July 26, 2016
Close July 26
2 week change
US $ Index
US 10 Year Notes
Soybeans were again the weakest market. They went up the most, so had the greatest likelihood to drop by more, once the inevitable correction started. The correlation with fund activity remains very strong, and can override fundamentals from time to time.
Speculators have been a huge factor in the soybean market in 2016. Heading into early spring, they were short over 80,000 contracts. Reduced South American supplies and worries about La Nina gave them the incentive to start buying. They ended up long 215,000 contracts when the market peaked in June, resulting in the $3.60 gain in futures during their buying spree.
Now the specs are heading for the exits, as weather has turned out better than expected. Unfortunately, the exit door wasn’t wide enough for them to liquidate gracefully, so prices have fallen $2.29 since the high price in mid-June. The scary thing is they are still long 125,000 contracts.
I suggested to a respected analyst/trader that funds seem to be the biggest influence on price anymore. While he agrees their influence is growing, demand/supply will always come to the top. He said the volatility only creates opportunities for his clients. I have to agree with that.
He sees the funds as just another player sitting at the poker table, bringing new chips into play. So the bets get bigger, as do the swings in price. There is no doubt that Ontario soybean prices would never have hit $14.00 in June, except for the speculative buying. So they do create opportunity.
US corn is still rated 76 percent good or excellent; a year ago it was only 70. Soybeans are at 71 percent versus only 62 last year. Traders had expected a drop in ratings. Weather forecasts look favorable into the first part of August. Odds of a record corn and soybean yield are increasing. The first surveyed yield estimates will be released August 12.
Ontario’s crops are highly variable. Heat and humidity has been extreme in Ontario. Areas lacking in moisture are hurting, but those with adequate moisture are looking at very good crops. August weather will still have a huge influence on final yields, especially in soybeans.
The Canadian dollar fell to a four month low on weakness in the crude oil market, which has dropped $9.00 per barrel since early June. Deflation is still more of a concern than inflation for most central banks and governments. It is unlikely the US will raise interest rates at their upcoming meeting.
The increasing attacks on innocent people is having a negative impact psychologically and economically. Fear is a stronger emotion with many people now. Tourism is down, especially in Europe. Political uncertainty is increasing with the US election getting closer. These could both be headwinds to stronger world growth. Despite that, stock markets continue to outperform most other asset classes. ♦
- Frank Backx, HDC Grain Marketer