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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.

Mega Reports

Aug 10, 2012

Brugler

Market Watch with Alan Brugler

August 10, 2012

Mega Reports

The much anticipated August USDA crop reports are now out of the way. The first Crop Production report of the year for corn and soybeans was key to understanding yield potential going forward, and there was a great deal of curiousity about how the WAOB analysts would make a 2 billion bushel drop in production disappear on the demand side. Somebody has to stop using the stuff. These are mega reports, these summer crop reports in tight stocks situations. As an example, trading volume in Dec corn was over 100 million bushels in the first 5 minutes after the release of the report. Of course, anyone who bought on that bullish frenzy and stuck around for the rest of the day was out 20 cents per bushel. The release of these reports during trading hours is resulting in some huge price swings, and provoking debate about whether that is healthy for the industry. Thankfully, prices were not limit up or limit down. That seems to be reserved for the quarterly Grain Stocks reports, which also typically fall at the end of a calendar quarter and thus also get involved in asset allocation adjustments and other fund money flows unrelated to the market.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

07/20/12

07/27/12

08/03/12

08/10/12

Change

% Change

Sep

Corn

$8.25

$7.99

$8.10

$8.00

($0.10)

-1.23%

Sep

CBOT Wheat

$9.43

$8.98

$8.91

$8.85

($0.06)

-0.67%

Sep

KCBT Wheat

$9.41

$9.06

$8.96

$8.93

($0.03)

-0.33%

Sep

MGEX Wheat

$10.32

$9.72

$9.45

$9.36

($0.09)

-0.95%

Aug

Soybeans

$17.58

$16.84

$16.56

$17.10

$0.53

3.22%

Aug

Soybean Meal

$543.00

$527.70

$531.50

$544.50

$13.00

2.45%

Aug

Soybean Oil

$54.36

$52.04

$52.04

$53.60

$1.56

3.00%

Aug

Live Cattle

$117.95

$119.60

$119.98

$120.60

$0.62

0.52%

Aug

Feeder Cattle

$136.10

$137.75

$138.95

$139.48

$0.52

0.38%

Aug

Lean Hogs

$93.70

$95.20

$89.55

$91.88

$2.33

2.60%

Oct

Cotton

$72.06

$70.73

$73.22

$72.90

($0.32)

-0.44%

Sep

Oats

$3.87

$3.77

$3.78

$3.88

$0.10

2.71%

Sep

Rice

$15.54

$15.60

$15.98

$15.95

($0.03)

-0.19%

 

Corn prices were actually down 10 cents per bushel for the week. The USDA is clearly trying to get in front of this drought problem after leaning the wrong way last spring and projecting record high yields. The new estimate is 123.4 bushels per acre, with production at 10.779 billion bushels. The Brugler500 index is now slightly below the 1988 reading this week. A weak correlation equates the index to a final yield of 124 bushels per acre, in alignment with the USDA number at the present time. The index changes week to week, however, so the final estimate is likely to be different. Weekly ethanol production rebounded slightly from the previous week. Export sales are still lagging well behind year ago, and USDA trimmed the old crop estimate by 50 million bushels on Friday. The bullish story is that they raised the cash price range for the 2012/13 marketing year to $7.50-8.90. Futures trading above $8.00 don’t seem out of line with that estimate. Global corn stocks are seen shrinking, but remaining well above 2006/07 levels. However, the global corn stocks/use ratio is projected to be record tight because of big demand growth around the world.

 The three wheat markets were all down again this week, by .33 to .95%.  Weekly export sales were stronger than expected; with interest in US supplies rising as the extent of the Russian shortfall becomes known. USDA trimmed projected Russian production to 43 MMT on Friday from 49 MMT in July. Exports were cut to 8 MMT from 12 MMT. The Russians are still shipping, but hint at tariffs or other restrictions after the first of the year. Buyers remember the 2010 embargo and are making sure they have some alternative supply sources. Closer to home, USDA bumped up US wheat production, taking Other Spring to 499 million bushels and also revising Winter wheat production higher. Ending stocks were loosed by the extra supply, as USDA made no change in predicted exports.

Soybeans were up 3.22% this week.  China bought an estimated 725,000 MT of new crop beans over 4 days ahead of the crop report, taking advantage of the early month price correction and some positive crush margins. It is not clear how high they are willing to go on import prices. In the WASDE report, USDA cut projected yield all the way to 36.1 bushels per acre, putting production at only 2.692 billion bushels. They had to drop projected exports by 260 million bushels in order to come up with a bare minimum ending stocks figure of 110 million bushels. The average cash price estimate range was bumped up to $15.00-17.00 for the year in order to scare off enough import buyers. They did show the effect of higher prices on South American farmers, increasing projected South American soybean production by 6 MMT in Argentina and Brazil alone. Paraguay is also expected to increase production in 2013.

Nearby cotton futures were firm early in the week but lost 0.44% Friday close to Friday close. The USDA report was fundamentally bearish. Harvest area was increased by 410,000 acres. With a minor 1 pound per acre drop in yield the crop was 650,000 bales larger. The trade had been looking for a smaller number around 16.8 million rather than 17.65 million. Due to large world supplies and rising world stocks, USDA made no change in projected US cotton exports, pushing all the increased production into a burdensome 5.5 million bale ending stocks number. India has suffered from a poor monsoon season thus far. USDA did trim projected Indian production by a modest 500,000 stat bales (480 lb). Indian ending stocks were trimmed by the same amount, with no effect on exports.

Cattle futures rose 62 cents per cwt. for the week, adding to the 38 cents picked up last week. Futures remain in a rising regression channel on the weekly continuation chart, but the slope is very shallow. Wholesale beef prices were up 3.8% for  the week, supported by improved beef export sales and generally cooler (but still above normal) temps that were more amenable to grilling demand. Estimated weekly beef production was1.5% smaller than the same week in 2011. YTD production is down 2.2%. Weekly beef export sales reported by USDA again improved from the week before. USDA hiked projected 2012 beef production, now seen at 2.4% smaller than last year. They did trim 2013 estimates due to expected negative feeding margins.

Hog futures were up 2.6% for the week. August expires on the 14th and needs to converge with the CME Index used to settle the contract. Cash hogs were strong enough that the Index wasn’t coming down to the futures, so the futures had to rally. Estimated pork production was up 0.1% from the previous week. It was up 1.0% from the same week in 2011. Cumulative pork production for the year is 1.7% larger than last year on 1.2% more hogs slaughtered. Average weights are still running 3pounds above last year but are declining seasonally.  The pork carcass cutout value was down 0.49% for the week. Ham prices were the weakest link. Larger than expected broiler supplies here in 2012 caused USDA to reduce expected chicken prices, but summer death losses in the south due to the heat will trim supplies a little and high feed costs are also expected to drive the major firms to reverse expansion plans.

 Market Watch:

There will be a bit of a hangover from the big Friday USDA reports. The second guessing has begun on yields, and on whether current prices are accomplishing the price rationing foreseen by USDA. The Monday night crop progress and crop condition ratings will get deserved attention as a clue, with a particular focus on where there are improvements in soybeans that could hint at larger future numbers. Tuesday will see the monthly NOPA soybean crush report for July. Tuesday will also be the last trading day for August hogs and the August soy complex futures. Thursday will see the regular USDA weekly export sales report. The biggest USDA report for the week will be the Cattle on Feed report scheduled for Friday at 2 pm CDT. Monthly milk production will also come out at the same time.

 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.

 

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