Commodities Report

October 17, 2017

 

Close Oct 17

Oct 10

1 week change

Dec Corn

3.50

3.49

+ .01

Nov Soybeans

9.85

9.66

+ .19

Dec Wheat

4.35

4.48

- .13

Dec Hogs

62.20

61.55

+ .65

Dec Cattle

116.00

118.80

- 2.80

Cdn $

79.79

80.01

- .22

US $ Index

93.55

93.24

+ .31

Crude Oil

51.95

50.85

+ 1.10

Gold

1287

1292

-5

US 10 Year Notes

125-13

125-08

+ 5

TSX Stocks

15805

15786

+19

The biggest influence on grain prices over the past week was the monthly USDA crop report, issued Oct 12.  The soybean numbers were a bit on the friendly side, while corn was neutral, and wheat was a tad negative. Prices traded accordingly.

The corn yield at 171.8 bu/ac. was raised 1.8 bu., which was more than expected. However harvested acres were reduced 400,000. Feed usage was also raised 25 mln bu. The net result was that the carry out (CO) was raised a minor 5 mln bu. to 2.340 bln.

The soybean yield was lowered to 49.5 bu, down .4 from last month. However, this was offset by harvested acres rising 800,000. The 45 mln bu decrease in the CO to 430 mln bu was due almost entirely to the drop in old crop stocks of 44 mln bu from the stocks report on Sept. 30.

USDA reduced US wheat for feed by 30 mln bu, which caused an increase in the CO to 960 mln bu., which was above what traders expected. World wheat stocks were also raised 5 mln mt., on increases in Russia, the EU, and India. There is lots of wheat globally.

Despite the record US soybean crop expected, prices have rallied 80 cents/bu since Aug 21. Eventually all the bearish news gets built into the price. The markets have had to deal with bearish production estimates from USDA all summer, yet prices refused to make new lows.

All grains are near long term support, and below the cost of production for many producers around the world. The function of price is to match demand with supply and allocate resources. Carry outs are very high by historical standards, but lower prices likely wouldn’t increase demand by much.

Open markets are not meant to result in most producers’ consistently losing money either. The cost of seed, fertilizer, chemicals, equipment and land has increased dramatically in the past 10 years.     Agribusiness needs farmers to make money, so they too can be profitable.  This would add wealth to agriculture and the overall economy and cause some inflation which governments and central bankers would welcome.

The four to five year cycle in corn and soybeans is due for a low. The big bull market started in 2007 and topped in 2012. The current bear market has been in place since then, and is getting a little long in the tooth by historical standards.  Perhaps long term traders are positioning themselves here.

South America weather hasn’t been ideal for soybean planting. That has likely supported soybeans. Some think La Nina will return this winter. There is a correlation between La Nina and dryness in Brazil and Argentina. A serious drought there could cause an explosion in price, as demand remains at record levels.

All eyes will be on the skies in South America over the next five months. 

- Frank Backx, HDC Grain Marketer