March 15, 2016
Close March 15
4 week change
US $ Index
US 10 Year Notes
Grains improved moderately since my last report 4 weeks ago. While trends are still sideways, soybeans did manage to trade at their best level since Dec 21, while wheat traded at a new 6 week high. There are still layers of resistance overhead, however, that can easily stall this minor rally.
In their latest demand/supply report, USDA left corn and wheat carry outs unchanged, while the raised the soybean ending stocks by a minor 10 mln bu. Meanwhile the soybean harvest in Brazil is over half done, with estimates of the crop size increasing there.
US export sales of soybeans have actually increased counter seasonally of late, despite Brazil’s harvest pace. Brazil’s logistics are still a nightmare, with 160 boats waiting to load. Their situation is being made worse because they are growing so much more corn now, which they are also trying to export.
It appears North America may have an early spring, after the very mild winter. It is interesting that the US’s fastest planting pace was in 2012, when over half their corn was planted before the end of April. The market fell to the end of May, but then rallied $2.90 to its all-time high of 8.44 by August due to drought. The US yield that year was 123.1 bu/ac.
Speculators are short a near record number of crop futures. They have started to cover some of their short in soybeans, and will surely follow in corn and wheat. This should be price supportive, at least for the short run. When the specs started buying in late May last year, corn rose $.96 and soybeans rallied $1.39 by August.
The action was much wilder in the crude oil market. After bottoming at a 12 year low of just over $26 per barrel on Feb 8, prices exploded higher by nearly 50 percent to over 39 by March 11. However, that’s still a long ways from the high of 105 only 2 years ago.
The Canadian dollar pretty much tracked crude’s movements, rising from 68.09 to 75.95 over roughly the same short time period. This dropped Hensall’s soybean elevator basis from $3.40 over March to 2.50 over May now. The less volatile corn basis fell from 1.10 over Mar. to .82 over May now.
The negative correlation between Ontario basis and Chicago seems to be more consistent. This is because our dollar is a commodity currency, so rises when commodities rise. The other reason is that when Chicago rises, crop farmers sell more. End users get covered on more of their needs, so they drop their bids.
With basis more volatile than Chicago lately, flat price sales may be the best way to go. If you do one side only and guess wrong on either Chicago or basis, you could easily get a double whammy. Selling your crop at higher and higher flat price increments is one less stressful marketing strategy.
Deflation is still very much still with us. Anytime corn has a $5 in front of it, and soybeans a $12, for any crop year that offers it, it may be prudent to grab some of that. Putting open offers in with your grain buyer will help you capture any unexpected rallies. You can never go broke making a profit! ♦
- Frank Backx, HDC Grain Marketer