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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.

African Turmoil Destabilzes Markets

Jan 28, 2011

 brulogomed

Market Watch with Alan Brugler
January 28, 2011
African Turmoil Destabilizes Markets
 
Social unrest in North Africa played a significant role in this week’s commodity markets. While some of the highly publicized rioting was NOT tied to food prices, there was clearly some defensive buying of wheat and other commodities being done. Keeping the markets well supplied with food is seen as a key strategy in keeping the natives from becoming aggressive. Algeria took the lead, buying nearly 2 MMT of mostly optional origin wheat to address genuine food concerns there. On Friday, oil prices spiked sharply, and so did gold. This sudden reversal was blamed on talk of Suez Canal blockages, etc, but likely had more to do with shorts cashing out some of their big bearish bets at month end and putting the profits in the bank.
 
Corn prices lost 13 cents per bushel for the week, more than erasing the 9 cents they picked up the previous week. USDA’s weekly sales total was way below the trade estimates. The weekly export sales report posted net export sales down 31 percent from the four week average at 414,700 MT for 2010/11 delivery and 132,800 MT for 2011/12 delivery. Better rains likely stabilized the Argentine yields, although arriving too late for some. Ethanol production continues at a high level, but surplus stocks grew to burdensome levels because of slow gasoline demand.
 
Wheat futures held onto gains at all three exchanges, although in Chicago’s case it was only a 1 cent advance. The hard wheat markets were stronger due to excellent export interest from the Mediterranean region. USDA is anticipating a stronger US sales pace than usual for the January to May period, in order to meet the projection for the year ending May 31. The weekly export sales report was encouraging in that regard. USDA put the actual weekly export sales for the week ending January 20 @ 1.047 MMT or 38 million bushels. Jordan and Japan were the two largest buyers, along with Egypt, Nigeria, Taiwan and Yemen.
 
Soybeans were down 14 cents for the week, just over 1%. There was more negative news thrown at the market, including improved weather in Argentina just when much of the crop is reaching the flowering stage. Chinese crush margins were still under pressure, and some plants were taking down time ahead of the Spring Festival holiday. The Chinese futures markets will be closed from Feb 2 to Feb 8 for that official holiday period. Export shipments have slowed relative to year ago, but China was still an active buyer of both old and new crop cargoes. A much larger weekly export sales total is expected next week, with 2.74 MMT being announced in one slug under the daily reporting system. Census soy oil stocks continued to grow, but we have to remember that the report was for December, before the passage of the retroactive blend credit.
 
The cotton rally continued with a vengeance, as prices moved to all time futures highs, and came closer to Civil War era highs near $1.89/pound. Nearby cotton gained 4.98% for the week despite losing 464 points on Friday as part of the broad commodity and equity market selloff. Combined upland and pima export sales for the week ending Jan 20 were 532,500 RB, well above the published trade estimates. Export demand has been consistently stronger than the trade guesses in recent weeks. Total commitments are now 95% of USDA’s forecast for the year.
 
 
 

 

 
Commodity
 
 
 
 
Weekly
Weekly
Month
01/07/11
01/14/11
01/21/11
01/28/11
Change
% Change
Mar
Corn
$5.95
$6.49
$6.57
$6.44
0.13
2.02%
Mar
CBOT Wheat
$7.74
$7.73
$8.25
$8.26
0.01
0.15%
Mar
KCBT Wheat
$8.46
$8.60
$9.00
$9.12
0.12
1.33%
Mar
MGEX Wheat
$8.71
$8.90
$9.37
$9.62
0.24
2.59%
Mar
Soybeans
$13.65
$14.23
$14.12
$13.98
0.14
1.01%
Mar
Soybean Meal
$362.70
$388.10
$379.60
$377.00
2.60
0.68%
Mar
Soybean Oil
$56.82
$57.27
$57.56
$57.27
0.29
0.50%
Feb
Live Cattle
$106.38
$109.38
$107.95
$107.50
0.45
0.42%
Mar
Feeder Cattle
$122.75
$127.30
$125.55
$126.22
0.67
0.53%
Feb
Lean Hogs
$79.43
$79.53
$80.33
$85.75
5.43
6.75%
Mar
Cotton
$140.60
$141.44
$156.94
$164.75
7.81
4.98%
Mar
Oats
$3.71
$3.92
$3.86
$3.86
0.00
0.13%
Mar
Rice
$13.63
$14.01
$14.87
$15.01
0.15
0.98%

 

 
Cattle futures were down 0.4% for the week, mostly on weak cash cattle trade for the week and position squaring ahead of the Friday evening Cattle Inventory report. The CI report showed the expected drop in the US cattle herd to 98.6% of year ago numbers. The calf crop was 99.2% of last January. That was a larger number than anticipated. There was a sharp drop in beef replacement heifers, which were at 94.6% of last year. The trade average guess was 98%. Beef cow numbers were also down to 98.4% of last year. The report is longer term bullish for cattle due to restricted supplies. The wholesale trade was up slightly for the week, which choice boxes firmed by 17 cents on a Thursday/Thursday basis and select quoted 75 cents higher.
 
Hogs were the biggest gainer for the week, up 6.75%. The big story is South Korea, where an estimated 24% of the hog herd was liquidated and buried to control an FMD outbreak. That created a pork shortage, and the South Korean government approved 60,000 MT of duty free pork imports to help fill in the short fall. Additional imports may come in at a reduced tariff. That buying interest appeared to flow mostly to the US market, perhaps encouraged to do so by the recent dioxin scare in the EU. The pork carcass cutout was up 2.02% on a Thursday/Thursday basis, reflecting that extra buying interest. Futures jumped a lot more than that, and are clearly expecting further gains in the cash hog market between now and the expiration of the February futures contract.
 
Market Watch:  It should be a fairly quiet transition into February, with few major reports due. Of course, the Middle East situation can disrupt a lot of things, particularly if the Egyptian government were to fall to the Islamic hard liners. The main USDA reports for the week are Export Inspections on Monday and Export Sales on Thursday morning. Friday will mark the last trading day for February live cattle options. Tuesday will also mark the start of the February price determination period for RP crop insurance, which has replaced CRC and RA. The calculation will extend through the month of February. Wednesday is, of course, Groundhog Day. Need I say more?
 
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 2011 Brugler Marketing & Management, LLC
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COMMENTS (1 Comments)

NAGEL
I QUESTION 24% OF SOUTH KOREA'S HOG BEING LIQUIDATED AND BURIED. FMD IS NOT HIGHLY CONTAGIOUS TO PEOPLE AND NOT FATAL IF HUMANS CONTACT IT. PROPERLY COOKED, PORK FROM ANIMALS WITH FMD IS SAFE TO EAT AS THEY DO IN SOUTH AMERICA ALL THE TIME. WHAT IF ALL THESE HOGS WERE LIQUIDATED AND THIS MEAT WAS DUMPED ON SOUTH KOREA'S LOCAL MARKET. THIS COULD CAUSE THEIR LOCAL MARKET TP DROP DRASTICALLY. IF THIS WERE TO HAPPEN, AND THIS IS WHAT DROVE OUR HOG MARKET UP, THEN LOOK OUT BECAUSE WE COULD SEE A SIGNIFICANT CORRECTION IN OUR HOG MARKET NEXT WEEK.
8:38 AM Jan 29th
 
 
 
 
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