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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.

Quarterly News is Big Once More

Sep 28, 2012

 

Brugler

Market Watch with Alan Brugler

September 28, 2012


Quarterly News Is Big Once More

We’ve seen this movie before. The markets grind lower for weeks, expecting burdensome USDA numbers in a quarterly Grain Stocks report. We get technically oversold ahead of the report, and then USDA ‘s real numbers turn out to be more bullish than the crowd’s assumption of what they would be. The result is a limit up move as many are caught on the wrong side of the market. For corn, by our count this was the 7th quarterly Grain Stocks report in the last 9 reports where there was a limit move following the report. Not all of them have been up, in some cases we right into the report all bulled up and find out there is more inventory. This time it was a bull story for corn and wheat, and soybeans went along for the ride.


Thanks to the 40 cent, limit up move on Friday, nearby corn futures ended the week 1% higher. Weekly export sales for the prior week were almost 0 the prior week, at a net 400 MT. According to our friend Dean, that is only about 16 truckloads! Cancellations by customers with buyers remorse offset a nice sized sale to Japan. Ethanol production also slowed, dropping to an annualized pace of about 4.4 billion bushels while ethanol stocks rose. Brazilian ethanol imported by the Californians bulked up US supply and resulted in larger weekly stocks. These were the stories before the Grain Stocks report. The conversation changed when USDA found only 988 million bushels of old crop corn out there on September 1. That was a 190 million bushel drop from their September 12 estimate and basically is the same to the balance sheet as dropping the US average yield by nearly 2 bushels per acre.


Soybeans lost 6.74% two weeks ago, but the loss slowed to 1.28% this past week. Weekly export sales were no the high end of trade estimates, but pretty much ignored on Thursday as the funds were focused on exiting longs while they still had some money made. US export sales for the year remain heavily front end loaded, with 77% of the USDA projected shipments for the year already on the sales book. Shipments have only been running at last year’s depressed levels, but should ramp up sharply in October. That will mean a more concerted effort to buy beans in the country. USDA put final soybean ending stocks at 169 million bushels. You can’t have negative stocks in any state, so old crop 2011 production was increased 37 million bushels to square things up. This was based on known use and "administrative data" that usually means FSA numbers.

The three wheat markets were all higher for the week, again due to the sharp rally on Friday. USDA didn’t surprise anyone with the wheat production estimate at 2.269 billion bushels. Spring wheat production was raised and SRW was reduced, with minor changes in the other classes. The big surprise was in the September 1 stocks number, only 2.103 billion bushels. Implied 1Q feed use was about 435 million bushels, a huge number historically and likely to be tamed a bit over the next 3 quarters with some negative residual use numbers. The apparently huge feed use offset a bearish start to the wheat export year. Export commitments YTD are only 39% of the USDA forecast for the year. They would typically be 57% by now.

Nearby cotton futures lost 4% for the week after being down 4.5% the prior week. USDA has 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. It is still weighing on prices, trying to uncover demand. The deepening recession in the EU is threatening lower global consumption.  US export sales are doing OK, with 47% of expected shipments for the year already booked. That is close to the 48% average for this date.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

09/07/12

09/14/12

09/21/12

09/28/12

Change

% Change

Dec

Corn

$8.00

$7.82

$7.48

$7.56

$0.08

1.07%

Dec

CBOT Wheat

$9.05

$9.24

$8.97

$9.03

$0.05

0.59%

Dec

KCBT Wheat

$9.23

$9.48

$9.26

$9.28

$0.01

0.13%

Dec

MGEX Wheat

$9.58

$9.78

$9.58

$9.59

$0.01

0.08%

Dec

Soybeans

$17.37

$17.39

$16.22

$16.01

($0.21)

-1.28%

Oct

Soybean Meal

$527.20

$523.50

$484.50

$487.00

$2.50

0.52%

Oct

Soybean Oil

$56.24

$56.97

$54.45

$52.18

($2.27)

-4.17%

Oct

Live Cattle

$126.48

$127.05

$125.53

$122.08

($3.45)

-2.75%

Oct

Feeder Cattle

$146.15

$146.63

$147.23

$143.80

($3.42)

-2.33%

Oct

Lean Hogs

$71.35

$74.03

$75.80

$77.18

$1.38

1.81%

Oct

Cotton

$75.72

$75.39

$72.00

$69.15

($2.85)

-3.96%

Dec

Oats

$3.91

$3.96

$3.76

$3.71

($0.05)

-1.46%

Nov

Rice

$14.96

$15.28

$15.24

$15.48

$0.23

1.54%

 

Cattle futures lost $3.45 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. Those fears were well founded, as cash trade was sharply lower this week. Wholesale prices were down hard. Choice boxes were down 2.3% for the week, and select production was down 3.3%. Weekly beef production was up 4.1% from the previous week, accounting for some of the pressure, and weekly export sales also declined to below ten thousand metric tonnes. Beef production YTD is still down 2% from last year. 

Hog futures were up another 1.8%, a third week of gains. Estimated pork production for the week was down 2,2% from the previous week, helping firm up the product market. Production is still getting larger compared to last year, however, up 2.5%. FI slaughter was 4.1% larger than the same week in 2011. It had been 5% larger the previous week, so that is a moral victory for the bulls. Estimated carcass weight is down 2 pounds from last year, which helps keep a lid on tonnage. Friday’s Hogs & Pigs report showed some downsizing. Market hogs were 100.4% of last year, which sounds bigger. However, the market hog numbers under 120 pounds are below year ago, the breeding herd is down to 99.7% of last year, and farrowing intentions for Sep-Nov were down 2.7%. 

Market Watch:

We’ll start October still reacting to the Friday USDA reports, since corn was locked limit up on the close Friday, and the quarterly Hogs & Pigs report didn’t come out until after the close of business. October soybean meal and soy oil are also now into the futures delivery period. Cotton deliveries continue, although little has been happening. The main USDA reports for the week are the usual weekly Export Inspections and Crop Progress reports on Monday, and the weekly Export Sales report on Thursday. Friday will market the last trading day for October live cattle options.  Chinese futures markets will be closed all week for the Golden Week or Mid-Autumn Festival holiday period. 

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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