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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.

Moving in Opposite Directions

Jul 17, 2009

           

 

Market Watch with Alan Brugler

July 17, 2009

 

Moving in Opposite Directions

 

Chicago grain prices were mostly lower for the week. On the other hand, the CME livestock contracts traded within the same exchange were up by 1.5 to 3.5%. Operating losses amoung unhedged livestock feeders have been well documented and are approaching the two year mark in hog operations. If you were to script a way for the livestock sector to recover quickly, simultaneously higher meat prices and lower feed prices would be the happy ending. For the past two weeks, that’s what we’ve been seeing. Ethanol plants have also seen improvement in margins, with the gains diluted a bit by weakness in the byproduct values.

 

The soybean complex saw a major collapse of the bull spreads. July futures lost 54 cents before expiring on Tuesday evening.  August beans were down 35 cents despite gaining 33 ½ on Friday.  That means they had been down 68 ½ cents as of Thursday evening. Soybean meal was under pressure from the margin troubles in the livestock sector, and nearby futures closed Friday $115.90/ton below their June peak. That’s a 26% decline in 5 weeks! Soy oil was higher on sell the rumor, buy the fact logic. NOPA reported much larger than anticipated July 1 soy oil stocks, over 2.9 billion pounds. So naturally futures were higher on 4 of the 5 trading days for the week! That rally hurt meal via unwinding of spreads, but supported soybean value.

 

That lack of a moral victory for corn a week ago proved to be a warning. The early week rally was muted, and prices were hammered on Wednesday and Thursday after failing to close an overhead price chart gap. By the end of the week, corn was down 6 cents per bushel. The WASDE report on July 10 showed larger old crop stocks than some had expected, pressuring old crop cash bids pretty much all week. Benign US weather, i.e. moderate temps during pollination, also reinforced notions that USDA would raise projected national average yield in the August crop report. That kept a lid on new crop futures. Weekly export sales were solid at more than 1.1 MMT, as lower prices attract buyers and a weaker dollar also encourages more activity.

 

Wheat futures slowed their descent, and both KC and MPLS futures finished with gains for the week. Chicago was involved in more spread trading, and posted a net loss of 4 cents per bushel. Total export commitments for the year are 49% smaller than last year, a huge handicap if you want to be bullish. They are also light as a % of USDA’s forecast for the year at 21%. The average commitment as of this date is 29% of the USDA forecast. Bulls were mostly getting help from unwinding of spreads, where wheat had been the favored short leg. To unwind corn/wheat or soy/wheat, you have to buy back the wheat.

 

Cotton futures were up another 2.83% for the week. Deferred new crop contracts like the December 2010 are trading over 70 cents/pound on expectations of a cotton stocks drawdown and an eventual upturn in consumer textile demand. There was little evidence of that demand in the weekly numbers coming out of Wall Street. A weak US dollar did help commodities like cotton that weren’t being actively liquidated.

 

 

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

 

Market Watch

 

 

 

 

Weekly

Weekly

 

06/26/09

07/02/09

07/10/09

07/17/09

Change

% Change

September Corn

$3.92

$3.46

$3.28

$3.22

-0.06

-1.83%

September CBOT Wheat

$5.63

$5.29

$5.19

$5.15

-0.04

-0.77%

September KCBT Wheat

$6.00

$5.64

$5.48

$5.67

0.19

3.47%

September MGEX Wheat

$6.67

$6.23

$6.03

$6.16

0.14

2.24%

August Soybeans

$11.28

$11.54

$10.45

$10.10

-0.35

-3.37%

August Soy Meal

$371.00

$382.20

$344.80

$317.50

-27.30

-7.92%

August Soy Oil

$36.24

$35.34

$32.73

$34.82

2.09

6.39%

August Live Cattle

$82.40

$84.88

$83.48

$86.38

2.90

3.47%

August Feeder Cattle

$98.98

$103.45

$102.93

$104.60

1.68

1.63%

August Lean Hogs

$57.70

$61.15

$63.60

$64.67

1.07

1.68%

October Cotton

$54.89

$59.00

$60.39

$62.10

1.71

2.83%

September Oats

$2.19

$2.25

$2.12

$2.15

0.03

1.53%

September Rice

$12.23

$12.89

$13.02

$12.97

-0.05

-0.38%

 

Cattle futures were up 3.47% for the week. Wholesale beef prices remained under pressure all week due to heavy packer offerings, and in fact were down another 10 to 20 cents on Friday. The market, however, is looking ahead to tighter ready cattle numbers as we head into August. Beef production year to date is down 4.1% from last year, and this past week was 9% below the same week in 2008 based on preliminary numbers.

 

Hogs were able to post their fourth consecutive higher weekly close in the August contract. Pork production YTD is down 3.3%, and the estimate for the past week is -6.6% thanks in part to some plants being dark on Monday. The lean pork cutout has been absolutely on fire, rising to $65.63 on Friday. The carcass value has risen $11.86 since July 1, a 22% increase. That jump in meat value is boosting future cash hog price potential, and is reflected in the premium being traded by the futures.

 

Market Watch:  With the July USDA crop reports out of the way, market attention returns to yield estimation in its various flavors. USDA crop condition ratings on Monday night will receive some attention, as will maturity measures (like % silking in corn and % blooming in soybeans).  Besides the Monday night report, the other major USDA reports are Cattle Inventory and Cattle on Feed, with both to be released on Friday July 24th. Census is due to release the monthly Crush and Cotton Consumption reports on Thursday morning. Options traders will also be busy, with August grain options expiring on Friday afternoon.  

 

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.

 

© 2009 Brugler Marketing & Management, LLC

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COMMENTS (2 Comments)

Anonymous
I think we need the grain trade to be in charge of trading health care premiums. What better way to keep costs at or below cost of production like grains.
9:24 AM Jul 20th
 
Anonymous
I saw the add for the crop tour Aug 17-21. Good thing they don't come through here, beans might be blooming by then, Corn probably pollinating. Hopefully there are good crops elsewhere or this world would be in serious trouble. November frost would be real good here.
10:27 PM Jul 17th
 
 
 
 
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