Commodities Report

October 24, 2017

 

 

Close Oct 24

Oct 17

1 week change

Dec Corn

3.53

3.50

+ .03

Nov  Soybeans

9.76

9.85

- .09

Dec Wheat

4.38

4.35

+ .03

Dec Hogs

64.05

62.20

+ 1.85

Dec Cattle

119.55

116.00

+ 3.55

Cdn $

78.86

79.79

- .93

US $ Index

93.95

93.55

+ .40

Crude Oil

52.40

51.95

+ .45

Gold

1278

1287

- 9

US 10 Year Notes

124-24

125-13

- 21

TSX Stocks

15907

15805

+ 102

Once again grains were little changed over the past week, as corn, soybeans and wheat remain range-bound.  Volume and volatility have been very low, as harvest grinds on. Outside markets are also mostly flat, so there is little direction coming from there.

As of Sunday, Oct 22, only 38 percent of US corn was harvested and 70 percent of the soybeans. That lags the averages for that date of 59 and 73 percent respectively. 75 percent of winter wheat has been planted in the US, with the Kansas hard red wheat areas the furthest behind, due to too much rain.

Ontario was blessed with a beautiful week of harvest weather. This allowed many producers to finish their soybean harvest, and get winter wheat planted. Soybean yields were generally OK, but below last year’s records. The early planted winter wheat looks excellent.

The current soy to corn ratio in Chicago is 2.80 to 1, while Hensall’s board price ratio is similar at 2.83. A ratio that high usually leads to more soybean acres at the expense of corn for most producers. Brazil farmers are expected to see more than a double digit percentage acreage switch to soybeans from corn.

This should result in corn prices outperforming soybeans, in the short run at least. Also supporting this argument is that large speculators are short 171,000 corn contracts, a big number versus historical. Meanwhile, they are long 68.000 soybean contracts.  Any unwinding of these positions would benefit corn much more than soybeans.

At least there is some volatility in the Canadian dollar and basis, and finally it’s in the right direction for Ontario farmers. Our dollar peaked on Sept. 8 at 82.91, after a major 10 cent rally that started in May. We’re down 4 cents from that high, and soybean basis has added $.45 from its low of $1.35.

Sept. 8 is also exactly the date the US dollar index bottomed at .91, and it is nearly .94 now. Lately, this market has been the main driving force for our currency, as the correlation with crude oil isn’t very strong right now. The stronger US dollar usually creates headwinds for commodities in general, including grains.

A weaker US dollar then obviously would have the opposite effect. One can then conclude, generally speaking, that if Chicago prices weaken, our local basis will get stronger because the Canadian dollar should also weaken.

 

In summary, Ontario grain basis tends to go in the opposite direction of Chicago. As long as the current relationships hold, the Ontario basis will temper or offset some of what Chicago does. This makes doing basis contracts in Ontario more risky. If you do basis only, and our dollar keeps dropping, Chicago will also likely drop, and you could lose on both sides. 

- Frank Backx, HDC Grain Marketer