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Market Watch

RSS By: Alan Brugler,

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

A Bottom, Or a Dead Cat Bounce?

Sep 12, 2008
The 15 cent weekly gain in corn may not look like much, but it took a heroic effort by the bulls to get there. Prices were 15 cents lower through the first 4 days of the week. Then came Friday’s USDA crop reports. The corn report was fairly neutral, with USDA projecting a 152.3 bushel/acre national average yield and a crop of 12.072 billion bushel. Corn had been tracking with the crude oil and energy markets, but those markets were lower for most of the week. The rally on Friday, which ultimately went limit up, began with a sharply weaker US dollar tied to talk of taxpayer funded bailouts for Wall Street firms such as Lehman, and got an extra boost as the trade got more nervous about Hurricane Ike doing serious damage to the port of Houston and the refineries and energy facilities in that part of the Gulf of Mexico. Ike is expected to stall early corn harvest in an arc from Texas to Ohio due to excess moisture. Some Friday weather forecasts also showed the storm dragging much warmer temps up into the central US, which would be welcomed as an aid to crop maturity.
Below is a table showing the weekly change of selected agricultural futures products:
Market Watch
% Change
Sep Corn
Sep CHI Wht
Sep KC Wht
Sep MGE Wht
Sep Soybeans
Sep Soy Meal
Sep Soy Oil
Oct Lv Cattle
Sep Fdr Cattle
Oct Ln Hogs
Oct Cotton
Sep Oats
Sep Rice
The soybean gain of 26% for the week looks VERY impressive, but it is an artifact. Due to the wet weather and hurricanes, shipping into and out of the Gulf ports has been interrupted. Harvest has also been delayed, and the early arrival of new crop was critical given the tight old crop ending stocks. The bottom line is that basis bids of more than $2 over November were being reported in the Gulf area, and 45-50 cents over was routine in the Midwest at processors. A few futures traders got caught short of inventory in the expiring September contract, resulting in the “get me out at any price” trades. The much more liquid November contract was up only 25 cents for the week. All of that gain occurred on Friday. On Friday morning, USDA put the size of the soy crop at 2.934 billion bushels. They dropped projected yield to 40 bushels per acre based on smaller than expected pod counts (with Nebraska down more than 300 per frame from last year). That average yield change had no impact on projected ending stocks, since USDA also foresees a drop in US soybean crush next year. The price forecast was increased 10 cents on both ends to reflect the price rationing. Higher diesel prices also boosted soy oil (biodiesel feed stock) on Friday and raised the product value of the soybean. Oil was still down for the week.
Wheat futures lost more than 3% of their value for the week. There was no change in USDA S&D numbers for the US crop, since the government is waiting for the Grain Stocks and Small Grains production reports on September 30 before making any changes. World production was hiked to 676.3 MMT, a larger figure than most of the trade estimates. USDA also sees additional growth in world ending stocks, to 139.9 MMT. Mix all of that together, and throw in a little spread trading with wheat as the short leg. That gives you the week’s sell off rationale.  
Cotton futures were also down for the week. Export sales have been sluggish, and until Friday’s collapse the dollar had been rising. That was making cotton comparatively more expensive to foreign buyers. USDA reported a larger than expected US crop, boosting average estimated yield by 7 pounds per acre from the August estimate. That took the upland crop to 13.387 million bales, and the “all cotton” crop to 13.846 million bales.
Cattle lost 75 cents on the week. Price action in the beef was back and forth, but cash cattle trade in the north was $2 lower than the previous week, and the daily futures price charts are still in a month long down trend. Estimated slaughter for the week was 657,000 head, about 12,000 more than the same week in 2007. Choice boxed beef is still at historically high levels for early September with Friday’s quote at $160.57. Beef production YTD is up 1.3% vs. year ago.
Hogs had the distinction of being the biggest loser for the week. They were down 4.82%. The pork cutout value was under pressure all week, with production outstripping demand. Domestic demand has been seeing a little pressure from both squeezed paychecks and cheaper chicken prices. However, the real problem appeared to be in the export sector. The market had been very dependent on exports to absorb supply, with nearly 22% of Jan-June production exported. The US now appears to be having trade issues with Russia and Mexico. Chinese post-Olympic demand has also been a question mark, although Census statistics aren’t yet available to confirm or deny that assumption.
Market Watch: September futures expired on Friday, with a few surprises like the $2 plus jump in the soybeans that had everyone shaking their heads. USDA’s crop report is now past history, and the focus will shift to harvest weather and the outside markets. We’ll still care about the NOPA monthly Crush report on Monday, as it helps measure the August slow down in crush activity. The Fed (FOMC) is due to meet on Tuesday. The main USDA reports for the week will be Milk Production on Thursday and the monthly Cattle on Feed report on Friday afternoon.
There is a substantial risk of loss in futures & options trading. Past results are not necessarily indicative of future results.                         
Copyright 2008 Brugler Marketing & Management LLC
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