February 27, 2018
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Prices were firmer again, as the Argentine drought intensified. In the Feb. 9 report, USDA put their soybean crop at 54 mln mt and their corn at 39 mln mt. One South American expert today put the Argentine soybean crop at 47 and corn at 37 mln mt.. Unless rainfall occurs soon, he feels the losses will only get worse.
USDA pegged the world soybean carryout at 98.14 mln mt., which would be a record. A year ago, it was 96.49, but with the Argentine losses, it will probably end up closer to 90 mln mt. That is still not a tight scenario. However, it does make US acres and weather more critical, so markets are building in more risk premium.
It is interesting that soybeans bottomed on Jan 12, right after a bearish USDA report. The markets pulled back into a very bearish USDA report on Feb 9, only to see the markets explode higher immediately thereafter. Prices are now up $1.05 per bushel since the Jan 12 low, to their best levels in 13 months, despite all the bearish news from USDA.
Corn is up 23 cents over the same time frame, while wheat has added 50 cents/bushel. This at least gives producers a better opportunity to cover their cost of production, which seems to always be a one way street. Putting in flat price open orders above the market is the easiest way to capture the better prices.
US hard red wheat areas are in serious drought. Kansas is only 12 percent good/excellent, while Okla. is only 4 percent. A year ago, they were both 43 percent. This is pulling up soft red wheat prices also, even though that class of wheat is in decent shape and is used for a different purpose.
Large spec traders have been huge contributors to the recent price rise. In the latest weekly report, they purchased 32,000 corn contracts to be long 43,000 now. In soybeans, they bought 54,700 to be long 65,800 now. These aren’t extreme level s of ownership, but they were short 220,000 corn and 100,000 soy contracts before the rally started on Jan 12.
February wasn’t favourable for the Canadian dollar, which is at its worst level since before Christmas. This is a nice gift to crop and livestock producers. The 3 ¼ cent drop since the start of February added 45 cents to the old crop soybean basis, while corn and wheat basis both added 17 cents.
That helped make February the best month for Ontario grain prices since last summer’s surprise brief rally. Keep in mind that rally faded very quickly, which often seems to be the case with grain prices. It always seems prices drop more easily than go up with ease.
Stock markets have been on a wild roller coaster ride of late. In 7 trading days from Jan 29 to Feb 6, the S & P index in the US dropped 12 percent. Since that, it has gained 10 percent of that back. Volatility is extreme, which isn’t unusual when a market trades at such lofty levels. ♦
- Frank Backx, Hensall Co-op Grain Marketer