Commodities Report

August 1, 2017

 

 

Close Aug 1

July 25

1 week change

1 month change

Dec Corn

3.77

3.82

- .05

- .15

Nov Soybeans

9.72

9.93

-.21

+ .17

Sept Wheat

4.61

4.74

- .13

- .65

Oct Hogs

64.40

66.85

- 2.45

- 6.05

Oct Cattle

112.70

112.80

- .10

- 2.50

Cdn $

79.90

79.98

- .08

+ 2.66

US $ Index

93.03

94.06

- 1.03

- 2.59

Crude Oil

4917

47.88

+ 1.29

+ 2.88

Gold

1273

1250

+ 23

+ 31

US 10 Year Notes

125-27

125-19

+ 8

+ 11

TSX Stocks

15206

15209

- 3

- 24

Grains were weaker over the past week, with bigger drops lately as forecasts have turned cooler, with some rain being added. Prices were mixed over the past month, with only soybeans higher since July 1. See the attached chart. Wheat took a big hit in July after a strong June.

US corn is 61 percent good or excellent (g/e), down 1 from last week and compared to 76 percent a year ago. Soybeans are 59 percent g/e, + 2 percent and versus 72 last year. US spring wheat fell another 2 % from g/e to 31 percent, the lowest ever for this week.

Grain markets are nervous about the USDA crop report on August 10. This will be the first surveyed estimate of yield. There are often big price moves immediately following the report. August weather can still change final yields more in soybeans than in corn.

Most think the soybean yield will be in the 46 bu range, well below the 52.1 last year. However, with the record planted acres and the largest carry out in 10 years, things would still be comfortable. Plus, South American farmers still prefer to grow soybeans.

The latest one to two week forecast calls for cooler temperatures with more rainfall. This will obviously add bushels to both corn and soybeans. However, the forecasts have flip-flopped so many times this spring and summer that you can’t take that to the bank…yet

The Canadian dollar traded to a fresh two year high. During July, wheat and corn basis fell 15 cents, while soybean basis dropped 30 cents.  The Fed didn’t raise US interest rates at their July meeting, citing low inflation. Interest rates respond more to inflation levels than anything else.

Deflation is still more of a concern to governments and central banks than inflation. There is still fallout and hangover from the 2008/09 meltdown. Governments added serious debt to revive the economy. None of it has been paid back. In fact they just keep adding more debt.

Another factor adding to deflationary pressure is technology, as machines and information make most things more efficient. Take energy for an example. Crude and natural gas prices are staying subdued as the US is becoming more self-sufficient through fracking. Energy is a key item in the cost of production of nearly everything.

Another good example is agriculture. Better agronomic practices, precision agriculture, better genetics and more scientific knowledge are huge contributors to the higher yields the world has experienced over the past number of years. Without these improvements, grain prices would certainly be higher than they are.

It is interesting that the 5 largest companies in the world by market capitalization now are all US based technology companies. Apple, Amazon, Alphabet (aka Google) , Microsoft and Facebook make up fully 13 percent of the total value of the S&P index. To say technology and information are gaining in importance is an understatement. 

- Frank Backx, HDC Grain Marketer