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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