Commodities Report
May 22, 2018

 

 

Close May 22

May 15

1 week change

Dec Corn

4.23

4.19

+ .04

Nov Soybeans

10.39

10.25

+ .14

July Wheat

5.21

4.93

+ .28

June Hogs

73.15

74.75

- 1.60

June Cattle

104.95

103.00

+ 1.95

Cdn $

78.14

77.78

+ .36

US $ Index

93.62

93.29

+ .33

Crude Oil

72.26

71.20

+ 1.06

Gold

1292

1288

+ 4

US 10 Year Notes

118-26

118-18

+ 8

TSX Stocks

16192

16103

+ 89

 

Prices were firmer over the past week. Planting proceeded normally overall in the US. Reduced trade frictions with China added support to soybeans. Soybeans had been the weakest performer in the crop markets lately, but popped on the China news.

As of Sunday May 20, 81 percent of the corn was planted, right on normal for that date. Soybeans were 56 percent in the ground, well ahead of the usual 44 percent for May 20. Some wetter weather is predicted, so the rapid planting pace may slow now.

Last weekend, it was announced that there was a breakthrough in the trade disputes with China. Apparently China said they would buy more US ag products, including soybeans. Perhaps USDA knew that when they reported last week that US soybean exports for the 2018/19 crop would jump 11 percent this year compared to this past year.

In my previous article I surmised some of the strength in crop prices could be related to the fact we seem to be transitioning to a more inflationary environment. Another factor, and tied to this, is the fact the cost of producing a crop has increased dramatically in the 10 years since the economic meltdown.

The cost of basic inputs keeps going up. A bag of corn seed can now exceed $300.00, which won’t even plant 3 acres. Fertilizer and chemicals are up huge as well. Machinery costs have escalated dramatically, while land prices have been a one way street in the last decade.

Current producer prices in many areas of the US growing regions are barely profitable, especially those further away from the export network. This includes the Northern Plains. Admittedly, higher yields help to reduce the cost per bushel, but those areas usually have lower yields also.

Technically, looking at the longer term picture, prices are still nearer their lows than highs. Corn in Chicago hit a high of $8.44/bu. and a low of 2.97 since 2009. Current nearby prices at 4.06 are 3.38 from their 9 year high and only 1.09 from its low.

Soybeans hit their all-time high of 17.95 in Sept. 2012. Their low in the past 9 years was 8.49 in March, 2016. Nearby July futures are 10.34 now. So prices are 7.61 off their high, but only 1.85 from their 9 year low.

In Feb, 2008 wheat hit its record of 13.34. Its low since that was 3.60 in Aug., 2016. At 5.28 now, we are 9.74 off the record high, but only 1.68 from its 10 year low. 

None of this means prices have to go up from here, but it does show that there is likely more upside potential than downside risk from current levels. Some think the current fundamentals don’t justify where prices are today. But you can’t argue with the tape.

Ag business is a huge sector, and needs farmers to show a profit, so they too can be profitable. Price is the variable that can make that happen, as yield is up to Mother Nature. Prices cannot go back to where they were prior to 2007, which is when the bull market in grains started.

Funds have been huge buyers, as some are hoping to get on the inflation bandwagon in its early stages.  Prior to some small selling in the past week, large speculators were the longest they have been in crop futures since July 2015. This has helped prices, obviously, but could create headwinds if they get too long. 

- Frank Backx, Hensall Co-op Grain Marketer