Commodities Report
May 1, 2018

 

Close May 1

April 24

1 week change

Dec Corn

4.20

4.06

+ .14

Nov Soybeans

10.51

10.29

+ .22

July Wheat

5.29

4.84

+ .45

June Hogs

77.90

74.85

+ 3.05

June Cattle

105.85

105.05

+ .80

Cdn $

77.90

78.03

- .13

US $ Index

92.43

90.73

+ 1.70

Crude Oil

67.45

67.80

- .35

Gold

1307

1333

- 26

US 10 Year Notes

119-13

119-10

- 3

TSX Stocks

15610

15460

+ 150

Prices were higher over the past week, with wheat showing the largest gains. This was a bit surprising, considering that wheat fundamentals are anything but bullish. The hard red wheat in the Southern Plains is in tough shape, and there are some problems in the Black Sea area and Australia.

Despite that, the world carry out (CO) is still predicted to be 271 mln mt., a new record. The US CO is expected to be 1.064 bln bu, which is down from last year’s 1.18 bln, but still the second largest ever. Demand for wheat is growing, but at a slower pace than for corn and soybeans.

Large speculative funds have been short wheat futures for the past five years, except the odd time on massive short covering. Perhaps that is what is happening again. In the latest commitment of traders report, specs were still short over 50,000 wheat contracts.

Meanwhile, spec funds are long 138,000 corn contracts and 193,000 soybean contracts, their largest ownership in years. Being short wheat when other crop prices are rising (also due to the spec buying) isn’t the right side to be on anymore, so they’re getting out.

In the past 5 years, funds had 5 bouts of short covering. Each time, prices rallied an average of $1.50. Each time, prices quickly retreated back to economic value. Each time it was a great selling opportunity for producers.  Prices are currently $1.46 above the low made last December.

Argentina bought more US soybeans in the past week. They must be short, or they wouldn’t be doing that. You’d think it would be much cheaper to buy the beans from Brazil. Perhaps the world supplies aren’t as burdensome as USDA has been telling us.

Corn prices in Chicago are at their best level since June, 2016. This attracts more buying, as many trading systems are based on longer term moving averages. The double crop corn in Brazil is in trouble, due to drought, improving world fundamentals. Demand for corn remains brisk.

The US dollar index is up nearly 4 percent in the past 2 weeks, to its best level since the start of 2018. This automatically means most other major world currencies are in decline. Usually a stronger US dollar creates headwinds for commodities.

That makes the grain rally even more impressive. Seasonally, this time of year is a high point for grain markets, as uncertainty is at its maximum just before planting. As rain falls on the newly planted seeds, prices usually retreat.

However, the US Midwest is overdue for some adverse weather. The last serious drought was in 2012, The past 4 years saw record yields, and all above trend line. Perhaps the market is building in some premium in case yields do end up being sub-par. 

- Frank Backx, Hensall Co-op Grain Marketer