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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.


Feb 04, 2011


Market Watch with Alan Brugler
February 4, 2011
Punxsutawney Phil failed to see his shadow on Groundhog Day (Wednesday), which in Pennsylvania tourist lore means winter is winding down (if he sees his shadow winter is supposed to linger another 6 weeks). The NWS says Phil is only about 40% accurate, but lets not quibble. He is likely to be right about some part of the United States! What I want to know is whether the bull market in corn or soybeans is in danger of being over. How do we define a shadow in the grains or livestock? For the moment, there appears to be plenty of cloud cover, with all of our tracked commodities except for hogs and feeder cattle being higher on the week. It must be because of all that snow!
Corn tacked on another 35 cents this week, a 5.36% move that made it the largest gainer for the week. As we had anticipated, the bulls came in late on Friday and dress up the close. The Friday gain of 16 cents was 46% of the advance for the entire week. Fundamentally, ethanol weekly production slowed down, which would be bearish, but stocks also shrank despite a burgeoning gasoline supply. The cattle inventory report showed long term shrinkage of the cattle herd, but at the moment there are more animals in the lots than last year. Chicken producers are also expanding placements. Export sales to South Korea are likely to slow down due to the shrinkage of their livestock industry (FMD outbreak) but the weekly Export Sales report for the last week of January showed much stronger business than the trade had expected.
The soybean complex was solidly higher for the week, with nearby March beans gaining 36 cents. That was a 2.5% gain for the week. Meal futures were up less than 2%, but soy oil got a boost from rising palm oil prices. Chinese futures at Dalian were closed after Tuesday, due to the weeklong Spring Festival holiday. They should be using up a lot of soy oil while entertaining the family, but they don’t always rush to replace it when they come back to work. USDA reported huge weekly export sales of 4.1 MMT for the week ending January 27. That’s 151 million bushels of commitments. More than 3 MMT of that total was already known business due to USDA announcements, but the old crop total gave the bulls a little encouragement by suggesting that $14 beans were not a total turnoff. The strength of the Japanese yen means they are feeling only a portion of the price increase seen in the US since last summer.
Wheat futures were higher at all three exchanges this week. Chicago was the strongest in percentage terms, despite export demand being clearly more aggressive for the hard wheat classes traded at KC and MPLS. The inter-market spreads need to adjust periodically and this was such a week. Index funds were actively rolling out of the March contracts, a process which will continue all this week. That is no longer a surprise event, however, and for the most part the rolls have been “sanitized” by pre-roll activity. US wheat export sales for the last week of March were smaller than the trade had expected, given all of the Middle East and North Africa hype. Egypt was a buyer, but some questions remain about unloading activity at the ports and viable letters of credit for the shipments. Stats Canada on Friday put the Dec 31 all wheat stocks for Canada at 20.232 MMT. That was close to pre-report estimates and didn’t help the bulls.
Cotton futures were up 3.11 cents for the week, a 1.89% gain that came about despite a late week sell off. Weekly export sales were weaker than expected on Thursday morning, but the main bearish input appeared to be the imposition of a position waiver requirement for March deliveries. Firms wishing to hold more than 300 March contracts into the delivery period need to file with the Market Surveillance group for a waiver justifying the need to do that. Hedgers should be able to get the waiver, but spec longs might not. Some of them appeared to be bailing out on Thursday and Friday. The index fund roll period is also underway, and a chunk of that March selling was just rolling of positions to May.
Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:

% Change
CBOT Wheat
KCBT Wheat
MGEX Wheat
Soybean Meal
Soybean Oil
Live Cattle
Feeder Cattle
Lean Hogs

Cattle futures gained 75 cents for the week, or 0.7%. Wholesale prices ran into some resistance, wit the choice boxed beef down 1% week over week and select boxes down 0.6% on a Friday/Friday comparison. Packer margins were fairly attractive, but on paper were squeezed a little this week because cash cattle traded at $105-106 and were up $1 or more from the prior week. The massive snow storm that swept through the Plains and Midwest made all prices somewhat nominal as trucking was snarled and some of the prices were based on whether you could get the animal or product to the needy buyer.
Hog futures were higher on Friday, but dropped 1.46% for the week. February futures need to converge with cash on February 14. The CME Index has been rising, but was only at $81.50 as of Friday while futures were at $84.50 and drifted a little lower out of concern that cash might not get all the way to the futures price level. The pork carcass value was down 31 cents on Friday, but up 60 cents for the week. The pork butts and picnics were the strongest cuts, while loins were weak.
Market Watch:  The main USDA report this week will be the monthly WASDE Supply/Demand report, on Wednesday. The trade is looking for comparatively minor revisions in the US numbers, but there is keen interest in what the Outlook Board does to the South American corn and soybean production figures. Cattle traders will start the week reacting to new positions inherited during Friday’s options expirations and exercises. Monday will feature the USDA Export Inspections report, and is also first notice day for February cattle futures deliveries. USDA weekly export sales are due on Thursday morning.  
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. 
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 Copyright 2011 Brugler Marketing & Management, LLC
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