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Market Watch

RSS By: Alan Brugler, AgWeb.com

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

An Even Weaker Dollar and the Biofuels Get a Boost Too

Jun 04, 2009




Market Watch with Alan Brugler

May 29, 2009

 

An Even Weaker Dollar, and the Biofuels Get a Boost Too

The U.S. dollar index continued its monthlong slide this past week, dropping to the lowest readings since December. Despite losing its AAA rating for government credit, the British pound rose to the highest level since November. The BP has a nice double bottom on the charts, too. The CRB Index also rose to the highest reading since November, with commodities priced in dollars tending to be a mirror image of the dollar. That is, it takes more devalued dollars to buy the same store of commodity value.

As we pointed out last week, the soybean market’s job is to slow down use and make stocks last until new crop beans are available. That can be done by dissuading further export purchases, delaying existing contracts into the new crop time slot, encouraging soy processors to take more down time due to poor margins, or by shrinking residual use. Another factor might be importers realizing that they have bought more beans than they can sell the products from. China sold surplus soybean meal to Thailand, and almost all of the old crop beans shown in Friday’s Export Sales report that were destined for China had been booked earlier under the “unknown destinations” category. Chinese markets were closed for the Dragon Boat holiday on Thursday and Friday, so it will be interesting to see if they think they need more soybeans when they get back to work or want to live off of current commitments. The weaker U.S. dollar doesn’t affect Chinese buying directly, since the yuan is closely pegged to the dollar. From a central bank perspective, the Chinese might be interested in spending some of the U.S. dollar reserves they are holding in low interest bearing securities and a weak dollar environment. Or they may want to talk to Geithner about taking steps to firm up the buck.


Corn futures were up 6 cents for the week. That was a modest advance, compared to wheat. Weekly Export Sales were over 1 MMT and stronger than expected. Crop planting progress continued to lag at 82% complete, but should be getting into the high 80s or low 90s by Sunday night. Attention will tend to shift toward crop condition ratings and speculation about what USDA’s June 1 Planted Acreage survey will find. That data won’t be released until month end. Biofuels got a lift from crude oil, which rallied to the highest prices since, you guessed it, mid-November. Rising gasoline prices boosted ethanol prices and plant margins. Higher DDG prices also helped out the plants, some of which now see gross margins in the 40-cent range.  


Wheat futures were the biggest gainers for the week, with CHI and KC July contracts both up more than 4%. New crop September MPLS wheat got as high as $7.93 on Thursday before pulling back a bit. Drier weather allowed producers to finally make some headway on spring wheat planting, although the consensus is that some of the unplanted acreage will have to be switched to soybeans given the yield drag after May 15 in the wheat and the historically high prices being offered for the soybeans. Wheat harvest is expanding for KC HRW in TX and OK, with the expected poor yield and quality reports. The much larger Kansas crop is still mostly two to three weeks away from harvest. CHI futures didn’t seem to have the fundamental oomph other than some fusarium and vomitoxin talk tied to the wet weather. That’s where the liquidity is, however, and the inflation buyers see a rising tide floating all of the boats.


Below is a table showing the net weekly changes and four-week history of selected agricultural futures contracts:

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Weekly

Weekly

 

05/08/09

05/15/09

05/22/09

05/29/09

Change

% Change

July Corn

$4.21

$4.17

$4.30

$4.36

0.06

1.39%

July CBOT Wheat

$5.91

$5.78

$6.13

$6.37

0.25

4.04%

July KCBT Wheat

$6.33

$6.31

$6.61

$6.87

0.27

4.01%

July MGEX Wheat

$7.00

$7.05

$7.45

$7.72

0.27

3.62%

July Soybeans

$11.12

$11.31

$11.66

$11.84

0.18

1.54%

July Soy Meal

$341.50

$358.20

$375.00

$382.50

7.50

2.00%

July Soy Oil

$39.61

$37.90

$38.10

$39.05

0.95

2.49%

June Live Cattle

$82.97

$82.37

$82.53

$81.32

1.21

-1.46%

Aug Feeder Cattle

$100.70

$101.65

$101.93

$101.75

0.17

-0.17%

June Lean Hogs

$61.12

$66.52

$65.98

$63.92

2.05

-3.11%

July Cotton

$59.85

$56.30

$57.11

$56.97

0.14

-0.25%

July Oats

$2.26

$2.28

$2.50

$2.51

0.01

0.60%

July Rice

$12.65

$11.94

$12.06

$12.35

0.29

2.41%

 

Cotton futures were down all week, but a near limit up move on Friday kept their net loss for the week to a quarter of a percent. Most of the buying interest on Friday appeared to be speculative, both profit taking on prior shorts and possible new money. The move to new lows for the month in the U.S. dollar fueled buying in a number of commodities, including cotton. Planting delays continue, but rain in Texas this week will allow some of the dry areas to get seed in the ground and expect it to come up.


Cattle futures had a tough week, dropping to the lowest weekly close of the month and losing 1.46% for the week. Boxed beef prices are struggling despite good weekly export sales totals. Fine dining establishments continue to report fewer patrons and lower average tickets, which illustrates losses in choice and prime beef sales. Cash cattle were down $1 or more from the prior week on the sagging product prices, which got no help from the pork sector on Friday.


Hogs posted the largest losses in the ag commodities we track this week. June was down 3.1%, or more than $2 per hundred for the carcass. End of month position squaring drove June futures into new life of contract lows. Prices need to converge with cash (as measured by the CME Lean Hog Index) by June 12. The futures are at a premium to cash, and product pricing didn’t offer a lot of hope for cash to rise to the $64 mark being traded on the Board.


Market Watch
:  The calendar is turning to June, with USDA’s Crop Progress and Condition reports on Monday night still of interest. Traders will also be looking for evidence of fresh investment fund money coming into the market for the new month. On Thursday, we’ll see USDA weekly Export Sales and any indications of further declines in soybean bookings. Friday will mark the expiration of the June Live Cattle options.


There is a risk of loss in futures and options trading.  Past performance is not necessarily indicative of future results.  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 content, or visit the web site @ www.bruglermktg.com.


 
© 2009 Brugler Marketing & Management, LLC

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