February 13, 2018
Close Feb 13
1 week change
US $ Index
US 10 Year Notes
Grains were firmer over the past week, as growing conditions worsened in Argentina. Forecasted rains failed to materialize, worsening the drought conditions right when most beans are flowering and setting pods. USDA did lower Argentina’s soybean crop 2 mln mt in their latest report, but losses are intensifying there now.
Also in their monthly report on Feb 8, USDA lowered the projected corn carryout (CO) by 125 mln bu., which was by more than traders thought. This was because exports were raised by that same amount. Exports have been booming lately, and are the highest for this time of year in 23 years.
The soybean CO was raised more than expected to 530 mln bu, compared to 470 mln predicted last month. Keep in mind USDA has grossly overstated the US soybean CO almost every year in the past 15, so traders took it with a grain of salt, and prices actually firmed.
The US wheat CO was raised a minor 20 mln bu., but is back over the 1 bln bu mark, which is very high by historical standards. The Southern Plains hard red wheat areas are still under severe drought conditions, so this number will likely fall also.
World wheat and corn CO’s were lowered from last month, while soybeans were left unchanged. Brazil’s soybean crop was raised 2 mln mt., offsetting the 2 mln mt drop in Argentina. Argentina’s corn crop was dropped 3 mln mt, while Brazil’s was left unchanged at 95 mln mt. Some have Brazil’s corn estimate as low as 88 mln mt.
South American weather will still be the markets focus for the next 4 to 6 weeks. Soybean meal has been the leader and is up nearly 20 percent since January 12. That’s because Argentina is the world’s largest soymeal exporter. One should watch soymeal to identify a possible reversal of the recent uptrend in grain prices.
Short and longer term interest rates keep rising, as the threat of inflation appears to be increasing. This is likely one of the main reasons stock markets had their largest correction in years. The Toronto TSX index dropped nearly 10 percent from its high on Jan 22. That wiped out all the gains since November, 2016.
Crude oil was sharply lower over the past week, as US fracking rigs increased again in response to the recent higher prices. Metals, livestock and other commodities were also in retreat. However, the drops can be viewed as bull market corrections as opposed to new bear markets, perhaps keeping the higher inflation arguments intact. ♦
- Frank Backx, Hensall Co-op Grain Marketer