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RSS By: Alan Brugler, AgWeb.com

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

A Turkey of a Week

Nov 25, 2011

Brugler

Market Watch and Dec Corn Tech Talk w/Alan Brugler

November 25, 2011

A Turkey of a Week

The "Euro contagion" theme was in play all week.  The euro plunged below the $1.33 handle on Friday, with most of the selling coming after European equity markets had closed for the week. Interest rates for Italian and Spanish government bonds rose sharply, indicating the investors want a lot more money to hedge against potential defaults down the road. Belgium’s debt rating was also cut. Credit Default Swap premiums rose, but there are questions about their effectiveness after some banks suggested that they believed they were not liable to pay out on a Greek default. That panicked debt holders into selling more of their holdings.  How does this affect US commodities? Investors are selling what is liquid, and parking it in US treasuries regardless of whatever longer term problems the US might have. That has the dollar firmer, and commodity prices quoted in dollars lower. A firmer dollar also makes exports to countries with floating currencies more difficult (but does not affect Chinese buying because of the yuan peg to the dollar).

 

Not to be overlooked, South Korea finally was able to ratify the South Korea/US trade agreement passed by Congress and signed by President Obama weeks ago.  The agreement has more immediate impact on grains/oilseeds trade, and a more delayed impact on meat because of the structure of the tariff changes.

 

Corn was down 4.55% for the week, just a little stronger than the US stock market which lost 4.8%.  Traders tried for a 580 "pin" on the Dec corn options but didn’t quite get there. There were a large number of Dec 600 puts exercised on Friday, creating new longs in the futures market with instant losses on the positions. The IGC cut projected world corn production by 2 MMT to 853 MMT, a rare bit of bullish news. US export sales were still stuck in low gear, with several large buyers shipping grain previously labeled sold to "unknown destinations". That included more to China.  New weekly export sales were 350,000 MT of combined old and new crop.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

11/04/11

11/11/11

11/18/11

11/25/11

Change

% Change

Dec

Corn

6.5575

6.385

6.1025

5.825

0.2775

4.55%

Dec

CBOT Wheat

6.3675

6.1675

5.9825

5.745

0.2375

3.97%

Dec

KCBT Wheat

7.18

7.04

6.6725

6.435

0.2375

3.56%

Dec

MGEX Wheat

9.2375

9.3425

9.145

8.2725

0.8725

9.54%

Jan

Soybeans

12.21

11.755

11.6825

11.065

0.6175

5.29%

Dec

Soybean Meal

315.4

299.5

298.4

282.7

15.7000

5.26%

Dec

Soybean Oil

51.87

50.98

50.88

48.23

2.6500

5.21%

Dec

Live Cattle

124.5

120.55

119.7

121.1

1.4000

1.17%

Jan

Feeder Cattle

147.4

145.675

147.425

144.625

2.8000

1.90%

Dec

Lean Hogs

86.85

86.45

87.475

88.3

0.8250

0.94%

Dec

Cotton

98.54

99.24

94.9

90.82

4.0800

4.30%

Dec

Oats

3.29

3.215

3.04

2.92

0.1200

3.95%

Jan

Rice

16.125

15.22

14.68

14.235

0.4450

3.03%

 

The wheat complex ground lower again, this time with Minneapolis taking the big loss as longs got out of the way before December delivery notices. Russia and Ukraine continue to be aggressive exporters of old crop wheat. Russia has announced a price support program expected to kick in around the 28th. They have also indicated they will resume export tariffs when total grain exports get to a trigger level. Ukraine, Bulgaria and Romania are all looking at poor winter wheat stands and plantings due to drought. This could make them restrict exports in 2012 in order to ensure adequate carryover stocks. There is no sign of that yet. US weekly export sales for the week ending November 17 improved to 614,500 MTs, almost double the four week moving average.

 

Soybeans saw a 5.3% decline for the week, mostly due to a lack of speculative buy interest. US weekly export sales jumped to 921,600 MT, thanks to strong Chinese buying and other countries such as Egypt taking advantage of the price break to expand coverage. South American planting continues, with Argentina saying 46% of the bean crop there has now been planted. An estimated 25% of the Brazilian soybean area is behind on moisture, but it is early enough in the season that the crops can recover yield potential if rains develop in the next 10 days or so. China’s CNGOIC believes final 2011 imports will be 52 MMT, slightly under the USDA at 52.34 MMT but also subject to actual deliveries in November and December being different than their estimates.  It happens all the time.

 

Cotton was down a hard 4.3% for the week. Black Friday weekend retail sales in the US will provide a glimpse into US consumer buying interest. The futures market had been pessimistic about the whole world, and thus US ability to export. US weekly export sales through November 17 were actually quite good at 790,700 MT of upland cotton. China was just about the only game in town at 757,700 RB.

 

Lean Hog futures were up 82 cents for the week, the second up week in a row. The value of a hog carcass continued to decline, down 41 cents for the week. However, the "get me out" trade in commodities meant buying back of shorts in the hog market. There are also traders trying to set up a long position based on a seasonal tendency for hog slaughter to decline in December, and for the pork carcass cutout value to rise. The big "IF" in the picture is the substantial premium that cutout value current has over where it was last year or the year before. Estimated weekly slaughter was depressed by the holiday, but expected to be 13,000 head larger than last year if a projected Saturday run of 362,000 head was achieved.

 

Cattle futures were up 1.2% this past week. US beef export sales stabilized at 11,100 MT for the week ending November 17. That was a moral victory for the bulls, given the sharp increase in choice boxed beef quotes and the firmer dollar. Mexico and Canada were the two largest buyers. The reported cutout value of a choice graded steer dropped 84 cents on Friday, but is still at $196.23 and less than $5 below the all time record high set in 2003 when Canada was out of the world export market because of BSE. Estimated weekly slaughter was within 1,000 head of last year’s Thanksgiving week.

 

Call in consulting service with Alan is also available for a limited number of new customers in our Ag Marketing Professional Premium package. Call our office for details on either service at 402-289-2330. 

 

Market Watch: The market will be into turkey leftovers by Monday, and back to a full work week. We’ll start the week by working off any surprise positions inherited via the December options exercises on Friday. There was considerable open interest in the December corn 600 puts and calls heading into Friday. USDA will issue the usual Export Inspections report on Monday and Export Sales on Thursday. Wednesday will be first notice day or FND for December futures contracts such as corn, wheat, soybean meal, and soy oil. Friday will mark the expiration of the December live cattle options.

 

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. 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 individualized subscription and consulting services.

 

 Copyright 2011 Brugler Marketing & Management, LLC

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