February 16, 2016
Close Feb 16
2 week change
US $ Index
US 10 Year Notes
Grains lost some ground over the past two weeks in relatively quiet trade, especially when compared to the volatility in many other markets. The news was more negative than positive, so the stability can be viewed as a minor victory for the bulls.
In their latest monthly demand/supply report, USDA raised the corn, soybean and wheat carry outs by 35, 10 and 25 million bu., respectively. The added ending stocks were due to reduced exports for all three commodities, which can be tied directly to the strength in the US dollar over the past few years. US wheat exports are the slowest since 1971/72.
South American weather has improved, with harvest progressing in the northern and interior areas. USDA raised Argentina’s corn and soybean crops 1.4 and 1.5 mln mt, and Brazil’s corn crop 2.5 mln mt. Most of Brazil’s corn is safrinha, or double crop corn, and is being planted now after the soybeans come off.
The CFTC report last Friday showed speculators added 50,000 contracts to their already large short position in corn, and added 44,000 in soybeans and 29,000 in wheat. Grain prices need a spark to get the inevitable short covering started, and seasonally grain prices often show some strength into early spring. However, the large carryovers will be a buffer against any adverse weather.
Since my last report two weeks ago, crude dipped to a 13 year low of 26.12, before rallying over 20 percent to 31.53 within 2 trading days. US bond and note futures have risen sharply the past 2 weeks, verifying the deflation that is rampant around the world. US 10 year notes traded at a yield of 1.55 percent. The only time yields were lower was in 2012 and 2013.
The US dollar index lost some ground, although it is still minor compared to how much it rose in the past two years. The US would obviously like a lower dollar to help exports, manufacturing etc. Their national debt broke $19 trillion recently, which is 19,000 billion, an unfathomable number. Nearly all countries in the world continue to borrow to meet their obligations. .
Europe is no exception. German banks are starting to crack under the weight of the European Union debt they are carrying. Germany has the added problem of the million people who emigrated there in the past year. It will be harder for them to get out of the deflationary spiral they are in.
The Canadian dollar also fluctuated widely. On some days, it went opposite to crude oil movements, as it seemed to react inversely to the US dollar index on those days. Crude and our dollar will likely remain range bound over the short run, so basis should be more stable going into the spring. ♦
- Frank Backx, HDC Grain Marketer