Commodities Report
May 29, 2018

 

 

Close May 29

May 22

1 week change

Dec Corn

4.19

4.23

- .04

Nov Soybeans

10.43

10.39

+ .04

July Wheat

5.36

5.21

+ .15

June Hogs

75.50

73.15

+ 2.35

June Cattle

103.40

104.95

- 1.55

Cdn $

76.84

78.14

- 1.30

US $ Index

94.84

93.62

+ 1.22

Crude Oil

66.63

72.26

- 5.63

Gold

1300

1292

+ 8

US 10 Year Notes

120-26

118-26

+ 2-00

TSX Stocks

15945

16192

- 247

 

Grains were mostly firmer over the past week, extending the rally that started about 2 months ago. Wheat has been the star performer, rising 90 cents in that period. Corn has added 37 cents. Soybeans have been more choppy and trending sideways, but have suddenly added 58 cents since May 17 before today’s drop.

The strength is surprising to many in the trade, especially those that trade on fundamentals. Planting is going fairly normally in the US. The US is likely sitting on record corn and soybean supplies for this time of year, assuming USDA’s March 29 stocks report was accurate. It’s interesting that is when this 2 month rally started.

Normally a stronger US dollar hurts commodities in general, including grains. When grains were bottoming 2 months ago, the US dollar index was $.89. Today it hit .95, for a 6.7 percent gain. That’s a big move for that market and puts it at its best level since last November.

Crude oil has been very strong, going from $57/barrel in Feb to nearly $73 lately. However, the bull run is now seriously derailed. One week ago, it traded at 72.90. Today, it traded under 66, for a 9.5 percent loss in value in a week. Despite this drop, grain prices held respectably.

Weather is likely a factor in the performance of grain prices. The drought that hit Southern Plains wheat areas has expanded to include many of the southwest US states. They are not large soybean or corn areas, but it has pushed cotton prices to a 4 year high. The worry is if the drought conditions move into the Midwest.

It is hard to kill a crop in May, but the recent heat wave set new May records for many locations. Some risk premium is being added to price. China is apt to buy more soybeans than ever from the US.

Another item China is buying more of from the US is crude oil. Some think they may have purchased 16 mln barrels for June alone. Crude is another commodity that they need to import in a big way, so why not buy from the US to try to appease Trump and correct the trade imbalance?

In world news, Italy is falling into a financial crisis. Bond yields are rising, as their debt as a percentage of GDP is very high. There is talk they might leave the European Union. This has the Euro trading at its lowest point since last July, and largely explains the recent strength in the US $ index. Spain is in a similar position.

It appears the high levels of debt many governments are carrying and still adding to is coming back to haunt them. I mentioned Argentina last time, and Brazil is struggling also if you look at their real, which is down 19 percent since January. Hopefully this doesn’t turn into a contagion.

The Canadian dollar has lost 3 cents since mid-April. This has added 50 cents to new crop soybean basis, and puts prices over $13.00. New corn basis only added a nickel, with harvest prices exceeding $5.00. Harvest wheat exceeds $6.50. So far, things are fine in Ontario crop land, at least pricewise. 

- Frank Backx, Hensall Co-op Grain Marketer