causes the price of those shares to rise. Company executives don’t mind, as many get a portion of their compensation via shares.

The trend is your friend, so as long as it’s up, money will keep flowing into that asset class. However, since the lows after the 2008 meltdown, the S&P is up 371 percent, while the Nasdaq is now worth 5.8 times what it was at its 2008 low.

 

Commodities are relatively cheap as an asset class, and eventually dollars should flow to that sector from the high priced stock market. That’s my story, and I’m sticking to it. I’m just not sure on the timing! 

- Frank Backx, HDC Grain Marketer