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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.

April Showers, May Flowers?

Apr 29, 2011

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Market Watch and November Soybean Tech Talk with Alan Brugler
April 29, 2011
April Showers, May Flowers?
 
Rain, makes grain, but first makes pain if you haven’t planted. And if you haven’t seen any rain, it is painful indeed...... Texas locations run from 2 to 9 inches below normal accumulations since January 1, and of course were in deficit before that. Cincinnati and Youngstown, Ohio are on opposite ends of the Buckeye state, but both are more than 8” above normal rainfall for the year. South Dakota locations were 111 to 162% of normal rainfall YTD through April 24. So, you have areas that are too dry to grow a good crop without irrigation, and areas that are 10 days to two weeks away from being able to plant even if it quits raining. The markets are trying to gauge the impact on production, but there are a LOT of variables in that equation.
 
Corn ended its losing streak at two games, posting a net gain of 17 cents for the week, up 2.27%. That all happened on Friday, when futures rallied 31 cents (margins were expanded to 45 cents because of the limit down moves on Thursday).  Large scale liquidation selling was seen in the May contract, which was eligible for delivery notices on Friday. However, many of those longs and shorts were not entering back month positions, just getting out. There were zero delivery notices against May on Friday, perhaps one reason buyers came back in at month end. The weather forecasts offer some planting progress potential in the western Corn Belt, with drier than normal conditions in the NWS 6-10 and 8-14 day forecasts. The eastern Corn Belt is expected to be wetter than normal, as is the northern spring wheat area. Corn export sales slowed, and more than 180 poultry barns were destroyed by the tornados in the South. Bulls noted tightening ethanol inventories and a rebound in weekly ethanol production.
 
The soybeans followed corn higher, perhaps reflecting their mutually tight old crop ending stocks and their competition for 2011 acreage in the United States. Nearby beans were up 12 cents per bushel for the week, a sparse 0.89% advance. It wasn’t due to the products, which were fractionally lower. There wasn’t a lot of fundamentally supportive news for beans, with Chinese domestic prices under pressure, and US livestock prices in decline. Export sales were nothing to write home about. However, the projected ending stocks are still only 140 million bushels and that means tight 4th quarter supplies. Census reported smaller than expected March 31 meal stocks. Soy oil stocks were larger than expected, but soy oil is used for biodiesel, and nearby May heating oil/diesel futures hit $3.25 per gallon on Friday. That’s the highest monthly closing price since July 2008. The weakest US dollar index since 2008 also supported dollar denominated commodities in general.
 
Wheat was down at all three exchanges, ending a spectacular bounce. Minneapolis was down only 0.66%, as planting progress is well behind the average pace and it is likely that final acreage will be under 13.7 million. KC futures were down more, 4.24%, due to rain hitting part of the HRW growing area. A perhaps larger factor was the rumbling out of Ukraine and Russia about potential resumptions of exports. The Ukraine is more likely to resume, with Russian spring wheat planting still seriously delayed and the winter wheat crop never fully planted. Outstanding wheat export commitments at 6.08 million tonnes are 26% larger than usual, and combined contracts and shipments are now at 100% of USDA’s projection for the year. All that has to happen is that 6.029 MMT needs to be shipped between April 21 and May 31. That’s an average of 40.2 million bushels per week but also includes the differential between USDA numbers and official Census exports.
 
Cotton futures continued to slide, losing 4.19% after being down 4.5% the previous week and 3.7% in the week before that.   Global demand for textile products is improving with the economy, but China is trying to rein in price jumps through various means and cancelled another purchase that was reported in the USDA weekly Export Sales report. There are also big jumps in availability from Brazil, Argentina and Australia as they complete new crop harvesting. There is little old crop US cotton for sale, but availability of Southern Hemisphere new crop supplies has taken the edge off of the world market. USDA again reported net negative old crop sales in the weekly export sales report, as foreign buyers cancel purchases or delay them into new crop time slots because they can’t get enough out of the yarn to pay for the cotton. New crop futures were supported by the combined too dry and too wet weather across the southern US. Where is Goldilocks when you need her for that just right weather? Probably long gold and sitting somewhere in the south of France......
 
Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:
 

 
Commodity
 
 
 
 
Weekly
Weekly
Month
04/08/11
04/15/11
04/21/11
04/29/11
Change
% Change
May
Corn
$7.68
$7.42
$7.37
7.54
0.17
2.27%
May
CBOT Wheat
$7.98
$7.44
$8.00
7.6925
0.30
3.78%
May
KCBT Wheat
$9.33
$8.66
$9.33
8.93
0.40
4.24%
May
MGEX Wheat
$9.53
$8.89
$9.52
9.4525
0.06
0.66%
May
Soybeans
$13.92
$13.32
$13.81
13.9275
0.12
0.89%
May
Soybean Meal
$357.20
$345.20
$358.80
358.1
0.70
0.20%
May
Soybean Oil
$59.77
$56.84
$58.27
58.13
0.14
0.24%
Apr
Live Cattle
$118.83
$117.40
$118.40
117.05
1.35
1.14%
Apr
Feeder Cattle
$134.60
$132.15
$132.28
131.9
0.38
0.28%
May
Lean Hogs
$100.97
$102.42
$102.05
95.275
6.77
6.64%
May
Cotton
$202.97
$195.52
$186.67
178.78
7.89
4.23%
May
Oats
$3.94
$3.83
$3.90
3.425
0.47
12.12%
May
Rice
$13.69
$13.64
$14.00
14.805
0.81
5.79%

 
 Cattle futures were down $1.35 for the week after gaining $1.00 the previous week. Wholesale prices were under pressure. Choice boxed beef was down 2% for the week, and select beef was down 1.7% on a Friday/Friday basis. Cash cattle were also under pressure, with a lot of trade in the $116 vicinity.
 
Hogs plunged more than 6.6% in a single week, losing $6.77 in the nearby May contract. Pork carcass cutout value was down $3.30 per cwt. on a Thursday/Thursday basis. Hams are typically down after Easter, but the surprise was the 5% drop in pork bellies. Belly stocks do not appear to be particularly large, but it is a little early for the seasonal BLT (bacon, lettuce, tomato sandwich) boost. Cash hog prices were down in tandem with the slipping product prices and chart sell signals. May futures have narrowed their premium to cash hogs from more than $6 to $1.23 on Friday.
 
Market Watch:  The calendar turns to May, and the ag markets step up the focus on growing conditions. USDA will feed the need with the weekly Crop Progress report on Monday evening. There will be routine weekly export inspections and Weekly Export Sales reports on Monday and Thursday mornings respectively. There are no major monthly USDA reports scheduled for this week. Cotton traders will see May futures expire on the 6th. That will also be the last trading day for May live cattle serial options. Wheat traders will be interested in the Wheat Quality Tour results at mid-week.
 
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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