Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.
Jan 30, 2009
You can argue whether we’re in a recession, depression, deflation or lull. Whatever it is, prices for ALL of the ag commodities we track were lower this week than they were the prior week. Rice saw the largest decline at 7.69%, but everything was lower. This smacks of depressed demand relative to the supplies available, perhaps with a little bit of end of month liquidation selling thrown in. Some would argue that this is just the introductory phase of the February Break, a traditional creature of on farm cash flow demands (forced selling of commodities to meet farm and equipment payments) which has been AWOL for the past couple years.
Below is a table showing the net weekly change of selected agricultural futures contracts:
Corn futures were down 12 cents for the week. Weekly export sales posted a marketing year high of 1.108 MMT (million metric tonnes), led by a Japanese purchase of 406,100 MT. Despite talk of completion from cheaper Australian feed wheat, Japan continued to be a buyer this past week based on business announced under the daily reporting system.
Soybeans were down in line with the value of the products, losing 2.9%. Technical resistance and improved Argentine and Brazilian growing weather weighed on the market. South American soybeans are just now approaching the main flowering and pod setting period after riding out a period of hot and mostly dry weather (Argentina) during their vegetative stage. Some of the early microclimate areas of Brazil are also already harvesting some new crop beans, freeing up some supply. This is likely one reason that China was more active in the Brazilian market a week ago. Meal futures were also technically overbought, and even a bullishly construed Census meal stocks figure on Thursday wasn’t enough to get prices higher on the week. US meal stocks were still burdensome on January 1 at 415 thousand tons.
Wheat futures were lower at all three exchanges, with CHI the weakest. The biggest problem was the weekly export sales report on Thursday. Rising prices for Black Sea origin wheat had the market convinced that the US was becoming more competitive. However, the net weekly export sales were only 23,500 MT after deducting a previously announced Nigerian cancellation of 276,600 MT. The net sales were a marketing year low. Egypt did buy 60,000 MT of US wheat in a Friday tender, but the demand side is still iffy. The IGC projected world 2009 wheat production at 650 MMT, well below this past year’s 687 MMT. Of course part of that decline is for the US, where winter wheat acreage is known to be down, and spring wheat acreage is uncertain.
Cattle futures were down 67 cents for the week. That was probably a victory for would be bulls, given sharply lower wholesale prices for the week, and a lower cash cattle trade. There was a little caution ahead of Friday afternoon’s Cattle Inventory report, which gives the most complete picture of the cow and calf side of the business. Cow and beef heifer numbers were expected to be smaller, and they were. The calf crop was also down, and smaller than the average trade guess ahead of the report.
Hogs were off 37 cents for the week. February futures were first above the CME Lean Hog Index, then below it, and then trying to get back toward it. Expiration is scheduled for February 13. Wholesale prices continue to point to lower cash hog prices than those being reported, which is causing a bit of confusion for futures values. Packer margins would appear to be squeezed, unless they have some high priced forward contracts for product that they are filling with cheaper nearby pork.
Cotton futures were down 2.4% for the week. Prices rose to the highest levels since October on Tuesday, which triggered some cash cotton movement. The rally took another hit on Thursday when USDA showed smaller than expected weekly export sales (107,200 RB of upland) for the week ending January 22. China was a very small buyer at 19,700 RB, and is expected to show even smaller activity in next week’s report, which will span their holiday week.
Market Watch: Now that January is over, the fun begins. February is the price setting period for the crop revenue insurance products, using the monthly average of December corn and November beans. It is also the last opportunity for the market to influence producers as they respond to USDA Planting Intentions surveys. The official survey date is March 1, although the results won’t be compiled and released until the end of March. If there is an Acreage War for 2009, February is when one of the major battles is usually fought. Price is the main weapon for both sides. We’ll also get routine USDA weekly reports like Export Inspections on Monday, and Export Sales on Thursday. February Live Cattle options and March cotton options expire on Friday the 6th.
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