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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.

All Time Highs

Dec 31, 2010

 

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Market Watch with Alan Brugler
December 31, 2010
All Time Highs
 
Agricultural producers will hate to see 2010 leave. It was a year that saw new all time high prices paid for cotton and cattle, and saw grain prices rallying back toward 2008 highs that some had assumed would not be seen again in their lifetime. If you were an end user, and a hedger, you made great money. If you didn’t use price risk management tools you saw margins shrink as your input costs went up faster than your selling prices. USDA does see farm income (which is a composite of grain and livestock and other products) up sharply for the year.
 
How did things compare to other investment alternatives? As of midday on Friday, General Electric stock was up 18.4% for the year using the first trade of the year as the base. Citigroup bank stock was up 41.2%. Not too shabby! However, the CORN exchange traded fund was up 52% from its inception in June, and front month corn futures were up 48.5% for the year as a whole. From the June low they were up more than $3 per bushel. Cotton was up ~91.7% for the year (not settled yet on Friday). Tech stocks like Intel saw almost zero gain for the year.
 
The soybean complex was up again, with nearby bean futures up another 44 cents for the week, a 3.28% gain. Meal and oil futures were each up more than 2% as well to support the bean value. There are a number of variables at work in soybeans, including expanding biodiesel use requirements in South America, Indonesia and the U.S., coupled with concerns about dryness in Argentina during planting and real concerns about getting adequate acreage in 2011. Speculative and investment money continues to flow into the complex to get a piece of the action. Price does make an excellent fertilizer, with the Buenos Aires exchange estimating that the sunflower crop in Argentina will be more than 25% larger this year.
 
Corn prices were up 2.44% for the week, posting the highest front month close since July 2008. The pace of ethanol use continues at a 5 billion bushel clip. That means DDG production is also at record levels and helping to offset the tightening corn supplies to a degree. The USDA Hogs & Pigs report on Monday confirmed a slowdown in farrowing intentions for 2011 that could nick corn feed use. Feeder cattle numbers are also down, and broiler egg sets are slowing on a year/year comparison. The biggest question is whether corn export sales will slow down as South American supplies become available in April and May. Argentine corn planting is about 85% done. Early growth is being affected by high temps and spotty rainfall there, but the crop isn’t far enough along to see pollination issues.
 
Wheat futures edged higher at all three exchanges. MPLS was up the most at 1.53% for the week and up 50 cents per bushel in three weeks. The B.A. Exchange raised projected Argentine wheat production to 14.5 MMT. Wheat harvest in Australia is about 75% done. Australian wheat production is estimated by a private firm at 24.4 MMT due to weather losses. The official ABARE forecast is still above 26 MMT. The actual USDA weekly export sales number for the week was 438,500 MT, below the low end of expectations.
 
Cattle futures set new all time highs on Friday, with December expiring at $107.90. Front month futures were up 3.75% for the week. The high for the April 2012 futures was $113.80! Wholesale prices jumped sharply, with Choice boxes up 2.69% on a Thursday/Thursday basis. Select beef was up almost 3%. Some of the strength is coming from the beef export business. USDA reported weekly sales of 17,700 MT in the most recent report. That’s 3,000 to 5,000 MT more than in most recent weeks.
 
Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:
 

 

Commodity
 
 
 
 
Weekly
Weekly
12/10/10
12/17/10
12/23/10
12/31/10
Change
% Change
Corn
$5.74
$5.97
$6.14
$6.29
0.15
2.44%
CBOT Wheat
$7.76
$7.57
$7.83
$7.94
0.11
1.44%
KCBT Wheat
$8.22
$8.12
$8.45
$8.51
0.06
0.71%
MGEX Wheat
$8.32
$8.12
$8.68
$8.82
0.13
1.53%
Soybeans
$12.73
$12.99
$13.50
$13.94
0.44
3.28%
Soybean Meal
$339.10
$347.80
$360.00
$370.30
10.30
2.86%
Soybean Oil
$53.79
$54.13
$56.59
$57.74
1.15
2.03%
Live Cattle
$100.95
$102.18
$104.00
$107.90
3.90
3.75%
Feeder Cattle
$118.18
$119.03
$121.45
$121.88
0.42
0.35%
Lean Hogs
$75.15
$75.95
$78.73
$79.75
1.03
1.30%
Cotton
$136.97
$150.12
$148.12
 
148.12
100.00%
Oats
$3.85
$3.87
$3.94
$3.94
0.00
0.13%
Rice
$13.93
$13.70
$13.40
$14.00
0.60
4.48%

 

 
Hogs rallied 1.3% for the week, as cash hog prices in the Midwest surged more than $4 at midweek. The pork cutout value was down 4 cents for the week, on a Thursday/Thursday basis. Loins and bellies were firmer for the week, but the other primal cuts were under pressure.  Heavy snow interfered with hog movement, and multiple holidays interfered with line schedules to process those hogs.
 
Cotton futures were down 331 points for the week, the sole loser in the table. That was in the front month futures. December 2011, on the other hand, posted new life of contract highs of $101.20 on Friday in an attempt to hold onto an expected expansion in US plantings for 2011. Weekly export sales were over 277,700 running bales. The surprise was that China wasn’t buying much. Mills there report that they need to obtain access to new export quotas expected to be announced in January.
 
Market Watch:  A few markets will be closed on Monday, including the UK and China’s Dalian futures exchange. US markets will have normal hours, as the New Year’s holiday fell on a Saturday. January futures are in deliveries now, with substantial numbers put out vs. soy oil on FND. This week has a fairly quiet USDA news line up, mostly routine reports like Export Inspections and Export Sales. It will be the calm before the storm, with a raft of USDA reports to be released on January 12.
 
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 2010 Brugler Marketing & Management, LLC
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