Sep 21, 2014
Home| Tools| Events| Blogs| Discussions Sign UpLogin

Market Watch

RSS By: Alan Brugler,

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Sailing on the QE2

Nov 05, 2010


Market Watch with Alan Brugler
November 5, 2010
Sailing on the QE2
The market was afraid to make much of a move on Tuesday and Wednesday, waiting first on the Tuesday elections in the United States and then on the Federal Reserve to announce its decision on whether to implement its second quantitative easing campaign (a.k.a. QE2. The election was a Republican landslide created a divided Congress that will greatly limit the Administration’s ability to make sweeping legislative changes. The QE2 decision was for the Fed to buy $600 billion of U.S. Treasury debt, effectively pumping up the money supply and driving down interest rates. That was expected to weaken the dollar, since other countries have been raising rates and making it more attractive to invest elsewhere. While not the main driver in the value of commodities, prices in dollar terms are higher if the dollar is lower. On Thursday, that fueled massive asset allocation buying in commodities.
The soy complex flexed its bullish muscles this week and led the ag markets higher. Export demand continues to be stout, with USDA reporting 1.6 MMT of combined old and new crop export sales for the week ending October 28. China again was the major buyer at 927,100 MT (25.2 million bushels including destination switches on previous sales).  Soy oil had the biggest jump, up 5.92%. It wasn’t due to US export sales, which were a negative 32,600 MT because of three large cancellations. Tightening world veg oil stocks are primarily responsible, with strong biodiesel use in South America and elsewhere. The Census Fats & Oils report showed that little U.S. soy oil is being used for biodiesel, less than 45% of what was being used a year ago. This is, of course, due to Congress failing to renew the blend credit and forcing biodiesel plants to shut down.
Corn prices continued to advance, up another 6 cents per bushel for the week. Memphis cash corn hit the magic $6 number this week according to USDA. The Fed move to buy $600 billion in bonds pushed the dollar lower and nudged prices higher in dollar terms. Weekly corn export sales were 461,600 MT. Shipments were better than the last four week average at 880,300 MT. The average trade estimate for corn ending stocks is 840 million, vs. USDA’s 902 million figure in October.
Wheat futures were higher at all three exchanges. Unwinding of inter-market spreads resulted in buying of wheat futures. Ongoing dryness in the southern Plains and the worst fall crop condition ratings since 1991 also supported the 2011 contracts. The trade is looking for a modest drop in projected world wheat ending stocks on Tuesday, with one wire service putting the average trade guess at 173.53 MMT vs. USDA’s 174.66 MMT figure in October. USDA is expected to make a small upward revision in projected ending stocks for the U.S. on Tuesday, either due to a cut in projected exports or an upward revision in production. It depends on who you talk to!
Cotton again set new modern era highs during the week, peaking at 144.60 before succumbing to profit taking and some mill resistance to paying these breathtakingly high prices. The market is still below the inflation adjusted high set back in 1995, but in nominal prices is near Civil War era levels. The all time high according to the Mississippi Historical Society is just under $1.89. Weekly export sales were up 20 percent from the four week average at 560,800 RB, and also above pre-report estimates.

% Change
CBOT Wheat
KCBT Wheat
MGEX Wheat
Soybean Meal
Soybean Oil
Live Cattle
Feeder Cattle
Lean Hogs

Cattle futures were down again, by 1.3%. Cash cattle trade broke out early in the week at $98, about $2 weaker than the prior week. On a Thursday/Thursday basis, wholesale prices were down 2% for the week, or more than $3.25 per hundred pounds. USDA weekly beef export sales were even slower than the previous week, despite a sliding U.S. dollar. The sluggish demand is a problem, with beef production YTD now 0.2% larger than last year.
Hogs had a bit of a dead cat bounce after several weeks of free fall. They were up 1.1%.
The cutout was up 4.68% on a Thursday/Thursday basis, a stealth rally that supported the rebound in the cash hogs and the futures. Hams were up 15.7% for the week, and picnics were up 16.8%. The Thanksgiving and Christmas periods are historically strong for ham demand. Of course, the ham price used in the cutout is a raw ham, not the smoked or wet cured finished product seen in the stores. Pork production for the year to date is down 3.9%, but estimated production for the week ending November 6 was up 1.7% from the previous week. Estimated slaughter was 2.338 million head compared to 2.299 million head in the same week a year ago.
Market Watch:  Market attention for the grains is solidly on the November 9 USDA crop report and accompanying WASDE estimates. On average the traders are expecting USDA to cut both U.S corn production and ending stocks, while raising soybean production and still cutting soybean ending stocks. Thursday is a government holiday, for Veteran’s Day. That will delay the weekly USDA Export Sales report until Friday. Friday will be the last trading day for November soybean and rice futures. It will also mark the expiration of December cotton options.
Alan Brugler will be a featured analyst at the Farm Journal Marketing Rally in St. Charles, Illinois. If you plan on attending, call our office for a special registration discount created for Brugler clients. The number is 402-289-2330.
Join Alan Brugler for a National Ag Marketing Strategy Group webinar on Tuesday, November 9 at 7 pm CST. The online meeting will feature updated analysis and forecasts for corn, soybeans, wheat, cattle and hogs, utilizing the fresh USDA numbers from Tuesday morning. Membership dues are $45, and registration must be completed prior to the meeting. Go to http://bruglermktg.webexcom to register. Your invitation code is “harvest”.
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 2010 Brugler Marketing & Management, LLC
Log In or Sign Up to comment


No comments have been posted, be the first one to comment.
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by|Site Map|Privacy Policy|Terms & Conditions