Canada Markets

The 2014/15 crop year could possibly be one for the record books, with global wheat production expected to achieve a record, while United States corn and soybean crops are also expected to end in the record books, to name a few.

These records come at a time when the U.S. dollar is at four-year highs while the economies of many nations such as China and the European Union struggling to maintain projected levels of growth. The news has not been friendly to grain prices, with the most active Chicago soft red winter wheat prices down close to 36% from the contract's high reached in May, corn down 37% from its May high and soybeans down 39% from its May high. Crops such as canola are down close to 22% in this same period, while hard red spring wheat is 33% lower.

Grains are not the only commodities experiencing difficulties. The absence of inflation and the measures taken to prevent a deflationary environment are failing to prevent a slide across the commodity market. The attached chart shows the continuous Bloomberg Commodity Index, which is derived from data from 22 commodities.

The index has been in a downtrend since April 2011 when a high of 175.7 was reached. Since that time, the overall index has fallen 32.4% to 118.8 on Sept 22. Since reaching this year's high of 137.9 in April, the index has fallen 13.9%, now shown as the lowest level reached since July 2009.

The online site Seeking Alpha suggests that even the industrial metals, which are some of the best performing metals this year, are facing challenges with nickel falling 10% since June, copper at three-month lows and iron ore falling below $80/ton for the first time since 2009. The market for copper is often suggested to have a Ph.D. in economics due to the metal's widespread use and sensitivity to economic data. Approximately 40% of global sales of copper are made to China.

Markets this week have shown concern over preliminary manufacturing data for September in China which would indicate whether the country's economy on a path of expansion or contraction. Tuesday's report surprised economists, with the preliminary HSBC Purchase Manager's Index reported at 50.5 in September, up from 50.2 in August, while an index of 50 was expected. Note that readings over 50 suggest an expanding economy. This may help support the slide in commodities, for now.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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