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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.

Lubricated Slide

Oct 24, 2008
You can’t escape the media coverage of the economy or the energy markets, which are inter-related in several ways and directly influence ag commodity prices. Nearby Crude oil was down $7.02 per barrel, off 9.7% for the WEEK. Heating oil and diesel were also down sharply. Biodiesel production from palm oil is up as palm oil prices have dropped enough to become competitive. One major Malaysian biodiesel firm reported that it is running at 95% of capacity. The combination of the above drove soy oil futures down 11.35% for the week. The loss of 4.03 cents/pound meant a drop of 46 cents per bushel in oil value of a bushel of soybeans. That was offset a little by a $10.10/ton gain in meal prices. Meal was surprisingly higher in the face of cheaper corn and feed wheat. One reason was the smaller than expected Census stocks number on Thursday, but unwinding of oil/meal spreads probably paid a bigger role.
Below is a table showing the net weekly change of selected agricultural futures products:
Market Watch
% Change
Dec Corn
Dec CHI Wht
Dec KC Wht
Dec MGE Wht
Nov Soybeans
Dec Soy Meal
Dec Soy Oil
Oct Lv Cattle
Oct Fdr Cattle
Dec Ln Hogs
Dec Cotton
Dec Oats
Nov Rice
Corn futures accelerated again to the downside after only losing 5 cents the week before. Demand destruction is a piece of the equation, with plunging ocean freight prices revealing the combined impact of tight credit and increased availability of world feed grains. Corn export commitments YTD are down 40% from year ago at this time. Then you have to throw in the selling from the index and hedge funds. Index funds liquidated 8,398 longs and added 3,482 shorts in the CFTC reporting week ending October 21.
Wheat futures in CHI and KC were down more sharply than corn in percentage and dollar terms. MPLS was a little bit firmer, but still fell 6.1%. French wheat was well below the US price in an Egyptian tender, despite cheap ocean freight. Record world production in 2008 is also taking a big bite out of export business. Unshipped wheat sales (the export “book”) are down 55% from year ago.
 Cotton Futures posted the worst % loss for the week, down 11.57%. People will always eat, but they can defer clothing purchases and in uncertain times they will. While we’re technically not in a recession yet, and unemployment is still low compared to places like the EU, the average American consumer is paying down debt and you do that by buying less. Textiles are one area that can be cut back, reflected in both the lower domestic mill use figure from Census released on Thursday and in reduced ginned cotton exports. China and Vietnam et al don’t buy as much of our cotton when they don’t have buyers here for the finished goods.
Cattle had a tough week, losing 3.5% of their value. Wholesale prices are dropping as retailers are uncertain about consumer demand. Export sales were better this past week, but drop off seasonally in the 4th quarter. The two year highs in the value of the dollar work against meat export sales from the US. Losses were limited by comparatively small slaughter cattle numbers vs. year ago. In other words, supply has tightened but demand apparently has tightened more. Paper demand (index funds) is also shrinking with every downswing and margin call from the Dow or the S&P.
Hogs were the bullish exception to the rule, gaining nearly 4% for the week. Pork cutout values were down 42 cents on Friday to $65.97, but still supporting cash hog prices at levels above the current location of December futures. Oversold futures bounced, with large spec funds shifting back to a net long position over the past 10 days. Index funds are still the largest longs in the market. According to Friday’s CFTC report, the index funds still held 84,585 longs in hogs as of October 21.
Market Watch: As if we didn’t have enough volatility already, now we’re coming into the end of the month, where the winners take profits and the losers hide their positions from their shareholders and investors at the funds. Friday will be first notice day for deliveries against November soy beans and rough rice, and the last trading day for October cattle and Fed Funds futures. There is also an FOMC (Fed) meeting scheduled for Tuesday, and the interest rate markets are pricing in another interest rate cut. In terms of USDA reports, this is a pretty bland week. We just have the routine Export Inspections, Crop Progress and Export Sales reports.
Thoughts for the week:
“A national political campaign is better than the best circus ever heard of, with a mass baptism and a couple of hangings thrown in”
“A politician is an animal which can sit on a fence and yet keep both ears to the ground.”
H.L. Mencken
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.
Tech Talk: November Soybeans
November soybeans saw liquidation during the Goldman Roll, and it just kept on coming as stale longs are motivated to get out before deliveries. The contract found some buying interest on Thursday at the 78.6% retracement of the rally from October 2006 to the 2008 high. That support is at $8.39 ¼. If it fails, the lower Bollinger Band would be our next potential support at $7.85. Because the trend following systems (BCI, MACD, moving averages, parabolics) are all bearish, all supports have to be seen as potential rather than “for sure”. Stochastics are showing a mild bullish divergence but are still in oversold territory and thus not trustworthy. See late July and early September for the reason we say that.
Overhead resistance is the 18-day moving average at $9.94. We would note that trading above $9.11 on Monday would trigger a parabolic buy signal. A close above it would be even better. If the equity and financial markets are acting friendlier at the same time, we’ll be motivated to tighten up stops on short futures, sell OTM puts, roll down profitable long puts and otherwise take a more conservative but still hedged position. The equity market action is still important because it dictates the amount of selling pressure coming from the long only and hedge funds.
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.                    
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