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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.

Corn Bull A Pretender?

Aug 07, 2009

           

 

Market Watch Summary with Alan Brugler

August 7, 2009

 

Corn Bull A Pretender?

 

Corn rallied sharply on Monday, and then died. There was nothing fancy about it. Bullish news items like a drop in condition ratings, and another week of more than 1 MMT of export sales, were ignored. Frost threats to the delayed crop were a hard sell with temp forecasts for high 90’s and 100’s in the Western Corn Belt for the weekend. The bottom line is that corn had one higher weekly close and couldn’t generate a second one ahead of the USDA Crop production report due on Wednesday morning. Poor livestock margins doubtless played a role in corn weakness, with hog and cattle feeding margins deeply in negative territory and banks reported to be getting antsy about some of their larger and more leveraged livestock production loans. An estimate from a private firm for final production near 12.99 billion bushels also proved to be the bearish multiplier that accelerated the selloff.

 

Soybeans rallied 4.95% for the week, with August in the lead. The rally started because cash prices were well above delivery value, making odds of delivery notices quite low and threatening shorts who don’t have the receipts. Cash was held high by tight old crop stocks and the discount of US prices to both South America and to the Chinese price support. Following the rally on Monday, US prices appeared to be above the Chinese government level, potentially making China’s estimated 6 MMT of reserve beans available to the market. That cooled the rally, but by the end of the week strong USDA reported export sales and a hot & dry forecast for this week forced a little weather premium back into the market.

 

Wheat ground to new life of contract lows this week, pressured by world fundamentals. World wheat production will still be smaller than last year, but the French wheat crop is now seen with record or near record average yield, and projections for US spring wheat production have been rising following the Wheat Quality tour. Early harvest results in South Dakota have also borne out the higher yield expectations. From a global perspective, US prices are chasing the market down, with Russian and EU origin wheat cheaper to destinations like Egypt. That country bought 210,000 MT of wheat this past week, but none of it was from the U.S. With over 700 million bushels of expected ending stocks, the US needs to encourage wheat feeding as well as human use. That is difficult given the slide in corn, and also the shrinkage in poultry numbers in the key Southeast rail market.

 

Cotton futures turned in a pretty good week (if you are bullish or grow the stuff), gaining 4.53% for the week. More than half of the gain for the week occurred on Friday as the dome of hot air solidified in the weather forecasts and jobless data for the US showed unemployment actually dipping a little to 9.4% from 9.5% the previous month. This number can still be revised upward, but was seen as another sign of stability if not potential for increased demand. A stronger dollar capped price gains and export sales.

 

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

 

Market Watch

 

 

 

 

Weekly

Weekly

 

07/17/09

07/24/09

07/31/09

08/07/09

Change

% Change

September Corn

$3.22

$3.16

$3.40

$3.22

-0.18

-5.53%

September CBOT Wheat

$5.15

$5.16

$5.28

$4.90

-0.39

-7.51%

September KCBT Wheat

$5.67

$5.49

$5.59

$5.25

-0.34

-6.19%

September MGEX Wheat

$6.16

$5.92

$6.05

$5.73

-0.32

-5.37%

August Soybeans

$10.10

$10.21

$11.34

$11.85

0.51

4.95%

August Soy Meal

$317.50

$323.20

$361.00

$374.50

13.50

4.18%

August Soy Oil

$34.82

$33.89

$35.06

$36.78

1.72

5.08%

August Live Cattle

$86.38

$84.52

$84.70

$83.85

-0.85

-1.01%

August Feeder Cattle

$104.60

$102.55

$102.35

$101.35

-1.00

-0.98%

August Lean Hogs

$64.67

$59.05

$56.02

$48.80

-7.22

-12.23%

October Cotton

$62.10

$57.39

$57.93

$60.53

2.60

4.53%

September Oats

$2.15

$1.95

$1.98

$1.99

0.01

0.64%

September Rice

$12.97

$13.40

$13.77

$13.87

0.10

0.75%

 

Cattle futures ground lower as wholesale beef prices gave back some of their July gains due to pressure from substantially cheaper pork.  That weakness translated into lower cash cattle bids, with Nebraska trading at $130/$82 on Thursday. With August futures above $84 the prior week, and now into the delivery period, prices had to drift down toward the cash market price level.

 

Hogs unfortunately took the prize for not only the worst weekly loss, but for the worst weekly loss we’ve seen in quite some time. The nearby August contract fell $7.22/cwt., or 12.23% for the week. It was pretty much an elevator ride down, with pork cutouts dropping sharply each day despite plants taking downtime in an attempt to firm up the market. Export demand appears to be much poorer than last year (Census data lags by 45-60 days), and carcass weights are running higher than last year. This has all the earmarks of a market that will overrun to the downside due to the momentum players before rebounding. The break below the 2007 bottom caused fresh liquidation selling. The next major chart support is at $45.75.

 

Market Watch:  Cattle traders will begin the week reacting to any surprise positions inherited when August options expired and were exercised on Friday. Monday is also first notice day (FND) for August cattle futures deliveries. There will be some interest in the USDA weekly crop progress and condition report on Monday night. Whether condition ratings are dropping in seasonal fashion will be the biggest question, along with how rapidly the heat is advancing corn maturity. Soybean traders will be looking for evidence that China is shipping all of the old crop beans that are still on the books. The big report day of the week will be Wednesday, however, when USDA will release its first field based Crop Production estimates for corn and soybeans, along with the monthly WASDE supply/demand estimates. There is keen interest in any acreage changes USDA will make as a result of the 7 state re-survey efforts.  Finally, Friday will include the monthly NOPA soybean crush report. It will also be the last trading day for August lean hogs.

 

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.


***Participate in our 5th annual Virtual Corn Tour. We cover the country without leaving home and share results with all who submit data. Download the instructions from our Web site and fax or e-mail the results back to us before August 17.  The PDF may be obtained from the Brugler homepage at www.bruglermktg.com. Results may be faxed to 402-289-2353 or emailed to alanb@bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

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