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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.

Two Steps Forward

Nov 18, 2009

 

Market Watch and January Soybean Tech Talk with Alan Brugler

November 13, 2009

 

Two Steps Forward

 

Two weeks ago, corn took two steps forward and then two steps back. A big early week rally died on Wednesday morning, and by Friday night the trade had given back all but one cent of the entire 30 cent rally. This past week, the plot was the same, but the outcome was different. Futures rallied sharply on Monday and Tuesday, just as they had the previous week. They again closed “low range” on Wednesday. Unlike the prior week, buying came in at the 18-day moving average on Thursday and limited the loss. Friday action was down, but totally within Thursday’s trading range. Thus, we had two steps forward and only 1 step back, resulting in a net gain of 24 cents for the week. There was one big piece of bullish news during the week, as USDA cut projected national average yield and production. Ending stocks are now seen declining year over year although still adequate. Said another way, current projections have us completely using up the second largest corn crop in history, and needing to dig into the leftovers from the previous year in order to make it to the 2010 harvest.

 

Wheat fundamental news may seem bearish, but the price action is not. Futures were up 7.2 to 8.4% for the week at the three exchanges, outstripping the corn gain. This came about despite a USDA hike in projected US ending stocks to 885 million bushels. That’s enough extra wheat that we could leave almost 40% of the 2100 seed in the bag without running out of wheat. Or see average yield at 60% of normal. OK, we’d need to have a little pipeline supply on top of that, but you get the picture.  The key to understanding wheat here is the old trade axiom “the bear market’s over when bad news fails to make it move down”.  Thank the index funds, thank the loose monetary policy or whoever, prices wanted to move higher.

 

Soybean futures also got to play the bullish tune. It was a little quieter, because they are facing serious competition on the other side of New Year’s, or on the other side of the Equator if you prefer. There is a big slug of South American beans coming if the weather is anything more than adequate. USDA projects 63 MMT out of Brazil and 53 MMT out of Argentina, with harvest on some of the early fields by the end of January. If you are keeping track, that’s a record production estimate of 4.26 billion bushels, as compared to the US record large crop at 3.32 billion bushels.  Stout world export demand is keeping the boat afloat for now, with USDA reporting weekly sales of 1.273 MMT on Friday. Actual weekly exports were the largest of the marketing year, at 1.636 MMT, with China taking 1.13 MMT of that total.

 

 

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


 

 

Market Watch

 

 

 

 

Weekly

Weekly

 

10/23/09

10/30/09

11/06/09

11/13/09

Change

% Change

December Corn

$3.98

$3.66

$3.67

$3.91

0.24

6.40%

December CBOT Wheat

$5.48

$4.94

$4.97

$5.39

0.42

8.40%

December KCBT Wheat

$5.50

$4.99

$5.01

$5.41

0.40

7.88%

December MGEX Wheat

$5.61

$5.13

$5.18

$5.56

0.38

7.24%

November Soybeans

$10.07

$9.78

$9.48

$9.84

0.36

3.80%

December Soy Meal

$303.30

$297.00

$288.80

$301.10

12.30

4.26%

December Soy Oil

$37.94

$36.40

$36.77

$38.61

1.84

5.00%

December Live Cattle

$87.40

$85.68

$85.00

$83.32

-1.68

-1.98%

November Feeder Cattle

$95.48

$94.80

$94.65

$93.15

-1.50

-1.58%

December Lean Hogs

$53.02

$56.70

$55.70

$55.00

-0.70

-1.26%

December Cotton

$67.38

$67.64

$66.54

$67.10

0.56

0.84%

December Oats

$2.50

$2.55

$2.54

$2.27

-0.28

-10.83%

November Rice

$13.43

$14.36

$15.16

$14.67

-0.48

-3.20%

 

Cotton futures have basically been stuck in the 66-67 cent range for the past month. World prices are high enough that there is no LDP, but mills are still looking at tepid consumer buying interest and are reluctant to chase the market. The speculative community already has a lopsided net long position, and doesn’t want to add a lot more without evidence that the US dollar index is going to resume its slide.  

 

Cattle futures dropped hard, losing 2% of their value for the week. Weekly slaughter was above both week ago and year ago, creating additional tonnage to be moved at an inopportune time. Wholesale interest is a little weaker, as the Thanksgiving features are usually turkey and ham. Combine that with moderate to heavy packer offerings and you get a drop in boxed beef prices. Select cuts were down another $1.18 on Friday to $132.19. Cash cattle prices were surprisingly soft, losing $2-3 for the week, with feedlots also settling earlier in the week than usual.

 

Hogs backed off a little further. The index fund roll period weighed on the front month December contract, and didn’t seem to help Feb all that much. Slaughter numbers are smaller than last year, but average carcass weights are higher. Pork exports should be helped by the weakness in the dollar, but the dollar also bounced from chart support on a coordinated intervention by some of the developing country central banks. The pork carcass cutout lost a little ground for the week, but inched higher on Thursday and Friday with improved ham prices.

 

Market Watch:  December cotton options and November bean futures both expired on Friday. Of the two, the cotton options exercises have the greater potential to influence prices at the beginning of the week. NOPA is also expected to release their monthly soybean crush estimate on Monday. There is still a lot of interest in crop progress, as in percentage of the corn, soybean and cotton crops that is now safely in storage. USDA will release that weekly update on Monday afternoon, with traders expecting that a big chunk of the US soybean crop was finally harvested this past week. Update: The Census Crush and Cotton Consumption reports were tentatively scheduled for Thursday release. Census now indicated that the reports will be issued on November 25 instead. On Friday, UUSDA will release the monthly Cattle on Feed and Cold Storage reports. December grain market options will also expire on the 20th, potentially adding to the volatility ahead of the Thanksgiving holiday.

 

 

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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