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Market Watch

RSS By: Alan Brugler,

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.


Oct 31, 2008
Things certainly aren’t back to normal. USDA had an early Halloween bag of tricks and treats, announcing a surprise crop report on Monday to be released on Tuesday morning. One trick was the limited advance notice, which spooked the bears and fueled a big short covering rally. The treat was the downward revisions in harvested acres for corn and soybeans, with reduced 2008 production estimates. Other tricks were the cuts in projected exports and feed use, which meant fairly modest ending stocks revisions. As a treat, USDA raised projected national average cash prices for the year in both corn and soybeans. Other markets were also scary, with the Dow Jones posting the weakest October since 1998. The Dow was up for the last week of the month, however.
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
Nov Fdr Cattle
Dec Ln Hogs
Dec Cotton
Dec Oats
Nov Rice
Corn prices are trying to put in a traditional October harvest low. Cash prices bottomed early in the month as per usual. Futures waited until later in the month, but gained 7.93% for the last week as bears took profits off the table after seeing USDA’s cut in projected ending stocks. Weekly export sales are still very sluggish, as is demand from the livestock sector. Poultry production in particular is being scaled back. Ethanol demand estimates are holding up, but reports of bankruptcy filings and broken loan covenants are a repeating part of the landscape.
Wheat futures were higher at all three exchanges, aided by a slow down in the liquidation selling by the hedge and index funds. Some of the economic fixes appear to be working, with LIBOR and other indicators of financial liquidity improving all week. Lagging indicators like unemployment of course will be getting worse for a while as the data comes in slowly. U.S. wheat export sales are running well below year ago. IGC hiked their estimate of world wheat production to 783 million bushels, matching USDA’s October increase and raising it. USDA’s first crop condition ratings of the year for the 2009 winter wheat crop were 65% good/excellent, about 10% better than in 2007.
Soybean futures were up a stout 7.2%, aided by increased prices for both soy oil and soy meal that allowed crushers to pay up for the beans. Big weekly export sales for the prior week were not the largest on record, but they were the largest to China in a single week during the month of October. That hinted that the combination of lower prices and cheaper ocean freight was beginning to be attractive to international buyers. On the bear side, China’s ramped up purchases may have been an attempt to get in under the wire as the government raises import tariffs to boost domestic prices.
Cotton Futures sank to the lowest level since August 2004 on the continuation charts. The loss for the week was another 4.1%. Weekly export sales were less than 20% of the trade expectations, and textile sales appear to be taking a hit courtesy of the developing recession. The government is now the buyer, with LDP’s of more than 11 cents per pound signaling producers to either put the cotton under loan or take the LDP and settle for net prices in the 55-58 cent range. Efforts to expand domestic mill use are underway, including a Step 2 type program that would presumably be WTO legal.
Cattle expired with a flourish. October went off the board on Friday with a 25 cent gain for the day, and a $5.90 pick up for the week. Wholesale demand continues to be suspect, but finished cattle numbers are tight into mid-November and the packers had to pay up to get enough cattle to run their lines at the most economical levels. South Korea continues to be a steady buyer of US beef since their border opening a few months back. Japan rejected some boxes from Swift that didn’t have the appropriate documentation, but otherwise continued to buy.
Hogs lost a big 6.3% for the week. Pork cutout prices sank despite a smallish weekly slaughter the week before. Market ready numbers might have been influenced a little by harvest activity, but projected slaughter for this week was back above year ago and week ago levels. Packers were also planning a decent sized Saturday run in the 200,000 head range. Technically, the main support for hogs is just a bit above $50 on the weekly chart.
Market Watch: With Halloween and that scary end of month book squaring and window dressing out of the way, the market is on to other things. The federal and state elections on Tuesday (including the vote for President of the United States if you haven’t heard about that by now) will be first and foremost. Any correlations between a certain party winning and ag market price action are tenuous at best. November soybeans and rice contracts are in contract delivery. Beans could be interesting, with only a 7 ¾ cent carry to January. This will be a pretty light week for reports from USDA, with the main ones being the Export Inspections and Crop Progress reports on Monday, along with weekly Export Sales on Thursday morning. October cattle have expired, with December now taking the lead spot. December cotton options expire on Friday.
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
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.
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