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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 and Wheat Have A Bullish Episode

Feb 26, 2010
 

Market Watch with Alan Brugler
February 26, 2010
 
Corn and Wheat Have A Bullish Episode
 
It’s been a while since we’ve been able to say this, but corn was the bull leader this week with a 5% gain. That outstripped pretty fancy rallies in hogs and cotton, which were also up more than 4%. If oats knows where corn goes (an old saying that isn’t supported by correlation studies) they aren’t looking at the same month. Oats turned in the weakest performance among the tracked commodities.
 
Corn rallied despite less than stellar export sales interest. Export sales have slowed since the January crop report, which is somewhat puzzling given the lower corn prices. However, we also have to take note of the cheapness of world feed wheat (even being imported into Delaware because it was cheaper than Midwest corn plus rail freight) and the rising crop estimates for Argentina that will allow countries like Japan to diversify their sourcing. That said, other parts of the corn equation were more bullish. Ethanol margins continue to be positive, and the spread with gasoline permits more voluntary blend use. Livestock feeding margins have also improved, although there is scant evidence of expansion other than perhaps a little slow down in cow and sow slaughter.
 
Wheat futures were higher at all three exchanges for the third week in a row. Chicago futures were up 17 cents for the week. The US still does not appear to be competitive in the world export market overall, but is able to sell into specialized hard wheat niches in particular. A developing story is the buildup of carry in the market. This appears to have made March contract deliveries less attractive, and holding the physical commodity more attractive. It doesn’t cut the ending stocks or increase exports, but could support the futures price to a degree.
 
Soybeans had a more muted performance than did the feed grains, with a drop in soybean meal offsetting gains in soy oil and limiting the product value gain. Weekly export inspections are still running 4-5 million bushels above last year, despite the availability of Brazilian beans. Cumulative shipments YTD are 1.058 billion bushels through February 18. It wasn’t many years ago when that was considered to be a good export year. This time it has taken only 6 months. Meal export interest is slowing, however, due to a softening in South American basis. Census also reported record large January soybean meal stocks, so something must be done to clear the inventory.
 
Hogs were also higher for the third week in a row. All of the pork primal cuts except ribs and butts were higher for the week. The carcass value of the hog as measured by USDA was up 3.5% for the week. US pork production for the week was 0.3% below the prior week, and is down 7.2% since January 1 when compared to 2009.
 
Cattle lost 2.66% for the week, at least in the February futures. Those expired with a whimper on Friday. Estimated beef production for the week was up 2.1% from last week. For the year, tonnage is down 1.5%. Estimated carcass weights are down 19 pounds from last year’s 794# average for the last week of February. Wholesale prices retreated a little on Friday after a big week, with choice down 43 cents at $149.96. They were still up more than 2% for the week, and select boxes were up more than 3% on the week.
 
Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:
 
Market Watch
 
 
 
 
Weekly
Weekly
02/05/10
02/12/10
02/19/10
02/26/10
Change
% Change
March Corn
$3.52
$3.62
$3.60
$3.78
0.18
5.00%
March CBOT Wheat
$4.73
$4.87
$4.90
$5.07
0.17
3.42%
March KCBT Wheat
$4.85
$4.95
$4.98
$5.11
0.13
2.56%
March MGEX Wheat
$5.03
$5.05
$5.09
$5.17
0.08
1.62%
March Soybeans
$9.14
$9.45
$9.45
$9.51
0.06
0.63%
March Soybean Meal
$271.00
$280.00
$276.40
$273.20
-3.20
-1.16%
March Soybean Oil
$37.00
$37.84
$38.52
$39.29
0.77
2.00%
February Live Cattle
$87.25
$89.37
$92.77
$90.30
-2.47
-2.66%
March Feeder Cattle
$98.33
$99.92
$102.55
$101.05
-1.50
-1.46%
April Lean Hogs
$66.72
$68.20
$69.65
$72.80
3.15
4.52%
March Cotton
$66.62
$74.39
$78.79
$82.61
3.82
4.85%
March Oats
$2.26
$2.37
$2.30
$2.21
-0.09
-3.91%
March Rice
$14.09
$14.26
$13.63
$13.43
-0.20
-1.47%
 
Cotton futures surged 3.82 cents per pound, up 4.85% for the week. Weekly export sales were light, as expected for the week when the Chinese markets were closed. USDA also opened up an import quota period under the farm bill rules. Neither of the above would be considered bullish. However, world demand continues to show small incremental improvements. World stocks are tight, and wet conditions in the south are hindering early field work. US ending stocks are projected to be the tightest since 1999. Thus, the market is sensitive to planting intentions. March futures also got a boost from a developing short squeeze, with one commercial stopping all deliveries to date against the contract.
 
Market Watch: We turn the calendar, the month with the USDA Grain Stocks and Planting Intentions reports at the end of it. The old saying has it that March “blows in like a lion and goes out like a lamb”. That’s not always true in terms of prices, due to those reports! For this week, we have the usual gyrations from deliveries against March futures contracts, and the usual weekly USDA Export Inspections and Export Sales reports on Monday and Thursday respectively. March Live Cattle and Pork Belly options expire on Friday. USDA will also be surveying for harvest results in six states, to compensate or verify all of the un-harvested acres included in the January crop report.
 
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 (20 Comments)

Anonymous
And one more supposedly huge crop and grain producers will feel the pinch. One or the other all the time. The only stability in a lot of ag products over the last 30 years is low prices. Do the research it isnt too hard to figure out. Fine line margins for ag, creates only hardships for ag. Too many people to feed too many bushels for ethanol and prices still hovering around breakeven?
10:17 AM Mar 3rd
 
Anonymous
Its a no brainer in my view, we have to go back to the old days and start subsidizing grain producers more with LDPs and better RA policies guaranteeing better protection if we trully want ethanol and livestock producers to survive. Grain producers have to collect their subsistence checks you might say in order for profitability to exist for cattle and ethanol. One major short crop for some reason and these industries will be in the red.
11:46 AM Mar 1st
 
 
 
 
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