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Market Watch

RSS By: Alan Brugler,

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

Concerns About Feed Demand

Mar 05, 2010
Market Watch with Alan Brugler
March 5, 2010
Concerns About Feed Demand
The theme of the week was a slide in things you feed to livestock. Corn, wheat and soybean meal were all lower. There was kind of a bearish spiral involved. Wheat stocks are burdensome and trying to work their way into rations all over the world. Census soybean meal stocks were record large at the end of January, and a crusher surprised the market with deliveries against March meal futures (suggesting they didn’t have a home for the meal). Corn and its DDG byproduct was competing with the others, while also seeing a slowdown in its export sales commitment “lead” vs. last year.
Corn gained 18 cents two weeks ago, and then gave back 13 of them this week. Weekly export sales were above the pre-report guesses, but those guesses were pessimistic. The sales pace is being hobbled by competition from feed wheat, and promises of more corn out of South America than was available at this time a year ago. Some areas of the country are also having trouble meeting contract specs for export programs, limiting shipping totals. Part of the weakness was also garden variety profit taking after a month long run up and just ahead of a USDA report that could potentially alter the 2009 production number.
Wheat was down 2 ½ to 3 ½% for the week, with all three markets lower. Bearish world fundamentals continue to weigh on prices periodically. The U.S. makes some export sales on dips, but has been losing competitive tenders due to prices that are above world market levels. High freight costs to the main net importers have also hurt the U.S. success rate. A state crop report showed that Kansas winter wheat was in better condition than last year at this time. Texas is also seen in excellent shape due to more moisture than usual over the winter.
Soybeans lost 16 cents for the week, and are still within a dime of where they were a month ago. A sharp 5.6% drop in soybean oil took away a lot of product value and put pressure on crush margins. Soy oil was up 1.09%, but that was not near enough to make up for the drop in meal. Weekly export sales for the U.S. were also the lowest of the marketing year, as world demand shifts to cheaper “fresh out of the field” supplies from Brazil. A private forecasting firm raised its estimate of Argentine soybean production to 55 MMT, a full 2 MMT above USDA. The Argentines themselves were less excited about crop prospects, due to wet weather and rapidly spreading fungal diseases like rust.
Hogs eked out a small 30 cent gain for the week.  The pork carcass cutout gained another 3.2% for the week, boosting what packers could and would pay for the hogs. All cuts were up except for the picnics. While not a market factor, a jury in Missouri awarded the largest hog odor damages award in history ($11 million) to residents living around a Premium Standard Farms facility in Berlin, MO. This is a warning to CAFO’s with all types of livestock that even being mostly surrounded by farmers won’t protect you from such suits. It is not known at this time whether Smithfield will appeal the ruling, which covers 11 years of operation at the 4,300 acre facility.  
Cattle gained 1.12% for the week. Cash cattle trade was very slow to develop, and steady to a dollar lower in the north. Wholesale prices were lower on the week, with choice boxes retreating 37 cents for the week and select down $1.45. Export sales for the prior week were also on the light side for the end of February. Late on Friday some cash cattle trades in KS and TX were reported in the $92-92.50 range.
Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:
Market Watch
% Change
March Corn
March CBOT Wheat
March KCBT Wheat
March MGEX Wheat
March Soybeans
March Soybean Meal
March Soybean Oil
April Live Cattle
March Feeder Cattle
April Lean Hogs
March Cotton
March Oats
March Rice
March Cotton futures were higher on Friday, but not by enough to put a plus sign on the line for the week. Cotton futures hit their highest price since the March 2008 options fiasco early in the week, but then retreated. Downward revisions in cotton production numbers for several countries have been supportive, with USDA going to give us the full low down on Wednesday. Weekly export sales were still slow. Brazil indicated that a deal might be in the offing to resolve the WTO finding that the US had broken rules on subsidies and export guarantees. The WTO had authorized cross-retaliation against other US products.
Market Watch: The main USDA reports for the week will be on Wednesday, with Crop Production and the WASDE supply/demand reports. Traders are widely divided on whether USDA’s re-survey effort will find more corn and soybeans, or fewer than were shown in the January reports. There is more unanimity that USDA will hike Southern Hemisphere corn production. There will be the usual weekly Export Inspections report on Monday and weekly Export Sales on Thursday morning. Tuesday will be the last trading day for ICE March cotton futures. Friday will mark the expiration of the March grain contracts at the CME Group. Not to be forgotten, Daylight Savings Time is due to begin on the morning of March 15. Spring is still another week away!
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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COMMENTS (10 Comments)

Yes millers are smiling from ear to ear. Cheapest wheat in the world and highest priced bread in the world. Than throw in the additional quality benefit of less used per loaf,,, profits abound.
2:52 PM Mar 11th
Needless to say I think the millers feel like they really got a good deal this year.
1:53 PM Mar 11th
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