Grain prices were higher over the past week. Wheat was the best performer, after being the weak link the past month. Australia’s crop reporting agency sees a sharply reduced crop compared to what the USDA was expecting.

 

The price rotation between crops continues and trends in all 3 major crops remain sideways. The fundamentals are currently more bearish than bullish, in my opinion. Brazil is beginning to harvest a record soybean crop, and US acres are sure to be higher in 2020.

 

The demand story is iffy, despite the signing of Phase 1 of the US/China trade deal. African Swine fever has killed a lot of hogs, especially in China. The uncertainty about the coronavirus throws another monkey wrench into the potential demand.

 

Supporting prices currently is that prices are cheap when compared to the past 8 years. This limits the downside risk but doesn’t eliminate it completely. One needs to factor in also that the cost of production has increased markedly since 2012

The range in corn during that 8-year period was $8.44 to a low of 3.02. Soybeans traded between $17.95 and 7.81. Wheat’s high was 9.47 and the low was 3.60 since 2012. Current prices are much closer to the bottoms of their ranges.

 

However, that’s not a reason to turn bullish. Selling rallies is still the prudent thing to do considering odds favour a building of grain stocks in 2020 for the reasons mentioned above. Grain stocks have declined lately but are still at comfortable levels as we head into 2020.

 

Basis has been a bit of a saviour lately and is stronger than normal for this time of year.  This is because of the less than stellar crops in Ontario and the eastern US grain belt, which sets our prices adjusted for the exchange rate.

 

This applies only to old crop, unfortunately. Basis levels on new crop corn and wheat are sharply below what we’re bidding for those crops in your bin. The market is building in a potentially larger crop coming this year.

 

Other markets were mostly higher, including livestock. It is still surprising to me that hogs have not done better considering the losses due to swine fever. World fundamentals have improved as China buys more pork from exporters, but hog futures have barely responded.

 

Gold and crude oil also gained, despite a stronger US dollar. The US dollar index futures are very near to their highest level since May 2017. A stronger US dollar is usually bearish for commodities. This is another reason to not get too greedy when making marketing decisions in grains.

 

Frank Backx

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