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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.

Heading For The Hills?

May 06, 2011

Brugler

Massive price swings were the hallmark of the first week of May. You had silver futures losing 28% of their value in a single week, and crude oil down more than $10 in a 24 hour period. Corn, soybeans and wheat were not immune to either the “risk off” trading moves or the volatility. While much of this was attributed to long liquidation by funds tied to a large New York bank/trading firm, open interest didn’t decline proportionally to the size of the price moves. The moves were magnified by algo traders whose systems on occasion “parked” due to the volatility. This was a symptom of the 2010 Flash Crash in the stock market, and appeared to pop up at times in the commodities trading this week. Removing that liquidity, while a sane decision for the trading entitiy at the time, magnifies the price volatility by creating thinner market conditions. We would note that interest rates dropped all week as the cash fleeing the commodities markets was parked in low yields government securities. It is unlikely to stay there for long.
 
Corn ended the week down 9.45%. Liquidation of old crop contracts pressured the market, with a bearish USDA export sales report on Thursday feeding ideas that USDA will lower projected exports and raise ending stocks on Wednesday. Weekly ethanol production was also down from the previous week, suggesting plants are still having margin difficulties. The index fund wash out contributed to the sell off, with open interest declining more than 12 thousand contracts on Thursday alone. Planting progress was being made in the WCB, with scattered reports of producers being done planting corn. However, east of the Mississippi is a totally different story, with many farmers unable to even do preparatory spraying and no planting done. The trading community in general expects USDA to show 27 to 32% of the crop planted through Sunday.
 
The soybeans followed corn lower, losing 68 cents to the 71 cents for corn. That was a 4.86% drop for the beans for the week. Soybean meal was down 3.7%, and soy oil lost 4.75%. Census showed a sharp increase in soy oil used for biodiesel production, but the plunge in crude oil and distillates took bean oil right back down. Chinese prices for palm oil and soy oil were also down amid continued government efforts to limit price advances. Crude oil was down 13% for the week. Soybean export sales were poor, with almost no new crop bookings the last week of April. Traders are looking for USDA to raised old crop ending stocks to 151 million bushels, based on a Bloomberg survey.
 
Wheat was lower at all three exchanges, despite rallies on Friday.  USDA reported weekly exports of. 549,600 MT, which were on the upper end of trade guesses and stood out in stark contract to lousy corn, soybean and rice sales. The average trade estimate for USDA winter wheat production is 1.387 billion bushels. That is 98 million bushels lower than last year, despite much larger 2011 acreage. The Kansas WQT group estimated production in that key state at 256.7 million bushels on an average yield of 37.4 bushels. The tour has been under the May USDA estimate in 7 of the past 10 years, but on average is light by less than 1%. India decided to delay selling any excess wheat out of their inventory for at least another 30 days, excluding special government to government sales.
 
Cotton futures collapsed as May cotton expired. Prices dropped 11.56 cents on Friday, and lost 24.98 cents for the week. USDA again reported negative weekly export sales for old crop. Cancellations continue to be larger than weekly sales. The industry is having trouble passing on the prices to the consumer, and in fact is also seeing more competition from synthetic fibers and recycled fiber. ICAC is projecting an increase in global ending stocks for 2011/12, with a double digit percentage increase in global production and very small growth in global use.
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
Month
04/15/11
04/21/11
04/29/11
05/06/11
Change
% Change
May
Corn
$7.42
$7.37
7.54
6.8275
0.71
9.45%
May
CBOT Wheat
$7.44
$8.00
7.6925
7.245
0.45
5.82%
May
KCBT Wheat
$8.66
$9.33
8.93
8.68
0.25
2.80%
May
MGEX Wheat
$8.89
$9.52
9.4525
9.1075
0.35
3.65%
May
Soybeans
$13.32
$13.81
13.9275
13.25
0.68
4.86%
May
Soybean Meal
$345.20
$358.80
358.1
344.9
13.20
3.69%
May
Soybean Oil
$56.84
$58.27
58.13
55.37
2.76
4.75%
June
Live Cattle
$115.30
$115.23
113.35
109.85
3.50
3.09%
May
Feeder Cattle
$133.30
$132.98
131.9
129.125
2.78
2.10%
May
Lean Hogs
$102.42
$102.05
95.275
93.35
1.93
2.02%
May
Cotton
$195.52
$186.67
178.78
153.8
24.98
13.97%
May
Oats
$3.83
$3.90
3.425
3.31
0.12
3.36%
May
Rice
$13.64
$14.00
14.805
14.095
0.71
4.80%

 
 Cattle futures were down 3.1% for the week. Cash cattle asking prices started out at $118, but quickly evaporated in the face of bearish futures charts and sliding wholesale beef prices. The Select boxed beef quote was down $5.58/cwt for the week, a 3.2% decline that just about explains the drop in the futures. Packers were getting less, and paying less for cattle. Beef production YTD has been running about 0.8% above last year, with carcass weights running 10 pounds or more above year ago. USDA reported solid weekly export sales of 17,100 MT but ready cattle numbers are increasing seasonally and grilling demand has yet to pick up enough to offset.
 
Hogs were down a more modest 2.02% for the week, but have seen a dramatic $10.85 drop since peaking on April 14. The pork carcass cutout value dropped $2.87 for the week on a Friday/Friday basis, down 3.1%. Pork bellies were down more than 8.5%. Average carcass weights are running 3-4 pounds above year ago, keeping pork tonnage on the high end for the number of animals being slaughtered.
 
 
Looking to enhance your existing Ag Marketing Professional subscription? Add free futures market quotes sent to your cell phone via our Market Monitor service. Or “push” the daily recommendations out to your phone as they happen with Market Messenger 2. Call in consulting service with Alan is also available for a limited number of new customers in our Ag Marketing Professional Premium package. Call our office for details on either service at 402-289-2330. 
 
Market Watch: The main USDA reports this week are the Crop Production and WASDE reports, to be issued on Wednesday morning. Winter wheat production will be highlighted in the former, and USDA will take its first stab at global 2011/12 production and balance sheets in the latter.  There will of course also be interest in the weekly crop progress reports on Monday evening, with the trade looking for US corn planting to be in the 28-32% range and soybeans somewhere under 10%. The USDA Weekly Export Sales will be of interest on Thursday morning, mostly for the new crop slots. USDA showed almost no new crop export business for corn, soybeans and rice in the May 5 report. There is interest whether the price decline was starting to attract buyers. Keep in mind that the export sales numbers will only be through May 5. Friday will mark the expiration of the May grain futures contracts. May cotton expired on the 6th, making July the new lead month. In volume terms it already was.
 
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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