Commodities Report
June 19, 2018

 

 

Close June 19

June 12

1 week change

Dec Corn

3.76

3.98

- .22

Nov Soybeans

9.11

9.75

- .64

July Wheat

4.78

5.35

- .57

Oct Hogs

63.20

64.65

- 1.45

Oct Cattle

108.50

107.35

+ 1.15

Cdn $

75.46

76.99

- 1.53

US $ Index

95.02

93.78

+ 1.24

Crude Oil

64.85

66.26

- 1.41

Gold

1279

1299

- 20

US 10 Year Notes

119-29

119-13

+ 16

TSX Stocks

16347

16267

+ 80

Escalation in trade tensions has most markets on the defensive, including grains. Looking at the crop charts, prices have fallen off a cliff. The laws of nature show that it’s harder to raise something up than to lower it down. This obviously applies to markets also.

Since their highs on May 28, corn has dropped 70 cents to its lowest level since January. Soybeans have declined $2.00 since that date and back to the low made in 2008. Wheat has shed 85 cents and hasn’t been this low since April.

Beans are taking the biggest hit, as they are one of China’s largest import items from the US in dollar terms.  US soybeans are mainly grown in states that helped Trump get elected, so it may have more effect on Trump if they target soybeans, especially with US midterm elections coming up November 6.

In reality, China will not likely buy a whole lot less US soybeans, as the US supply is critical to fill their needs. Putting a tariff on soybeans will raise the price in China, but the Chinese government would likely subsidize the tariff to their end users and consumers.

A trade war involving tariffs usually results in prices of those goods rising in price in the importing country. This is obviously inflationary. Because prices suddenly rise, consumers buy less, slowing economic growth. Risks of a recession increase.

Unemployment would rise, adding even more to the huge government budget deficits. Nothing good will accrue to anyone in a full blown trade war, including US citizens. Smaller countries that export a lot, like Canada, could get hit hardest, especially if Trump hits our auto sector.

Grain fundamentals are on the back burner for now. In their latest report, USDA expected the corn carry out (CO) to fall 525 mln bushels from the previous year, or 25 percent. The soybean CO was put at 415 mln bu from 530 last year, for a 21.7 percent drop. The wheat CO should decline 10.7 percent, if USDA is right.

US weather has been wet and warm. If there is a problem, it is too much moisture in some key areas. Excess moisture early in the growing season can lead to shallow root systems, so a heat wave later, with no moisture, would do more damage.

Often, grain prices do a U turn near their July 4 holiday. If prices are heading down then, they often reverse and turn higher. Last year prices topped shortly after their Memorial Day holiday. Hopefully, the opposite happens this year.

The limit on beans is 75 cents up or down on soybeans and 25 cents on corn. Volatility has obviously increased. It’s been a long time since grains experienced a limit move, but you can’t rule it out for this summer. It’s going to be a wild ride!

- Frank Backx, Hensall Co-op Grain Marketer