June 28, 2016
1 week change
US $ Index
US 10 Year Notes
The inevitable correction occurred in the last week. Some rain in the dry areas dampened futures. The vote by Britain to exit the EU caused liquidation in many markets, including grains. A new level of uncertainty has been added to the political and economic landscape.
Since June 13, Nov. soybean futures gave back $1.14 or 36 percent of the $3.18 it gained since early spring. Corn suddenly lost $.66 of the $.85 it gained since it bottomed April 1. Wheat still can’t get anything going, and isn’t very far from making a new six year low.
There has been some recovery again in price, however, as I write this, especially in soybeans. This makes it look like perhaps there was an overreaction to Brexit? US corn crop is still 75 % good/excellent (68 last year). Soybeans are at 72 %, (63 a year ago), which makes this recovery more surprising.
The divergence in crop prices is extreme in both magnitude and duration. Soybeans are by far the strongest, as demand is exceeding expectations. Local corn prices did break over $5.00 for both old and new crop, which should work for most farmers if yields are decent. Wheat delivered to Hensall elevators at harvest only carries a miniscule 10 cent premium to harvest delivery corn now.
Weather also seems more diverse than ever, even in a small region. Dryness seems to be expanding into more and more areas. July and August weather has the largest impact on final yields. Volatility will be extreme over the next two months.
Ontario is much the same as the US. Rains will be needed soon to prevent yield loss in many of the main growing areas, including the southwest and eastern regions. Unfortunately, rainfall looks light over the next two weeks, but heat is not expected to be extreme either.
USDA will update corn and soybean acreage as well as June 1 stocks in their June 30 report. Large price swings are often associated with this report. Most think soybeans took about 1 million acres from corn compared to their preliminary estimate on March 31, because of the stronger soybean price.
Not surprisingly, the Brexit caused the US dollar to firm again, putting a damper on commodities in general. Stock markets also fell hard, with the US S&P suddenly at its lowest level since March. Already other countries are discussing holding referendums of their own. It appears we are only at chapter one of this story.
The stronger US dollar and weaker crude oil allowed our dollar to fall nearly two cents, and closer to the critical support at $.76. A close below that level would likely open up further downside action. Soybean basis tacked on $.30 in the past week. Corn added .03 and wheat basis was steady at only $.35 over July. ♦
- Frank Backx, HDC Grain Marketer