July 21, 2015
Close July 21
2 week change
US $ Index
US 10 Year Notes
Negative signs dominated the attached commodity table, with only the US $ Index and soybeans showing gains. Deflation still dominates the commodity board. Corn and wheat joined the parade to lower values, as wheat harvest progressed in the US and weather improved for corn pollination. Soybeans are “made” in August.
The wettest areas are finally drying out. Some damage is irreversible, but as of July 19, USDA still thinks 69 percent of US corn is good or excellent, while for soybeans it is 62 percent. A year ago, these crops were 76 and 73 percent good/exc. Many still think trend line yields are possible, as the western grain belt makes up for losses in the east.
Weather forecasts are mostly benign for the balance of July, except for some extreme heat in the southern growing areas. Moderate temperatures, along with periodic rainfall, is likely for the major growing areas of the Midwest. This fortunately applies to Ontario also.
Speculators were the main contributors to the recent Chicago rally. In five weeks, they bought 340,000 corn contracts, or 1.7 billion bu., going from short 140,000 contracts to long 200,000 now. They are also long 85,000 soybean contracts after being short a record 104,000 at the end of May. Now it appears they are dumping some of their recent purchases.
The positive news for Ontario crop farmers was the acceleration of the Canadian dollar downtrend. This tacked another 30 cents to the new crop soybean basis and 10 cents to corn and wheat in the past 2 weeks. The Bank of Canada dropped the bank rate another ¼ point to .5 percent due to a slowing economy. The Cdn $ is at a 6 year low, and very close to its lowest value since 2004.
The interest rate cut achieved its intended effect, which was to drop our currency, to create demand for our exports. The effect on market rates was minuscule, as banks dropped their primes .15 percent. The election this fall may also have had something to do with the rate drop. The US is poised to raise their rates before the end of the year, so it is likely our dollar will remain under pressure.
A weaker dollar is a two-edged sword, however, as input prices will also firm, as they are priced in US dollars around the world. This is also affecting South American farmers. Some think fertilizer use there could be down 20 percent, as prices rise, and especially if crop prices don’t improve. Corn acres are likely to drop, due to their higher fertilizer requirements.
Crude oil, copper gold and many other commodities eased, so there is little help from the outside markets for grain prices, The US $ index remains firm, as only a bigger band-aid was put on the Greece debt problem. The TSX (Toronto stock exchange index) fell as foreigners dumped Canadian stocks and bonds, perhaps to avoid currency risk. ♦
- Frank Backx, HDC Grain Marketer