Commodities Report by Mattlater

VIEWS: 6 PAGES: 2

									                                  Commodities Report
                                       Aug 20, 2008

                        Close Fri Aug 20              Aug 6             2 week change
Sept Corn                     3.19                      3.33                 - .14
Nov Soybeans                  9.58                     10.31                 - .73
Sept Wheat                    4.70                      5.00                 - .30
Sept Soymeal                 327.00                   340.00               - 13.00
Oct Hogs                      46.95                    47.55                 - .60
Oct Cattle                    88.80                    89.10                 - .30
Sept Cdn $                    91.95                    92.75                 - .80
Oct Gold                     940.00                   961.00               - 21.00
Sept Crude Oil                72.65                    71.45                + 1.20
US 10 Yr Notes               118-00                   115-28                + 2-04
TSX Stocks                   10706                    10827                  - 121

Grain markets retreated the past two weeks. Weather has improved, with regular
precipitation, and warmer temperatures. North American crops are likely larger now than
when USDA did their survey at the start of August.

In that report, corn carryout was pegged at 1.621 bln bu, compared to 1.720 for the
current crop year. The corn yield was 159.5 bu/ac, which was 2 bu more than expected.
However, USDA raised feed use and ethanol by 100 mln bu each and exports by 150 mln
bu to offset the higher production.

The soybean yield was put at 41.7 bu/ac, less than expected. The expected carry out is
210 mln bu, compared to 110 mln for the current crop year. Most traders think USDA is
under-estimating export demand, however, as South America has little to offer because of
their drought.

The wheat yield was raised to 43.3 bu/ac. The carry-out will rise again to 743 mln bu,
versus 667 last year and the historic low of 306 mln two years ago. There is no shortage
of wheat in North America, or the world. Some wheat will have to find its way into the
feed trade again this year.

The CFTC ruled that the index funds would be subject to the speculative position limits,
instead of their current hedge limits. That means they will have to sell off futures
contracts to get on side. This is a short and long term negative for grain prices.

Corn and wheat are not too far from their December lows (2.90 and 4.55). It is becoming
more likely that those lows will hold. The markets had every reason to go there with the
weather we have had. Maybe it is the threat of frost that is keeping prices above those key
levels of support. It may also be partially related to very slow farmer selling.
Other markets were also generally weaker. Red meat prices cannot find any traction.
Even forward contract prices aren’t anywhere near the cost of production, even with the
lower feed costs. The government aid plan was generally viewed as too little, too late.

Crude oil bucked the trend, however, on a sharp drawdown in US inventories. This is
further evidence that the economy is improving. Stock and bond markets were both a bit
weaker, however. A fair bit of recovery is likely already built in at current prices.

The Canadian dollar also fell a bit. Currently, Canada is in its worst deflation since 1953.
This will keep short term interest rates near their current historic lows. The Bank of
Canada is also intervening to prevent our dollar from rising too fast, as that hurts our
important export sectors.

								
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