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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.

Cattle and Hogs On A Roll

Apr 09, 2010
 

Market Watch with Alan Brugler
April 9, 2010
 
Cattle and Hogs on a Roll
 
Cattle futures posted a net gain of $3.00 for the week, with another week of early and aggressive buying by the packers. Cash cattle traded at $100-101, up $3-4 from the previous week. That pulled up April futures, which are after all in delivery. You won’t see any deliveries with futures at a discount to cash, but it is a great situation for a cattle hedger since he/she gained on the basis while the hedge was in place. Wholesale prices were higher again, with the choice boxes trading at $165.27 on Friday. Demand and offerings were both described as weak, however. Beef production for the week was 0.9% above the same week in 2009. Federally inspected beef production YTD is down 1% for the year.
 
Hogs extended their rally another 2.65%, or $1.97. The lean pork cutout was up more than $5 for the week, gaining 6.7% to $79.51. That fueled gains in the cash hog market and allowed futures to float higher. With April hogs expiring this coming week, and with that contract cash settled to the CME Lean Hog Index, futures need to converge with the Index at expiration. Resolution of the Russian pork dispute is supporting the market. Reductions in the Chinese herd are also spurring talk of better export potential into either China or Hong Kong.
 
Wheat futures were higher at all three exchanges, posting double digit gains for the week despite a little sell off on Friday after the crop report. USDA threw the bulls a few crumbs, cutting projected US ending stocks to 950 million bushels and also dropping projected world ending stocks by about a million tonnes. The adjustment came on improving US wheat export sales. USDA hiked projected world feed use to account for most of the adjustment. US and Russian ending stocks are now seen lower than last month, while Canadian and Aussie stocks are seen larger.
 
Corn prices eked out a higher weekly close after two hard down weeks. The gain came on Wednesday, and they spent the rest of the week giving it back. The WASDE report on Friday showed a 100 million bushel increase in projected US ending stocks, to 1.899 billion bushels. This was required by the Grain Stocks report, and USDA made the adjustment by trimming feed and residual use. They left corn ethanol use UNCH, despite the record ethanol production in January that was announced on Thursday by EIA. The question is whether the weaker margins being seen in March and early April will curb the growth in ethanol production later in the year. It is worth noting that ethanol exports exceeded imports, and this happened before Brazil lifted their import tariff on ethanol. Weekly export sales were robust, allowing USDA to keep the March projection for the year in place.
 
Soybeans rose 1.09% for the week. The world stocks situation continues to look more and more bearish, with USDA hiking projected world ending stocks to 62.96 MMT from only 60.67 MMT the previous month. That’s another 84 million bushels of competition for 2010 crop beans. USDA hiked its estimates for both Brazilian and Argentine production. No change was made to Argentine exports, but Brazilian bean exports were raised another 700,000 MT. Old crop futures were looking at a different picture, and thus the higher close for the week. USDA raised projected exports another 25 million bushels, and then made the “known” cut in residual use to true up the data with the Grains Stocks from March 31. Bears had expected at 15-20 million bushel increase in old crop carryover, but USDA left it at a snug 190 million bushels.
 
Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:
 
 
Market Watch
 
 
 
 
Weekly
Weekly
Month
03/19/10
03/26/10
04/01/10
04/09/10
Change
% Change
May
Corn
$3.75
$3.56
$3.45
$3.46
0.01
0.36%
May
CBOT Wheat
$4.83
$4.65
$4.55
$4.67
0.12
2.70%
May
KCBT Wheat
$4.93
$4.76
$4.70
$4.84
0.14
2.87%
May
MGEX Wheat
$5.09
$4.97
$4.89
$5.01
0.12
2.51%
May
Soybeans
$9.62
$9.52
$9.42
$9.52
0.10
1.09%
May
Soybean Meal
$270.25
$271.00
$265.90
$265.30
0.60
0.23%
May
Soybean Oil
$39.30
$38.95
$38.98
$40.04
1.06
2.72%
April
Live Cattle
$97.97
$94.02
$96.65
$99.65
3.00
3.10%
April
Feeder Cattle
$108.68
$107.20
$110.37
$114.52
4.15
3.76%
April
Lean Hogs
$73.35
$69.67
$74.25
$76.22
1.97
2.65%
May
Cotton
$82.18
$79.69
$81.50
$78.07
3.43
4.21%
May
Oats
$2.25
$2.12
$2.11
$2.15
0.04
2.14%
May
Rice
$12.70
$12.46
$12.38
$13.79
1.41
11.39%
 
Cotton futures dropped sharply, losing 343 points or more than 4.2% of their value at the beginning of the week. Concerns about retail sales continue, as unemployment lingers at relatively high levels. US export sales are also down from year ago, due to the recession and also to the stronger US dollar. On the other hand, USDA revised the size of the 2009 crop downward after reviewing the ginnings report, and that tightened up old crop cotton stocks even further. The world ending stocks estimate was also tightened up, to 50.91 million bales, as production fails to keep up with consumption.
 
Market Watch: Crop progress and condition ratings will begin to take on more importance, as planting of corn, soybeans and spring wheat spreads further north. USDA will issue the weekly Crop Progress report on Monday afternoon at 3 pm CDT. Traders will also watch the demand side of grains, which has been picking up, through the Export Inspections report on Monday and the weekly Export Sales report on Thursday morning. Thursday will also mark the expiration of the April hog futures contract. The folks at NOPA will issue their March crush estimate on April 14, the day of the full moon and a mere 24 hours before tax day. The May cotton options will expire on Friday.
 
 
There is a risk of loss in futures and options trading. 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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