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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.

Red Ink in Red Meats

Jun 08, 2009




Market Watch Summary with Alan Brugler

June 5, 2009

 Red Ink in Red Meats

The grain markets chopped around this past week in some violent swings as they tried to determine if they had “bought” enough acres and rationed enough old crop demand. The livestock markets were operating under no such uncertainty. They were flat out lower, with nearby June Lean Hogs losing 10.56% of their value in a single week. Cattle were also down by 1.44%. Both meats suffered from slumping wholesale prices that in turn influenced cash hog and cattle bids. The weakness in the wholesale sector is tied to much weaker exports and some recession related losses in domestic consumption. The number of cattle ready for slaughter is also inconveniently rising into July, and higher pork carcass weights are cancelling out smaller slaughter numbers by adding to total tonnage. 

June hogs had an additional problem, since they are cash settled against an index and expire this coming Friday. At the beginning of the week they were at a premium to the CME Lean Hog Index, but the index was going down instead of rising to meet the futures. That triggered a limit down day on June 2. By the end of the week, futures were actually below cash and anticipating further weakness in the Index prior to expiration. June cattle options expiration forced some selling during the week, but June futures trade until the end of the month and they are physically settled via deliveries so it is a different dynamic.

Feeder cattle futures were pinched between the lower cattle prices and higher corn prices, resulting in a loss of $5.13 for the week per hundred pounds. That sell off was aggravated by lower cash feeder auction results and by violation of chart support points that encouraged speculative longs to exit.

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

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Weekly

Weekly

 

05/15/09

05/22/09

05/29/09

06/05/09

Change

% Change

July Corn

$4.17

$4.30

$4.36

$4.44

0.08

1.78%

July CBOT Wheat

$5.78

$6.13

$6.37

$6.23

0.14

-2.24%

July KCBT Wheat

$6.31

$6.61

$6.87

$6.75

0.12

-1.75%

July MGEX Wheat

$7.05

$7.45

$7.72

$7.44

0.29

-3.69%

July Soybeans

$11.31

$11.66

$11.84

$12.26

0.42

3.51%

July Soy Meal

$358.20

$375.00

$382.50

$396.00

13.50

3.53%

July Soy Oil

$37.90

$38.10

$39.05

$39.73

0.68

1.74%

June Live Cattle

$82.37

$82.53

$81.32

$80.15

1.17

-1.44%

Aug Feeder Cattle

$101.65

$101.93

$101.75

$96.62

5.13

-5.04%

June Lean Hogs

$66.52

$65.98

$63.92

$57.17

6.75

-10.56%

July Cotton

$56.30

$57.11

$56.97

$55.11

1.86

-3.26%

July Oats

$2.28

$2.50

$2.51

$2.56

0.05

1.99%

July Rice

$11.94

$12.06

$12.35

$12.62

0.27

2.19%

 

 

Corn futures were up 1.8% for the week despite smaller than expected export sales for the prior week.  Ethanol was the bright spot, gaining 2 ¼ cents per gallon in the July futures for the week. While some plants are still mortally wounded and filing for bankruptcy, operating margins have improved with the summer rally in motor fuel prices. Feed use, on the other hand, is threatened by the negative closeouts for un-hedged cattle, hog, dairy and poultry producers.

 

The soybean complex was the bullish leader. Friday’s Commitment of Traders report confirmed substantial spec fund and index fund buying in the reporting week ending June 2. Some of those longs were washed out on Wednesday, but they or others bought back in on Thursday. Meal futures supported the rally by gaining 3.5% on the week despite competition from DDGs and horrendous losses being experienced by un-hedged cattle and hog producers. Soy oil wasn’t up as much, but the run at $70 by crude oil boosted heating oil/diesel prices and made biodiesel made from soybean oil more feasible. The Census Fats & Oils report also showed surprisingly strong soy oil use for biodiesel in March.

 

Wheat futures were lower at all three exchanges. Chicago futures gapped higher on Monday morning, and closed that exhaustion gap on Wednesday with a 50 cent per bushel spasm of profit taking type selling. A dead cat bounce on Thursday only recovered about 40% of the damage, and index funds selling on Friday took values lower. Fundamentally, there was fretting about head scab outbreaks due to the wet weather, and of course poor yield reports out of TX and OK. Spring wheat crop condition ratings issued on Monday by USDA were better than many expected and contributed to the selling pressure in the MPLS market.

 

Cotton futures fell 3.3% for the week. The rally in the US dollar appeared to be the main reason for selling, threatening export sales to some degree. Crop weather also improved a notch and the southern US has more normal predicted temps and precipitation next week, as opposed to the cooler and wetter calls in the northern half of the country. Weekly export sales were slightly above the range of very pessimistic trade estimates ahead of the report.

 

Market Watch:  The cattle market will begin the week by adjusting to new futures positions acquired or lost in Friday night’s June options expiration. Grain traders will start out the week with the usual Monday USDA Export Inspections and Crop Progress reports. Analysts will be keenly interested in how corn and spring wheat are wrapping up, and how many of the 26 million acres of corn that were yet to be planted as of last week’s report are now in the ground. The major USDA reports for the week will be issued on Wednesday morning. USDA will release the US Crop Production and WASDE reports. Traders in general are looking for smaller Argentine production figures and tighter world ending stocks for soybeans for the 2008/09 year. USDA is typically reluctant to change acreage or feed use estimates in this report, since they get better data on June 30 (Planted Acreage and Quarterly Grain Stocks reports). June hog futures and options are due to expire on Friday, June 12.


 

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 consulting content, or visit our web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

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