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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.

Its Complicated!

Mar 04, 2011

 brulogomed

Market Watch with Alan Brugler
March 4, 2011
It’s Complicated
 
The markets were in turmoil this week, showing different versions of panic, fear and greed. Crude oil hit a 2 ½ year high, with ongoing reductions in Libyan oil exports. Fighting was intensifying. Gold hit new all time highs as civil unrest and political murders (Pakistan as an example) were seen in a number of countries. While Libya is a relatively small oil producer, the lost production directly affects the EU-27. The refugees from the conflict affect a number of surrounding countries. The US dollar was weaker despite further improvement in unemployment to 8.9%. The main concern appears to be that higher energy prices are a drag on already anemic GDP growth.
 
Corn hit new highs for the year on Friday morning, and continues to chip away at the gap between current prices and the 2008 high. Projected ending stocks are tighter this year than in 2008. While there has been some slowing of ethanol production in the past month, spot margins improved sharply with the Libyan conflict and the associated high oil prices. Corn export sales have been running strong, aided by the weakness in the US dollar and the tightest world coarse grain stocks situation since 2006. The actual USDA number for the week ending February 24 was 1.202 MMT.
 
The soybean complex was higher in all three legs. Soy oil was the leader, with the benefits of biodiesel use more apparent as the Libyan situation spiraled into more destruction of facilities. Trade estimates were 50% light for the weekly USDA Export Sales report. The actual number was 645,300 MT for combined old and new crop bookings. Chinese buying activity picked up in both old crop and new crop. Nearly all of the new crop bookings were for China. Informa updated its projections for Brazilian and Argentine soybean production on Friday, bumping Argentina to 52 MMT and Brazil to 71.5 MMT. The former was definitely larger than the rest of the trade had been expecting, with other estimates mostly in the 48-49 MMT range. That pulled prices back a little on Friday.
 
Wheat futures rebounded after two down weeks, posting higher weekly closes at all three exchanges. Minneapolis was the strongest of the three, up 4.1%. Spring wheat is still directly involved in the Acreage War, while the winter wheat classes traded in Chicago and KC are already planted and any switching is tied to the crop insurance adjustor and the poor crop condition ratings. USDA reported export sales slowed to 650,900 MT. Old crop sales were down 44% from the previous reporting week.
 
Cotton futures hit new all time highs in the front month futures on Friday, and were up a whopping 12.4% for the week. Old crop supplies out of the US are extremely tight, with most bales already committed to either the export market or domestic mills. Weekly export sales from USDA were larger than expected at 411,200 running bales. The US economy continues to improve, with unemployment for February dropping to 8.9%. That hints at better consumer demand over time, although consumer deleveraging continues to limit retail buying interest from what it was three years ago.
 
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
02/11/11
02/18/11
02/25/11
03/04/11
Change
% Change
Mar
Corn
$7.07
$7.10
$7.12
$7.21
0.09
1.30%
Mar
CBOT Wheat
$8.67
$8.22
$7.77
$8.01
0.24
3.09%
Mar
KCBT Wheat
$9.73
$9.30
$8.88
$9.18
0.31
3.44%
Mar
MGEX Wheat
$10.18
$9.56
$9.16
$9.53
0.37
4.07%
Mar
Soybeans
$14.16
$13.68
$13.66
$14.08
0.42
3.09%
Mar
Soybean Meal
$378.10
$362.00
$359.70
$363.80
4.10
1.14%
Mar
Soybean Oil
$58.49
$56.49
$56.95
$58.96
2.01
3.53%
Apr
Live Cattle
$112.70
$115.15
$114.10
$114.05
0.05
0.04%
Mar
Feeder Cattle
$126.03
$130.08
$129.83
$129.95
0.13
0.10%
April
Lean Hogs
$92.38
$92.28
$90.20
$88.48
1.73
1.91%
Mar
Cotton
$189.97
$197.02
$191.34
$215.15
23.81
12.44%
Mar
Oats
$4.18
$4.10
$3.69
$3.81
0.12
3.18%
Mar
Rice
$15.89
$14.75
$13.96
$13.91
0.04
0.32%

 
Cattle futures were down 5 cents for the week, with the two day rally failing to erase early week losses and the 15 cent drop on Friday. The cash cattle market was firm again, with declining ready numbers into March. Packers paid $113, matching the all time record high from 2003. USDA reported weekly export sales of 14,000 MT. The wholesale market was again firmer for the week, with choice boxes up $2.57 and select boxes quoted 1.5% higher on a Thursday/Thursday basis. Beef production for the week was down an estimated 1.6% from the previous week, but up 5.1% from the same week a year ago. For the year, production is up 0.9% despite UNCH slaughter.
 
Hog futures were down 1.9% for the week. Pork production YTD is up 0.5% from 2010, while the estimated production this past week was up 1.3% from the same week in 2010. Average slaughter weights are running persistently higher at 208 pounds vs. 203 a year ago. Wholesale prices were up $1.28 for the week, a 1.4% drop in the carcass value that kept pressure on the cash hog market.
 
Market Watch:  It is time for another USDA supply/demand report, which will be released on Thursday morning. Global changes are expected, with keen interest in the South American corn and soybean production numbers. Wednesday marks the expiration of the March cotton contract. There are routine USDA reports on Export Inspections and Export Sales, which come on Monday and Thursday respectively. Not to be overlooked, Daylight Savings Time begins on Sunday the 13th. Can Spring be far behind? It begins on the 20th.
 
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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