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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.

Crunch Time

Oct 10, 2008
The good news is that this week’s losses in corn and soybeans were smaller than last week’s. The bad news is that nearby corn still lost another 10% of its value and Nov beans were down another 9%. While USDA gave us some bearish numbers for soybeans on Friday, the cash crunch continued to be the main influence on prices. Our current level of prices is still very dependent on the index funds who bought and held several billion bushels of these commodities over the last two years. Those account owners diversified out of stocks and bonds, and are now facing big losses in all of the asset classes. That’s fueling liquidation of positions, and there appear to be few buyers who are yet in need of inventory. Corn futures ended the day trading synthetically about 12 cents below limit down.
As mentioned above, USDA found 2.2 million more acres of soybeans when they added FSA administrative data to their survey information. They lowered the projected US average yield due to lower pod weights, but total production still increased. Projected crush use was reduced, so the combination resulted in a rise in projected ending stocks to a comfortable 220 million bushels from the tight 135 million a month ago.
Below is a table showing the net weekly change of selected agricultural futures products:
Market Watch
% Change
Dec Corn
Dec CHI Wht
Dec KC Wht
Dec MGE Wht
Nov Soybeans
Oct Soy Meal
Oct Soy Oil
Oct Lv Cattle
Oct Fdr Cattle
Oct Ln Hogs
Oct Cotton
Dec Oats
Nov Rice
Wheat futures were down at all three exchanges, with CHI the weakest. The USDA wheat production estimate of 2.5 billion bushels was not a surprise, as it had been issued on September 30 in the Small Grains report. The ending stocks estimate of 601 million bushels was larger than the trade had expected, as the September 1 stocks number had suggested to some a larger use rate than USDA indicated on Friday morning. USDA also hiked projected world ending stocks.
Cotton futures were sharply lower, down 11% for the week. USDA boosted the projected ending stocks to 6.2 million bales after cutting exports to reflect the weaker world demand situation. As expected, production in hurricane affected areas was reduced. World ending stocks rose on increased production and decreased projected consumption due to the global slow down in consumer goods. Slumping crude oil prices helped cut freight costs, but also cheapened competing synthetic fibers. Cotton futures posted their 6th consecutive lower weekly close.
Cattle futures lost 6.77% for the week, as everything went wrong for the bulls. Wholesale prices sank under the weight of weak consumer demand and cash cattle were sharply lower due to tighter packer margins and feedlots that wanted the cash in hand that was tied up in the cattle. Index fund liquidation also hits cattle and hogs harder than some other commodities because it represents (or represented) a higher % of the long open interest.
Hogs were the least worst of the commodities we track, down 0.6% for the week. October futures were at a substantial discount to the CME Lean Hog Index. They are settled against that index after they expire on Tuesday, so they were marking time while the cash hogs drifted lower. Fund selling was also a factor.
Market Watch: After the craziness of the past week, the markets face a traditionally pivotal time for the grains. Back in the LDP days, the Columbus Day weekend was on several occasions a prime opportunity to lock in the lowest spot price and maximize payments. Futures will be trading on Monday, but some banks and government agencies will be closed. Monday is also Thanksgiving in Canada. Tuesday brings not only a full moon, but the monthly NOPA crush report, and USDA’s weekly crop condition and export inspections reports. It will be the last day of trading for October hogs, soybean meal and soybean oil. Friday will bring the USDA Cattle on Feed report and Milk Production, as well as the delayed weekly Export Sales report.
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.                         
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.
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