Commodities Report
July 10, 2018

 

 

Close July 10

July 3

1 week change

Dec Corn

3.61

3.65

- .04

Nov Soybeans

8.72

8.64

+ .08

Sept. Wheat

4.92

4.91

+ .01

Oct Hogs

53.80

59.40

- 5.60

Oct Cattle

107.85

110.35

- 2.50

Cdn $

76.31

76.17

+ .14

US $ Index

94.15

94.60

- .45

Crude Oil

74.14

74.16

- .02

Gold

1256

1255

+ 1

US 10 Year Notes

120-02

120-12

 
-10

TSX Stocks

16547

16238

+ 309

 

Prices were mixed over the past week, A 1 day short covering flurry on Friday, July 6 gave only temporary relief to the 6 week slide in price.  The trend is your friend is an old market saying, but this trend is no farmer’s friend.

Fundamentals were a factor, with the good growing conditions. All the trade turmoil, which involved soybeans, hung over the markets.  However, it is the speculative fund activity that seems to have the largest effect on price.

This works both ways. Last January, a rally started. Large spec funds were short over 100,000 soybean contracts, less than 20,000 from their record short position. By the end of May, they were long over 200,000 contracts, so they bought over 1.5 bln bu soybeans during the rally. Prices rose 89 cents.

They began liquidating, and the latest report showed they are now short 78,000 soybean contracts again, Prices collapsed under the selling. Their involvement pushes prices above and below economic value. That’s why it’s prudent to have open orders in the market to capture some of the excesses.

75 percent of US corn is good or excellent condition. That is down 1 from last week, but well ahead of last year’s 65 percent. Soybeans are 71 percent good excellent versus only 62 percent last year at this time.

Crops continue to be well ahead of normal in development.  37 percent of US corn was silking; usually it’s only 18 percent now. 47 percent of US soybeans were flowering, compared to the normal 27 percent on this date.

The 2 week forecasts for the Midwest show a cooling trend in temperatures and a greater chance of precipitation. This is obviously a good forecast for pollinating corn and for flowering soybeans.

Ontario has had lots of heat, while rainfall has been sporadic. Crop condition can vary from poor to excellent, even in a small area. The heat has allowed wheat to reach maturity much quicker than most thought possible.

China’s retaliatory tariffs kicked in on July 6, which happened to be the day of the big rally. I suppose it was the reverse of the “buy the rumour, sell the fact” theory. However, prices have given back most of those gains.

So far, one could easily argue Trump’s trade policies have backfired. It is disrupting trade worldwide, and trade creates wealth. Prices of the tariffed goods rise in the importing country, which will be inflationary. It was reported the cost of building a new house in the US is up $9,000 because of the softwood lumber tariff.

Soybeans are down $2.00 per bushel in 6 weeks.  China hasn’t bought soybeans this cheap in nearly 9 years if you look at nearby futures.  Meanwhile soybean farmers are taking a huge pay cut. Thanks Donald.

That’s ironic because it was the Midwest states that propelled Trump into power. Pressure will grow for the US government to come to the aid of US crop producers, especially with their elections coming up this fall.

Meanwhile, the iconic Harley Davidson announced they were building a plant in Europe due to the retaliatory tariffs the EU put on their motorcycles. That had to be a slap in the face to Trump.

Perhaps it will be short term pain for long term gain for the US, but so far, Trump’s trade actions can only be classified as a failure. US corn, as of July 1, was rated 76 percent good or excellent. While that was down 1 percent from last week, it is still the highest rating for that date since 1999.

 

 

- Frank Backx, Hensall Co-op Grain Marketer