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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 Storm is Brewing

Mar 23, 2012

Brugler

Market Watch with Alan Brugler

March 23, 2012

A Storm Is Brewing

 

With much above normal temperatures throughout much of the country east of the Rockies, talk about unusual weather has been widespread. It is just too warm, too early. Typically, we hear "we’re gonna pay for this, somehow". Some figure tornados, others figure a late freeze due to all the vulnerable plants, some expect a hot and dry summer. Expectations are building but with uncertainty about direction. The same stormy weather is expected in the grain markets, specifically on Friday. That’s when USDA will release the quarterly Grain Stocks and Planting Intentions reports. To say that producers and speculators have been having a hard time anticipating what USDA finds is an understatement. There have been large (and often limit) daily moves following quarterly stocks reports, beginning with the bullish June 2010 Grain Stocks report. Contrary to popular opinion, they have not all been bearish.  You can see the markets hunkering down ahead of the tornado, with chart formations tightening into triangles or coils, and lots of futures options being bought to control price risk. The surprise will be if we don’t go anywhere.

Corn futures dropped 27 cents per bushel for the week. Increased producer selling from the week before was a factor, but end of quarter profit taking was also apparent at times. US export sales commitments are down 9% from year ago, but at 76% of the USDA forecast for the year. The 5 year average commitment is 77%, so we appear to be on track to hit the USDA number. New crop corn continues to lose ground to soybeans in the revenue department, with the soy/corn ratio on Friday at 2.37:1. Historically, ratios over 2.3:1 start to attract swing acres to beans.

The wheat complex saw all three exchanges lower, after all were higher the week before. Chicago dropped the most after being the biggest gainer the week before, down 2.7%. USDA reported weekly export sales were actually larger than the trade had expected, but export commitments are down 23% from last year at this time, and total only 93% of the USDA forecast for the year. They would typically be 97% by now. Crop condition ratings are much better than last year in the Plains HRW states. Crop maturity is very much ahead of normal due to the warm temps. That has growers nervous about a late freeze like the Easter freeze a few years ago. No freeze is currently in the forecast, but the risk exists out through the end of April.

Soybeans held up better than the feed grains, down 8 cents per bushel or 0.6%. Soy oil dropped 1.1% for the week despite a big rally on Friday and strong Chinese veg oil futures prices. Production estimates for Brazil continue to leak lower as the combines roll and the full extent of the drought damage is uncovered. The combined Brazilian and Argentine production estimates USDA put out a week ago are 349 million bushels smaller than the year before, and if the private estimates are correct that gap gets as much as 400 million bushels larger. The USDA global use projection is still 15 million bushels larger than last year, so the missing bushels have to come out of ending stocks or out of the US via increased export sales. The truckers strike in Argentina has been resolved. It emptied some of the port storage but appears to have not interfered with vessel loading because it didn’t last long enough.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

03/02/12

03/09/12

03/16/12

03/23/12

Change

% Change

May

Corn

$6.54

$6.43

$6.73

$6.47

($0.27)

-3.97%

May

CBOT Wheat

$6.72

$6.41

$6.72

$6.54

($0.18)

-2.68%

May

KCBT Wheat

$7.19

$6.84

$7.06

$6.95

($0.11)

-1.56%

May

MGEX Wheat

$8.32

$8.05

$8.23

$8.17

($0.05)

-0.67%

May

Soybeans

$13.33

$13.38

$13.74

$13.66

($0.08)

-0.60%

May

Soybean Meal

$359.10

$362.70

$374.40

$373.00

($1.40)

-0.37%

May

Soybean Oil

$54.08

$54.27

$55.50

$54.88

($0.62)

-1.12%

Apr

Live Cattle

$129.95

$126.03

$125.30

$124.50

($0.80)

-0.64%

Mar

Feeder Cattle

$158.10

$153.93

$153.40

$153.30

($0.10)

-0.07%

Apr

Lean Hogs

$90.43

$87.83

$85.88

$85.03

($0.85)

-0.99%

May

Cotton

$88.23

$88.80

$87.48

$89.63

$2.15

2.46%

May

Oats

$3.06

$2.88

$3.34

$3.33

($0.01)

-0.37%

May

Rice

$14.51

$14.15

$14.54

$14.60

$0.06

0.45%

 

Cotton futures were up 2.5% for the week. Weekly export sales picked up nicely, and are total commitments are now 109% of year ago. There are questions about cancelation risk on some of the older sales, but there is also optimism that the bookings are in place to meet or exceed USDA forecasts for the year. The restrictions on Indian cotton exports are also stirring interest in US product.

Cattle futures were down 0.6% for the second week in a row. It was a puzzling week for cattle bulls. Wholesale prices were down on Friday, with Choice off a nickel, but cash cattle trade was steady vs. the previous week, and USDA reported weekly export sales were the largest since 2001 at 52,000 MT. The Cold Storage report showed end of February beef supplies were up 1% from last year but down 4% from last month. The futures selling was tied to the USDA report to be released on Friday night. The report showed smaller than expected February marketings at 98% of year ago. Placements were 103% of last February, and the combination left the March 1 On Feed at 102.6% of last year.  Estimated beef production this week was down 2.2% from the week before and also ran below year ago. Total output since January 1 is down 3.5% despite larger numbers on feed (most not yet ready to market) and 23# heavier average carcass weights.

Lean Hog futures sank 1% this past week and are now down the last 4 weeks in a row. The pork carcass cutout value lost 3% for the week, with ribs, hams and pork bellies the weakest components. Pork production year to date is up 0.7% from last year. Production this past week was 1.9% smaller than last week, but 1.1% larger than the same week in 2011. Production YTD is up 0.7%. Carcass weights are estimated at 209 pounds, which would be up 1# from the 2011 actual weight.  

Market Watch: The Big One for the week will be on Friday morning, when USDA rolls out the March 1 Grain Stocks report and the Planting Intentions report. Trade estimates are remarkably consistent for the Planting Intentions, which leaves open the potential for a surprise. USDA will also have the usual Export Inspections report on Monday and Export Sales on Thursday morning.  Not be be overlooked is the quarterly Hogs and Pigs report on Friday afternoon. April grain options expired on Friday, which may have left some folks with surprise futures positions to be adjusted early this week. Pin attempts failed, with settlements well away from the round number strike prices. Thursday will mark the expiration of the March feeder cattle futures contract.

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.

 

 Copyright 2012 Brugler Marketing & Management, LLC

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