Commodities Report

February 6, 2018

 

 

Close Feb 5

Jan 30

1 week change

March Corn

3.64

3.62

+ .02

March Soybeans

9.86

10.00

- .14

March Wheat

4.46

4.57

- .11

June Hogs

81.40

82.90

- 1.50

June Cattle

115.85

116.05

- .20

Cdn $

79.83

81.17

- 1.34

US $ Index

89.54

89.25

+ .29

Crude Oil

63.31

64.35

- 1.04

Gold

1331

1336

- 5

US 10 Year Notes

121-20

121-21

- 1

TSX Stocks

15253

15960

- 707

Grains were mixed over the past week, with corn the strongest market. Longer term trends remain sideways. At least volatility has picked up a bit lately, but price ranges are still small compared to what it was earlier this decade.

Argentina was hot and dry for an extended period, and crop estimates there are retreating. However, a cooling trend is likely to trigger storms, which will give their crops a needed drink. Weather there remains the focus of most traders.

Every Friday, the CFTC releases who is short and long all the futures contracts outstanding. In the latest report, large speculative funds were shown to have covered 237,000 grain contracts. This is the third largest total in one week ever. No doubt that contributed to the late Jan rally, but one would have thought that amount of buying would have resulted in a larger upside move.

Commercials, aka grain companies, were willing sellers. Carry outs are very comfortable in all crops, and there is no short term threat of a shortage anywhere. Farmers remain tight holders, as current prices aren’t giving a very large return on investment.

Also contributing to the recent drop in grain prices is the weakness in the outside markets, especially stocks and bonds. In the past 8 trading sessions, the TSX stock index has wiped out all the gains it has made since mid-September. From its high on Jan 29 to todays low, the S&P in the US has lost over 12 percent of its value.

The knee jerk reaction by investors is to dump all risky assets, when a sudden shock like this hits the system. Remember 2008/09? However, a major correction in stock markets could actually be beneficial to grains, as some of that cash could find its way into commodities in general.

Short term interest rates still look like they are headed higher in North America. The low unemployment rates on both sides of the border are finally leading to wage inflation. This is obviously especially true in Ontario with the higher mandated minimum wage.

Longer term rates were also trending higher, but the stock market correction has resulted in bond rates easing again. This could be a temporary reprieve only, depending on what stocks do from here. In the big picture, the odds of interest rates increasing far outweigh the chances of rates easing, considering how low rates still are.

The Canadian dollar fell back 2 full cents from its high on Feb. 2. It has been underperforming compared to the markets that affect it the most. From the low last May/June to its recent high of 82.91 on Sept 4, the Cdn$ rose 14 %, just less than how much the US dollar index fell. However, crude oil rallied to be up 56 percent from its low in that time frame.

This tells me our dollar is intrinsically weak, which would be a positive for basis, especially in soybeans. However, new crop soybeans are getting close to that magical $12.00 again, which might not be a bad place to do a sale. It seems Ontario soybeans hit resistance at that round number.

 

Hopefully volatility will increase even more to give farmers the opportunity to sell rallies. Having open orders in the system helps to capture the excesses, should they happen. 

- Frank Backx, Hensall Co-op Grain Marketer