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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.

BioFuels Boost

Dec 17, 2010

 brulogomed

Market Watch with Alan Brugler
December 17, 2010
Biofuels Boost
 
The grain markets saw a double boost this week. First, the extension of the Bush era tax cuts was enacted into law on Friday. That bill included both an extension of the current ethanol blend credits and restoration of the expired blend credit for biodiesel made from virgin vegetable oils. Those credits will allow the industry to produce the full RFS2 mandated quantities of ethanol and biodiesel. The second boost came from a private consulting firm that on Friday lowered its projected 2011 corn acreage to 90.755 million based on farmer surveys. Their soybean acreage was also only 77.565 million acres and seen as less than current demand would suggest is needed.
 
The soybean complex was up 26 cents for the week. Meal was up 2.6% for the week, and soy oil was up 0.63%. The bean oil rally was somewhat muted, given the passage (and Friday signing) of the tax cut extension bill which included resumption of the biodiesel blend credit for 2010 and 2011. That won’t do much if anything to boost 2010 production, but should boost 2011 soy oil use for biodiesel as it puts margins back in the black by 50-60 cents for most plants. The problem is that a lot of them are in mothballs and need to call back employees, book contracts, and do other things to restart. As the plants start up, it should reduce prices for diesel fuel, or at least hold down price increases by creating additional supplies of fuel. Soybean gains were held back by a drop in soybean weekly export sales reported by USDA and concerns that Chinese demand might be slowing due to the government efforts to slow food price inflation.
 
Corn prices were up 3.87%, posting the highest close since August 2008 on the continuous front month futures chart. Still, that makes the 4th week in a row with a higher close.  The acreage battle of 2011 is still brewing, and the old crop situation still looks tight. Ethanol stocks built up slightly in the most recent reporting week, but the corn grind continues at a 4.9-5.0 billion bushel annual pace. Feed and export use are likely slowing at the margin, but feed use is a residual number and USDA will have a better handle on it after it sees all of the Grain Stocks numbers.  
 
Wheat futures were lower at all three exchanges this past week. Much of the selling pressure came on unwinding of wheat/corn spreads. Egypt bought US wheat, as did Jordan, but the price had also risen to the highest level since 2008. The market was perhaps due for a pull back. Australia got a break in the weather and began seeing larger volumes of wheat arriving at the elevators.
 
Cattle futures were up 1.2% for the week, offsetting the 2.16% they dropped a week earlier. Estimated beef production for the week slowed by 2.2% from the previous week, but was 5.6% larger than the same week a year ago. Beef production YTD is up 0.9% for the year. Friday’s Cattle on Feed report showed November placements were 106.2% of last year, and marketings were 108.5% of last November. The net result was December 1 numbers on feed that were 102.9% of last year.
 

 

 
Commodity
 
 
 
 
Weekly
Weekly
Month
11/26/10
12/03/10
12/10/10
12/17/10
Change
% Change
Mar
Corn
$5.53
$5.74
$5.74
$5.97
0.22
3.87%
Mar
CBOT Wheat
$6.87
$7.79
$7.76
$7.57
0.19
2.42%
Mar
KCBT Wheat
$7.21
$8.12
$8.22
$8.12
0.11
1.28%
Mar
MGEX Wheat
$7.37
$8.22
$8.32
$8.12
0.20
2.43%
Jan
Soybeans
$12.39
$13.00
$12.73
$12.99
0.26
2.02%
Jan
Soybean Meal
$336.80
$350.10
$339.10
$347.80
8.70
2.57%
Jan
Soybean Oil
$49.90
$53.08
$53.79
$54.13
0.34
0.63%
Dec
Live Cattle
$102.23
$103.18
$100.95
$102.18
1.22
1.21%
Jan
Feeder Cattle
$118.75
$118.68
$118.18
$119.03
0.85
0.72%
Feb
Lean Hogs
$77.15
$76.58
$75.15
$75.95
0.80
1.06%
Mar
Cotton
$111.76
$132.34
$136.97
$150.12
13.15
9.60%
Mar
Oats
$3.56
$3.67
$3.85
$3.87
0.02
0.39%
Jan
Rice
$13.41
$14.67
$13.93
$13.70
0.23
1.65%

 

 
Hogs had a 1.06% gain for the week, as February became the lead contract. The pork carcass cutout value was down 85 cents on Friday, giving back much of what it had gained on Thursday. Estimated pork production for the week was up 4.7% for the week, but still down 3.1% for the year. On a Thursday/Thursday basis, pork prices were up 1%.
 
Cotton futures continued to rally and were up another 9.6% for the week to lead all of the agricultural markets. They are also the biggest % gainer for the year, with two weeks to go. Weekly export sales are showing some signs of slowing down, due no doubt to the higher world prices. Chinese futures have also backed off from their November highs due to the anti-inflation efforts of the Chinese government. Chinese yarn production has still been larger than in 2009, however, using more cotton.
 
Market Watch:  Trading volume is thin, which can make for erratic price moves. It will become even thinner as vacations kick in and traders extend the Christmas break. The market is closed on Friday to begin the Christmas holiday weekend. Thursday is expected to feature Census Crush and Cotton Consumption reports, as well as USDA Weekly Export Sales. Thursday will also be the last trading day for January options on grains, oilseeds and interest rate instruments. Cattle traders will begin the week reacting to the Cattle on Feed report.  Meat traders will also get to chew on the USDA Cold Storage report, scheduled to be released on Wednesday afternoon.
 
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 such as Ag Marketing Professional and Special Research Reports.
 
 Copyright 2010 Brugler Marketing & Management, LLC
 
 
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