Commodities Report

2017 Year End Review

 

 

Close Dec 31, 2017

Dec 31, 2016

1 year change

Corn

3.51

3.52

- .01

Soybeans

9.62

9.97

- .35

Wheat

4.27

4.08

+ .19

Hogs

71.80

66.15

+ 5.65

Cattle

121.55

116.05

+ 5.50

Cdn $

79.90

74.42

+ 5.48

US $ Index

92.29

102.21

- 9.92

Crude Oil

60.42

53.72

+ 6.70

Gold

1309

1152

+ 157

US 10 Year Notes

124-02

124-10

- 8

TSX Stocks

16209

15402

+ 807

Grains were lightly mixed over the course of 2017, with wheat higher, soybeans lower and corn about unchanged.  The crop sector was one of the worst performing commodity sectors. You can see from the chart that livestock, metals and energies were all higher. The main reason was likely the weaker US dollar index, which fell 10.7 percent over the year.

Grains were obviously held back by the size of the US crops. Despite a less than ideal spring, and crop ratings well below a year ago during the entire growing season, the US still achieved their largest corn yield ever, and the second highest soybean yield in history.

Also not helping grains is that large speculators hold a record combined short position in the 3 main crops. These trend following traders had little reason to exit their positions, except for a brief rally from late June into early July. The record short position should be price supportive into 2018.

I would argue that the biggest ag story of 2017 for Ontario and North America was the September and October weather. The spring wasn’t perfect in many areas due to too much rain during the important planting season. August was cooler than normal, and there was a risk the crops might not make it if there was an early frost.

September and October saw temperatures well above normal, with timely rains in most areas. This allowed crops to add bushels and reach maturity with overall decent quality. The harvest period went smoothly for most producers, and yields, while highly variable, were generally above expectations and average.

The other big news story was the mergers that occurred in ag business. Monsanto and Bayer, Dupont and Dow, Syngenta and Chem China and Agrium and Potash will seriously reduce competition. These developments are unlikely to be beneficial to crop producers.

Ontario cash grain prices fell more than Chicago as our dollar rallied 5 ½ cents or over 7 percent, during 2017. A year ago Hensall’s old and new crop corn elevator basis were $.70 and .90; today they’re both at .60. Soybean basis was $2.70 for both old and new crop soybeans at Dec 31, 2016. Today we’re at 1.65 and 1.80. Interestingly, new crop wheat basis is actually 15 cents higher than a year ago.

The feeling out there that crop prices are much worse than last year has more to do with our dollar and basis than with what happened in Chicago. Input prices rarely seem to get cheaper, and with all the mergers and acquisitions already mentioned, this is unlikely to change.

The biggest newsmaker outside of ag had to be Donald Trump. Despite all his rhetoric, which garnered the most press, the US economy actually did very well in 2017. Their stock markets saw huge gains of over 20 percent. Because of the dominance of resource stocks in Canada, the TSX gained only 5 percent.

North American central banks raised short term interest rates a couple times, but longer term rates were pretty much unchanged over the year. Technological advancements are keeping a lid on inflation. Wage inflation still isn’t a factor, but that could change in 2018.

 

My hope is that grain prices improve in 2018, and I wish my readers good health, peace and joy in the new year. 

- Frank Backx, Hensall Co-op Grain Marketer