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RSS By: Alan Brugler, AgWeb.com

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

The Big Hangover

Aug 14, 2009

           

 

Market Watch Summary with Alan Brugler

August 14, 2009

 

The Big Hangover

 

There was a lot of hype leading up to the August 12 USDA reports, with traders in several markets looking for price direction and an indication of 2009 production. While it wasn’t necessarily the party of the year, the markets were acting a little drunk ahead of the report, zigzagging around on positioning moves. Now that the reports are out, the grains appear to have a big hangover. The initial happy time (closing higher on report day) dulled quickly as corn, beans and wheat all headed lower on Thursday and Friday. Now it is a tough slog until Labor Day weekend, the traditional time to start seriously worrying about early frosts and actual harvest progress.

 

Corn futures were down a net 3 cents for the week, as a positive “buy the fact” reaction to Wednesday’s crop report quickly deteriorated into estimates for even larger production numbers in September. Doubts about livestock use of corn also became more pronounced as the hog market was under pressure during the first part of the week. The USDA report itself was a tinge bearish because USDA hiked projected average yield over 159 bushels per acre and didn’t reduce the planted acreage from the July report as the diehard bulls had insisted would be necessary following the re-survey effort.

 

Soybeans held up through the crop report fairly well, but collapsed on Thursday and Friday. August expired with an ignominious face plant, losing more than 87 cents on Friday. This was triggered by overnight delivery notices against the contract that apparently caught some longs flat footed. Basis retreated sharply in some markets, also raising questions about crush demand. The NOPA report on Friday morning showed a 32% drop in NOPA soy meal exports from June to July. Bean oil stocks were actually a bit smaller than the trade estimates, but weakness in the energies weighed on bean oil futures. NOPA’s actual monthly crush number was 120.92 million bushels. The USDA report itself put soybean ending stocks at 210 million bushels for 2010, down from the previous estimate because USDA trimmed the projected yield to 41.7 bushels per acre from 42.6 bushels. That reduced the production estimate despite an upward revision in planted acres. New crop Nov beans were down 57 cents for the week.

 

Wheat futures lost 1.5% to 4.06% for the week. Minneapolis was the largest loser because USDA sharply hiked the spring wheat production estimate on Wednesday. Higher yields and production were expected following the Wheat Quality Tour, but the extra bushels created a problem in the world market. World ending stocks estimates are still rising, and the US is still competing unsuccessfully with other origins for the wheat export business that is out there.  Lower prices are the answer, but it is a race to the bottom.

 

Cotton futures were down 2.3% for the week. The entire loss of 132 points came on Friday, with October futures plunging the full 300 point (3 cents/pound) daily limit. Earlier in the week, prices had briefly reached 10 month highs but a lack of fresh buying interest at that level doomed the move. The University of Michigan consumer sentiment index came in well below expectations, and knocked cotton back because hoped for back-to-school sales might be smaller if the buying public is in that bad of a mood about spending money.

 

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

 

Market Watch

 

 

 

 

Weekly

Weekly

 

07/24/09

07/31/09

08/07/09

08/14/09

Change

% Change

September Corn

$3.16

$3.40

$3.22

$3.19

-0.03

-0.87%

September CBOT Wheat

$5.16

$5.28

$4.90

$4.82

-0.08

-1.50%

September KCBT Wheat

$5.49

$5.59

$5.25

$5.09

-0.17

-3.05%

September MGEX Wheat

$5.92

$6.05

$5.73

$5.49

-0.24

-4.06%

August Soybeans

$10.21

$11.34

$11.85

$11.00

-0.85

-8.28%

August Soy Meal

$323.20

$361.00

$374.50

$380.00

5.50

1.70%

August Soy Oil

$33.89

$35.06

$36.78

$37.18

0.40

1.18%

August Live Cattle

$84.52

$84.70

$83.85

$84.65

0.80

0.95%

August Feeder Cattle

$102.55

$102.35

$101.35

$100.70

-0.65

-0.63%

August Lean Hogs

$59.05

$56.02

$48.80

$49.12

0.32

0.54%

October Cotton

$57.39

$57.93

$60.53

$59.21

-1.32

-2.30%

September Oats

$1.95

$1.98

$1.99

$2.01

0.02

1.03%

September Rice

$13.40

$13.77

$13.87

$13.30

-0.57

-4.22%

 

Cattle futures managed a small gain for the week. Weekly beef export sales were over ten thousand metric tonnes, and boxed beef prices held together fairly well. Cash cattle traded $1 higher than the previous week on Friday, supporting the bullish premium being held in the futures. This is a key time for retailers to start filling the pipeline ahead of Labor Day specials, and packers have hopes of moving the wholesale prices higher while the demand is temporarily improved.

 

It may surprise you, but August hogs actually closed higher for the week by 32 cents. Ultimately, they pushed further to the downside than the CME Index was going to drop. That resulted in some short covering type buying ahead of expiration. The CME Lean Index on Friday was at $50.29, but anticipated to drop in the two days remaining before final settlement of the expired August futures. The pork cutout on Friday was up 21 cents at $52.52.

 

Market Watch:  The August hog futures expired, and October has a premium. Traders will be watching to see if the market wants to close the gap, or if there is hope of a rebound before October deliveries. On Monday night, USDA’s crop condition ratings will again be viewed with great interest, along with the % of the corn crop in dough stage and the % of the crop setting pods. Maturity by the time of first frost is still a concern. The main USDA reports for the week will be on Friday, with the monthly Cattle on Feed report and the Cold Storage report. September grain options also expire on Friday.

 

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 (5 Comments)

Subprime in Agriculture
Anybody? And you thought the USDA served the best interest of the US farmer. Why provide so much market clarity to force grains to the downside when it is basically the only significant export left for Obama to pay back some stimulus borrowings.
1:17 AM Aug 20th
 
Anonymous
Hangover..... how about total withdrawals?
9:53 PM Aug 17th
 
 
 
 
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