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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.

Sailing on the Titanic

Nov 12, 2010

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Market Watch with Alan Brugler

November 12, 2010

Sailing on the Titanic

Last week we talked about the market sailing on the QE2, the Fed program intended to lower interest rates and stimulate the economy. The dollar spiked lower on the day QE2 was announced, and has rallied ever since. As we look this week’s price action, it looks more like we were sailing on the Titanic and hit a big ole iceberg. Even if we turned it into ice cubes it is cooling down the red hot bull markets in commodities. For that matter, the first tranche of the QE2 buying failed to have any impact. Interest rates on Friday night were higher than they were before the Fed went into the market.

Not to be ignored, China allowed the Yuan to rise this week and intervened again in the banking system in an attempt to cool off the bubbles they are seeing in real estate and commodities. China raised its reserve requirement for its banks 50 basis points. The Chinese market didn’t take it well on Friday, with the stock markets down by more than 5% and the commodity futures in some cases limit down. That weakness spilled over into the U.S. market on Friday.

The soy complex turned in a comparatively strong performance for the week. Beans were down 12 cents for the week as a whole, due to strong buying after USDA dropped projected ending stocks to only 185 million bushels and raised projected exports another 50 million bushels. If the Chinese actions ultimately reduce demand for soy products, that 50 million bushel increase could be in jeopardy. On the other hand, a successful cool down effort might mean more demand over time because of the demand destruction caused by high prices.  News out of South America was mixed. Dry weather is definitely a concern in southern Brazil and northern Argentina. However, USDA raised projected production for both countries in Tuesday’s WASDE report due to increased acreage attracted by the high global prices. Increased margin requirements didn’t help soybeans later in the week.

Corn prices were good until Tuesday morning, but collapsed a spectacular 9.15% for the week. USDA lowered projected ending stocks to only 827 million bushels, which is below pipeline requirements. However, a brief rally above $6 found little buying interest up there, and the macro issues discussed above encouraged a lot of profit taking type selling. December options expiration and delivery notices are rapidly approaching; liquidation of December positions was a theme all week. Weekly export sales came in above trade guesses but that couldn’t shake off the bears scared by Chinese markets.

Wheat futures were lower at all three exchanges. Earlier in the week condition ratings showed wheat good/excellent condition down a point. The USDA showed ending stocks 5 million bu lower with world ending stocks over 2 MMT lower due to mostly to increased use in China. Much needed moisture came in later in the week for KS and OK. Informa saw planting for 2011 down .9 million acres from previous forecasts at 56.1.

Cotton again set new modern era highs during the week on a US and international basis but succumbed to massive profit taking. The market got above the inflation adjusted high set back in 1995 but without a demand pull from China it is tough to justify prices at this level. Increased margin requirements also weighed on cotton later in the week. Cotton hit a record volume on Wednesday on a key reversal. Weekly export sales were down 71.8K from last week at 557K RB but still robust. This still puts exports at 78% of even the new USDA export estimate for the marketing year which ends in July, well above the 5 year average. Informa’s 12.2 million acre forecast for next year also put a damper on buying interest.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

10/22/10

10/29/10

11/05/10

11/12/10

Change

% Change

Dec

Corn

$5.60

$5.82

$5.88

$5.34

0.54

9.15%

Dec

CBOT Wheat

$6.71

$7.17

$7.29

$6.69

0.60

8.16%

Dec

KCBT Wheat

$7.19

$7.71

$7.86

$7.30

0.56

7.12%

Dec

MGEX Wheat

$7.28

$7.77

$7.97

$7.45

0.52

6.56%

Nov

Soybeans

$12.00

$12.26

$12.74

$12.63

0.10

0.82%

Dec

Soybean Meal

$330.90

$337.70

$348.00

$339.70

8.30

2.39%

Dec

Soybean Oil

$48.30

$49.30

$52.22

$52.53

0.31

0.59%

Dec

Live Cattle

$101.70

$98.83

$97.55

$98.40

0.85

0.87%

Nov

Feeder Cattle

$112.55

$110.33

$110.60

$112.40

1.80

1.63%

Dec

Lean Hogs

$70.65

$66.20

$66.95

$68.98

2.02

3.02%

Dec

Cotton

$119.71

$125.26

$142.23

$140.18

2.05

1.44%

Dec

Oats

$3.57

$3.68

$3.75

$3.40

0.36

9.53%

Nov

Rice

$14.24

$14.43

$14.70

$13.77

0.93

6.36%

 

Cattle futures were higher for the week even after a lower Friday with livestock the only ag sector producing gains. Cash cattle trade was scattered throughout the week, with most late week trade at $156-157 in Nebraska and $98.00-98.50 in Texas, Oklahoma and Kansas. On a Thursday/Thursday basis, wholesale prices were down 1.93% for the week, or $3.60 per hundred pounds. USDA weekly beef export sales were 12.8 TMT.

 

Hogs had a 3% bounce for the week and are now up two weeks in a row. The cutout was down 1.33% on a Thursday/Thursday basis.  Hams were up 2.53% for the week, and picnics were up 6.41%. Pork production for the year to date is down 3.8%, but estimated production for the week ending November 12 was down .4% from the previous week. 

Market Watch:  Some things to watch for next week are the Cattle on Feed report Friday, the NOPA crush report on Monday, PPI on Tuesday, and CPI on Wednesday. We could also see some Turnaround Monday/Tuesday next week since everything sold off and the world’s piggy bank (T bills and shorter T notes) don’t pay hardly anything right now.

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

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