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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.

Waiting for the Train

Jun 27, 2008
The grain markets have been nervous all year about 2008 US production. That’s because the S&D tables show very small projected ending stocks. Any threat of even smaller stocks creates a scramble for ownership, and higher prices. There is little trade consensus on field crop acreage. We know that there was a scramble to add corn acres after the bullish March Planting Intentions report, and that those acres likely came out of soybeans. However, persistent wet weather certainly reduced corn plantings from what producers would have preferred to plant. Soybeans likely regained some acres as replant on flooded or failed acres, particularly in more southern areas where you have a later frost date. Even there, questions abound because some corn field herbicides will kill or stunt soybeans, limiting ability to switch crops. USDA will shed some light on those shifting acres on Monday morning. In states with little or no flooding, we expect to see some pretty good June 1 data and measure the shift from March intentions. In the center of the Midwest, the trade will deduct estimated flooded acres from whatever USDA shows us. In any event, the reports are likely to hit the market like a freight train, particularly if the dollar or crude oil happens to be making a major move.
Below is a table showing the weekly change of selected agricultural futures products:
Market Watch
% Change
July Corn
July CHI Wht
July KC Wht
July MGE Wht
July Soybeans
July Soy Meal
July Soy Oil
Aug Lv Cattle
Aug Fdr Cattle
July Ln Hogs
July Cotton
July Oats
July Rice
August Crude Oil
Minneapolis wheat futures were the biggest bull market for the week, up 11.3%. July MPLS wheat is still an old crop contract, and there just isn’t much old crop spring wheat out there. That is driving a mini-squeeze in the July contract, with prices jumping more than 60 cents on Thursday and another 22 cents on Friday. World supply appears to be growing rapidly, and the basis for soft wheat is lousy. IGC raised projected world wheat production this week, but is still several million tonnes from the USDA projections.
Corn futures also had a stellar week, rising 4.6%. Ethanol futures were boosted by the rising energy prices and the consumer frankly needs the 15% price break that he/she is getting by having ethanol to stretch the US gasoline supply. Rising corn prices have caused bankruptcies among a couple firms that were planning to build ethanol plants, and forced Verasun to keep three completed plants ‘on ice’ rather than commencing operation immediately upon completion. Juicy T-storm type weather in the Midwest hampered application of side dress fertilizer and replanting of some flooded out fields. If production drops to 11 billion bushels, prices need to go higher to curb demand, while a final crop above 12 billion bushels would likely drive a significant correction into a harvest low. It will be a while before we know which outcome is the most likely.
Soybeans jumped 49 cents per bushel for the week. Inflation buying was popular, particularly after the Fed left interest rates UNCH and indicated that it wouldn’t interfere with surging commodity prices until it was more certain about the stability of the housing and credit markets. Besides the inflation/weak dollar buying, there was also little progress noted in Argentina. Producers are selling beans there, but could go back to the barricades at any time and halt shipments. The uncertainty about shipping dates from that important origin continues to drive old crop business to the US. Monthly crush also shows little sign of slowing down domestically, due to good export demand for the products.
Cotton futures rallied a respectable 2.4% for the week. The trade is generally expecting USDA to show planted acreage that is smaller than the March intentions. However, that talk is usually coupled with talk about failed acres in Texas. In this report, those acres would be shown as planted or intended to be planted. Export sales continue to be constrained, with global textile demand growth slipping and China trying to work off supplies in Xinjiang ahead of harvest. The weakness of the dollar gave cotton a boost because it is priced in dollars.
Live cattle futures were up 25 cents for the week in the August contract. The June contract, which expires on Monday, shot up $5.40 for the week as they reflected a surge in both wholesale beef and cash cattle prices. Progress in re-opening the South Korean market may have been a feature, and a pipeline drained by July 4 retailer featuring plans also supported prices. Cash cattle traded on Friday at $98-99, with some $99.50.
Hogs took a beating, down 5.4% for the week. The pork market was fairly orderly, with the cutout hovering around the $80 area on a mix of export and domestic demand. The selling pressure came from longs bailing out ahead of the Friday night USDA Hogs & Pigs report. Such selling proved to be well advised, as the report was pretty bearish on paper. All hog numbers were up 5.8% from year ago as of June 1. Hogs kept for breeding were 99.2% of year ago while the trade had been looking for a cutback to around 98.6%. The number of market hogs available on June 1 was 6.5% above year ago, with USDA making revisions in the March inventory numbers in addition to showing the second quarter data. Despite the tradition of smaller hog supplies over the summer, the over 180# group was the largest relative to year ago at 110.2%. Thus, we have a lot of near term pork to deal out. That wasn’t totally a surprise to those monitoring weekly slaughter numbers.
Market Watch: We’ll start the week with a bang, as USDA will issue not one but two of those infamous Monday morning reports. At 7:30 am CDT they will release the Planted Acreage and quarterly Grain Stocks reports. The latter will include the final estimate for old crop wheat stocks, and the level of soybean stocks as of June 1 will be closely scrutinized because there is little room in the year end S&D table for a low stocks number. We’re still in a weather market, so the Crop Progress and Conditions report on Monday evening will also be given some weight. Don’t forget that the markets will be closed on Friday for the 4th of July holiday in the U.S. Trading volume on Thursday is likely to be light, with some looking to extend the long weekend.
There is a substantial risk of loss in futures & options trading. Past results are not necessarily indicative of future results.      Copyright 2008 Brugler Marketing & Management LLC
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