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RSS By: Alan Brugler,

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

Rising Tide

Jun 18, 2010

Market Watch with Alan Brugler
June 18, 2010
Rising Tide
The US dollar topped out, or at least had a big correction. The euro was rising in part due to some hopeful signs of fiscal discipline and in part because the dollar looked shakier after less robust than expected employment and other economic indicators were released during the week. Commodity prices are proving that they are still aware of the inverse correlation to the dollar, with the rising tide of the euro floating most of the commodities higher for the week in dollar terms. Gold in fact posted a new all time high close in nominal dollar terms at $1258.30 per ounce.
Corn was up for the second week in a row, with a two week gain of 21 cents per bushel. Weekly export sales continue to be robust, in excess of 1.2 million metric tonnes for the week. Ethanol production is also at near record levels despite EPA’s decision to again delay any action on the E10-E15 blend decision. EIA is now releasing monthly ethanol production statistics which should help the industry get a more current picture of what is doing on with both fuel demand and corn consumption. On the crop production side, flooding has erased some earlier planted acres in NE, IA and IN, and heavy rainfall is likely leaching out nitrogen and crusting soils in other areas. Informa on Friday lowered its estimate of US 2010 corn planted acreage to 89.3 million from 89.6 in May. The USDA is currently at 88.798 million, with new numbers due on June 30. On the bear side, Corn Belt areas that are typically moisture limited are seeing excellent yield potential and crop condition ratings are the highest for this date since the early 1990’s.
Wheat futures were the bull leader, drawing inspiration from the previous weeks’ Canadian announcement that some of their crop would not be planted because of wet weather. Minneapolis spring wheat futures see the most direct competition from Canada, and posted a 7.27% gain for the week. The 2 week total is 45 cents per bushel for old crop spring wheat. KC futures were up 6.48%, as they compete with spring wheat in the higher protein end of the market. Widespread rains were also delaying HRW harvest and threatening quality. Chicago wheat came along for the ride.
Soybeans rallied a cautious 15 cents for the week. Soy oil was up on strong export sales to China, and a firmer tone in the energy markets. While the US biodiesel industry is practically dead because of Congressional inaction on the expired blend credit, several other countries have mandated 5% or higher blends and are using a lot more bean oil for fuel this year than last year. Meal lagged, and held back gains in the beans because of its lack of contribution to product value. Rising chicken numbers are supportive, but overall GCAU’s are still below last year. Planting delays mean that some soybeans are still in the bag, and we encountered producers this week who were seriously looking at taking prevented planting payments from crop insurance rather than risk a low yield on late planted beans. Gains were limited by abundant overall world soybean supplies, and a pileup of inventory at Chinese ports.
July Cotton eked out a small 0.29% gain for the week. Weekly export sales came in well above expectations at 540,600 RB but below the prior week’s surprisingly large 823,100 running bales. A period of much above normal temperatures and below normal precip is seen for the southern U.S. There is doubt and debate as to whether it will set up into a drought producing high pressure “dome”, but the market is clearly keeping some weather premium in the new crop December bids just in case. Old crop is scarce and must be rationed via price until new crop is available.
Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:
Market Watch
% Change
CBOT Wheat
KCBT Wheat
MGEX Wheat
Soybean Meal
Soybean Oil
Live Cattle
Feeder Cattle
Lean Hogs
Hogs were up handily on the week, gaining $2.32 per hundredweight. Estimated weekly pork production of 409.9 million pounds was down 0.7% from the previous week and 2% smaller than the same week a year ago. Average carcass weights are believed to be 2 pounds higher than last year at this time. For the year to date, pork production is still down 4.2% and allowing futures prices to trade at much higher levels ($80.87) than they were a year ago ($61.42). 
Cattle futures were down 20 cents on the week. The futures discount to cash proved justified, with cash cattle down $2 on the week at mostly $91. Wholesale prices failed to hold on to early week gains. On Friday afternoon the USDA released the monthly Cattle on Feed report. The report showed slightly smaller than expected May marketings at 95.7% of year ago. Placements were very close to the average trade guess at 123.4% of last year. The On Feed number showed year over year growth in numbers at 100.8% of last year. There was little in the way of a surprise in the report, but futures were oversold going into the report and thus MIGHT be susceptible to a relief rally if there is any kind of July 4th beef demand to prop up carcass values.
Market Watch: Crop watchers will focus on Monday evening’s USDA Crop Condition reports to see how much impact wet weather and flooding is having on the crops nationally. Traders will also have the Census Crush report on Thursday, and weekly Export Sales on Thursday morning as well. The Fed Open Market Committee meets on Tuesday and Wednesday, but is not expected to raise interest rates at this meeting. Livestock traders will watch for the USDA Cold Storage data on Tuesday afternoon, and the quarterly Hogs & Pigs report to be released on Friday afternoon. Friday will also be the last trading day for July grain options. As the week goes on, attention will focus more sharply on the USDA June 30 reports, with both Grain Stocks and Planted Acreage containing critical information to 2010 and 2011 balance sheets.
There is a risk of loss in futures and options trading. Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results. Comments made in this article are in no way to be seen as an endorsement of futures and options trading, or of any particular risk management technique. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited. Call 402-697-3623 for information on our more extensive paid subscription and consulting services.
                                                                                                                                      Copyright 2010 Brugler Marketing & Management, LLC
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