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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.

Dive,Dive,Dive

Sep 21, 2012

Brugler

Market Watch with Alan Brugler

September 21, 2012


Dive, Dive, Dive

In a move reminiscent of World War II submarine movies, the bean market, and to a lesser degree corn went into a steep dive this week. November soybeans lost $1.17 per bushel for the week! While it is tempting to blame the drop on improved yield reports coming out of US fields, the big picture is a little more complex. There were a lot of bearish depth charges being thrown off of that destroyer. The US dollar index posted its first weekly gain since July, making commodities priced in floating currencies more expensive to buy. The dollar was actually weaker against the Chinese yuan, however. Crude oil dropped, dragging out all of the energy molecules with it, including biodiesel and ethanol. Some fund traders were also beginning to exit their summer weather market trades, looking to go back into the equity markets for the winter. Others were simply adjusting their asset allocations, paring back their winners and buying or getting ready to buy underperforming commodities for the next quarter.  

Nearby corn futures ended the week 4.3% lower. Weekly export sales for the prior week were again very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. Producers were also getting into higher producing full season varieties, and harvest yield results were starting to look a little better. There are still plenty of poor numbers to go around, but part of the USDA yield estimate is based on farmer surveys that may not have quite as pessimistic of a view point in October as they had in September. On the bull side, ethanol production jumped to the highest level in months as plants ramped up to use new crop corn. If the current grind was sustained for 52 weeks, corn used for ethanol would jump to 4.8 billion bushels, which is 300 million above USDA. However, there is a seasonal component to that production and we do not expect that level of production all year, particularly given the build up in ethanol stocks we got with the current level of production. It is worth noting that Brazil is also restoring the blending requirement for ethanol to 25% from 20%, which should keep more of their production at home. 

Soybeans were hammered this week, losing 6.74%. Soybean meal fell $39/ton, a welcome relief for livestock feeders but putting a lot of pressure on crush margins. Soy oil was also down 4.4% under the influence of cheap palm oil and a sliding crude oil market. US export sales for the year remain heavily front end loaded, with 72% of the USDA projected shipments for the year already on the sales book. That means sales only need to average about 6 million bushels per week or less for the rest of the year (assuming minimal rollover of business to 2013/14. Informa on Friday projected production at 2.662 billion bushels on 77.1 million planted acres. They are also projecting 2013 acreage will hit 79.9 million, a new record.

The three wheat markets held up better than corn and beans, but were still down more than 2% for the week. US export sales were a healthy 488,900 MT, but export commitments as a percentage of the USDA forecast for the year are still low considering we are more than a quarter of the way through the marketing year. Australia got a few showers, taking a little starch out of the argument for a drop to 20 MMT from the USDA 26 MMT estimate. Things are still on the dry side there, however. Russia continues to sell wheat for now, but they did indicate an interest in buying replacement wheat from Ukraine and Kazakhstan if the sales program drops available supplies too low in their domestic market. US winter wheat planting is running a little behind the average pace, due mostly to dry soil conditions in the Great Plains.  

Nearby cotton futures lost 4.5% for the week, extending a string of losses that began following the prior week’s USDA world production and ending stocks numbers. USDA had projected world ending stocks rising to multi-decade highs of 76.52 million bales. That ending stocks figure represents 259 days of use at the current consumption rate, or 71% of global annual production for 2012/13. USDA reported net weekly export sales for the past week slowed to 226,100 RB of combined upland and pima sales. The stronger US dollar was clearly a headwind for cotton, which lacked other strong bullish fundamentals to provide the push.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

08/31/12

09/07/12

09/14/12

09/21/12

Change

% Change

Dec

Corn

$8.00

$8.00

$7.82

$7.48

($0.34)

-4.32%

Dec

CBOT Wheat

$8.90

$9.05

$9.24

$8.97

($0.27)

-2.92%

Dec

KCBT Wheat

$9.06

$9.23

$9.48

$9.26

($0.22)

-2.29%

Dec

MGEX Wheat

$9.48

$9.58

$9.78

$9.58

($0.20)

-2.07%

Dec

Soybeans

$17.57

$17.37

$17.39

$16.22

($1.17)

-6.74%

Oct

Soybean Meal

$536.20

$527.20

$523.50

$484.50

($39.00)

-7.45%

Oct

Soybean Oil

$56.65

$56.24

$56.97

$54.45

($2.52)

-4.42%

Oct

Live Cattle

$126.02

$126.48

$127.05

$125.53

($1.52)

-1.20%

Sep

Feeder Cattle

$144.60

$144.30

$145.00

$143.80

($1.20)

-0.83%

Oct

Lean Hogs

$74.18

$71.35

$74.03

$75.80

$1.77

2.40%

Oct

Cotton

$76.48

$75.72

$75.39

$72.00

($3.39)

-4.50%

Dec

Oats

$3.98

$3.91

$3.96

$3.76

($0.20)

-5.05%

Nov

Rice

$15.29

$14.96

$15.28

$15.24

($0.04)

-0.26%

 

Cattle futures lost $1.20 for the week in the nearby futures. The board got ahead of the cash market, and began to have doubts about whether cash was going to catch up. Cash cattle prices were mostly steady to $1 lower ahead of the monthly USDA Cattle on Feed report released on Friday afternoon. The COF report showed slightly smaller than expected numbers on feed September 1, at 99.1% of year ago vs. trade ideas at 99.9%. Placements during August were much smaller than expected, but offset by lighter marketings. Wholesale prices were mixed, with choice 600-900 pound carcasses up 0.4% for the week but the select product down 0.6%. Cash cattle traded at $125-127. Weekly slaughter was estimated at 647,000 head vs. 659,000 last year.

Hog futures were the lone bullish market in our table, up 2.4% after gaining 3.75% the previous week.  Estimated pork production for the week was down 0.6% from the previous week, but heavy market runs continue and the tonnage was up 4.5% compared to the same week a year ago.  FI slaughter was 5.0% larger than the same week in 2011. The pork market appeared to be finding its footing late in the week. The pork carcass cutout value was up only 5 cents for the week but up $2.30 from Wednesday to Friday night.

 

Market Watch:

 Livestock traders will begin the week reacting to the USDA Cattle on Feed and Cold Storage reports that were released after the close on September 21. Grain traders will be reacting to the exercise of the October grain options and any surprise long or short positions they acquired on Friday. There were definitely a number of long calls that were in the money right up until this week, but expired worthless, Conversely, a number of long puts ended up in-the-money.  The major USDA reports this week will fall on Friday, with the quarterly Grain Stocks and Small Grains production numbers released at 7:30 am CDT on the 28th. The quarterly Hogs and Pigs report will also be out at 2 pm CDT. Friday will also mark first notice day for October soy meal and soy oil futures deliveries, and the end of the quarter for some spec funds. That can mean big shifts from commodities that were up big for the quarter to the laggards.

 

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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

Copyright 2012 Brugler Marketing & Management, LLC

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