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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.

A Dollar Weather Market

Jan 06, 2012

Brugler

Market Watch w/Alan Brugler

January 6, 2012

A Dollar Weather Market

 

Weather markets are notoriously difficult to trade. One of my favorite phrases is that ‘you can get any weather forecast you want to pay for’. Between different weather models and shifting emphasis on critical time frames it is tough to consistently anticipate what the hot money is looking at or reacting to. The task is even more difficult when the weather and crop conditions in question are in the hinterlands of Argentina or Brazil. There was another dominant weather item this week, an ill wind blowing out of the eurozone. The euro dropped below $1.28. Since the euro is more than half of the weighting for the US dollar index, that meant a dollar climbing in value and making commodities priced in dollars a little bit more expensive to buyers than they otherwise would have been.

Corn futures were down 3 cents for the week, but are still up 61 cents in three weeks. The net loss for the first week of the year came about for a variety of small reasons that added up. Weekly export sales were disappointing again at 306,000 MT, the dollar was strong and likely impairing future export interest, and cash (unhedged) margins had become negative for cattle feeders and many ethanol plants. Potential production losses in South America helped encourage the bulls, but forecasts show some rain in Argentina in a couple days. Even if not a drought buster the showers will reduce stress and likely allow a few more fields to be planted in Argentina. A private forecaster on Friday trimmed estimated Argentine corn production by 3 MMT (about 118 million bushels) due to drought impacts already seen.

The wheat complex took a much sharper turn south, losing 4-5% at the three exchanges. USDA weekly export sales, reported on Friday morning, were much worse than the trade had expected at 168,100 MTs. Spring wheat planting won’t begin until April, but the spec community is monitoring the early drought situation in the upper Midwest. Egypt continues to find sources of wheat that are competitive with US supplies and have lower freight costs. They bought 240,000 MT on Friday, from Ukraine, Russia and France.

 Soybeans gave back 9 cents per bushel, mostly due to a sharp drop in soybean oil on Friday that crimped product value. Weekly soybean export sales were weak with net sales of 281,300 MT vs. trade estimates of 400-600,000 MT. High temps and below normal rainfall continue to stress corn and soybean crops in southern Brazil and Argentina. Cumulative export shipments since September 1 are 257 million bushels below last year at this time. Thus, USDA would have cause for cutting projected exports on Thursday, The argument against doing so would be the crop problems in South America, and their potential for allowing larger than expected US exports in the back end of the marketing year.

Cotton was our bull leader for the week, up 4.9% for the week after advancing 4.75% the previous week. USDA reported combined upland and pima sales that were net negative due to cancellations and tepid new bookings. The ICAC now projects an increase of 8% in global cotton production for 2011/12, with consumption slowing 2%. They raised projected ending stocks to 12.15 MMT for 2012/13 from an estimated 11.93 MMT in 2011/12 and only 9.01 MMT in 2010/11. The consumer side is looking up, with US unemployment dropping to 8.5% in the Friday report and addition of a couple hundred thousand non-farm jobs.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

12/16/11

12/23/11

12/30/11

01/06/12

Change

% Change

Mar

Corn

5.83

6.195

$6.47

$6.44

0.0300

0.46%

Mar

CBOT Wheat

5.8375

6.22

$6.53

$6.25

0.2800

4.29%

Mar

KCBT Wheat

6.395

6.75

$7.12

$6.80

0.3175

4.46%

Mar

MGEX Wheat

8.1125

8.445

$8.50

$8.01

0.4850

5.71%

Jan

Soybeans

11.3

11.63

$11.99

$11.90

0.0900

0.75%

Jan

Soybean Meal

290.3

297

$309.40

$309.60

0.2000

0.06%

Jan

Soybean Oil

49.55

50.96

$52.09

$50.80

1.2900

2.48%

Feb

Live Cattle

118.5

124.325

$121.45

$124.60

3.1500

2.59%

Jan

Feeder Cattle

143.05

147.625

$146.35

$147.30

0.9500

0.65%

Feb

Lean Hogs

83.15

85.85

$84.30

$83.90

0.4000

0.47%

Mar

Cotton

86.07

87.24

$91.38

$95.86

4.4800

4.90%

Mar

Oats

3.0125

3.1125

$3.10

$2.87

0.2225

7.19%

Jan

Rice

13.685

13.905

$14.61

$14.46

0.1450

0.99%

 

Cattle futures were up 2/6% this past week. On Friday, USDA showed poor weekly beef export sales, with combined 2011 (3 days were left to ship it) and 2012 sales of only 5,900 MT. Shipments were strong at 12,400 MT.  USDA estimated beef production for the first week of 2012 was down 13.2% from the same week in 2011. Wholesale prices were weaker at the top end, with choice boxed beef down 2.4% on the week.  The lower quality Select was down only 0.2%. Estimated carcass weights were about 8# below the actual number for this week in January 2011.

 Lean Hog futures lost 40 cents on the week, or 0.47%.  The pork carcass cutout value was down 1.29% for the week. Pork production for the first week of 2012 was 6.0% smaller than the same week in 2011. Cash hogs were firmer at midweek, allowing the CME Lean Hog index to narrow the basis against February futures. The bearish news is that pork cutout values continue to slip. The bull news is that they are still nearly $6 higher than they were exactly 1 year ago.  Front month futures are $4.50 higher than one year ago.

 Market Watch: This will be the first full week of cash and futures trading since mid-December, and the plate will be pretty full. Major index funds are scheduled to make their asset allocation adjustments for the year this week, typically selling winners and buying losers, but also changing their overall emphasis. The elephant in the room will be the USDA reports on the morning on January 12. The lineup features Crop Production, WASDE supply/demand estimates, the quarterly Grain Stocks report and Winter Wheat seedings. The USDA World Outlook Board (WAOB) has had a difficult time anticipating what the Grain Stocks numbers will be in the monthly reports WASDE reports, leading to huge price volatility on Stocks report days since June 2010.  If there are no surprises this time, that will BE the surprise. We’ll also have the regular export reports on Monday and Thursday. January soy complex futures will expire on Friday the 13th.


There is a risk of loss in futures and options trading.  Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.  Comments made in this article are in no way to be seen as an endorsement of futures and options trading. 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 individualized subscription and consulting services or visit our web site at www.bruglermarketing.com.

 

 Copyright 2012 Brugler Marketing & Management, LLC

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