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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.

The Big Muddy

Jun 10, 2011

Brugler

Market Watch with Alan Brugler

June 10, 2011

The Big Muddy

 

In a quirk of the Internet, if you search for "Big Muddy" it comes up as a nickname for the Mississippi River. If you search for nicknames for the Missouri River, you come up with "Big Muddy". It is somehow appropriate that the two sources of flooding problems in the United States this year both have the same nickname, and in fact the Missouri flows into and becomes part of the Mississippi River down by St. Louis. The flooding on the river has also muddied the picture for US corn and soybean production when combined with heavy rains in other areas that prevented planting. USDA on Thursday reduced projected US corn acreage by 1.5 million to reflect prevented planting of intended corn acres, and cut estimated harvested acres by 400,000 additional acres to reflect currently planted corn that is likely to be under water for the next 6 to 8 weeks. While the number of flooded acres will be small by comparison to the total land mass of the United States, the market needed the bushels from that high producing bottom ground. It will be several months before we know how much was lost, because it depends so much on peak water levels, and which levees fail.

 

Corn futures were higher this week, with nearby July up 33 cents despite active liquidation of July longs by the swaps dealers/index funds. December futures posted new life of contract highs on Thursday at $7.22 ¾. Old crop July just missed the magic $8 number, probably because nobody wanted to tell their boss they bought $8 corn. The high on Friday was $7.99 ¾ before profit taking kicked in. The main driver for the week was clearly the USDA decision to cut the estimated acreage without waiting for the June 30 Planted Acreage report. They cut projected new crop ending stocks to 695 million bushels, putting the stocks/use ratio at the tightest level since 1995/96 before the crop is even knee high. The global corn stocks/use ratio is also projected to be the tightest on record, following revisions to Chinese production and consumption numbers.

 

Soybeans retreated almost 2% for the week. Meal futures were up $4.90/ton to support bean values, but soy oil was down 3.2% for the week. Energy futures were lower, with crude oil back below $100 on Friday after Saudi Arabia indicated it would increase crude oil production even if OPEC would not.  USDA trimmed projected biodiesel use of soy oil to 2.4 billion pounds, due to the slow rate of increase in monthly production. That resulted in larger projected new crop soy oil ending stocks but not in a lower cash price estimate. Soybean ending stocks for 2012 were raised to a more comfortable 190 million bushels by USDA, but USDA raised projected cash prices received by farmers to a mid-point of $14.00 per bushel. That was a $1.00 per bushel hike from the May report to the June report. Unlike in corn, USDA made no changes in projected soybean production, likely because too much of the crop is still to be planted.

 

Wheat futures were lower at all three exchanges this week, but the hard wheat markets took the brunt of the selling. KC was down 5.06% on higher than expected yields from the drought stressed HRW crop. USDA raised projected HRW production to 777 million bushels.  The SRW forecast was also hiked 7 million bushels but it didn’t have the same market effect. Chicago wheat is now at a substantial discount to corn, signaling those livestock feeders who can do so to feed more wheat and less corn. USDA lowered overall US wheat ending stocks to 809 million bushels for the year just ended, and sees them declining to 687 million bushels by May 2012.

 

Cotton futures showed the largest loss of any of the tracked commodities, with nearby July down 7.18% despite a strong up day on Thursday. World buyers continue to cancel purchases made in the heat of the moment back in February and March. Cancellations have been larger than new sales for the past 11 weeks in a row. That does hinder front month futures. USDA shocked the market on Thursday by trimming 1 million bales from new crop production. However, a larger carryin forecast and smaller export projection left end stocks UNCH at 2.5 million bushels.  


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

05/20/11

05/27/11

06/03/11

06/10/11

Change

% Change

July

Corn

7.595

7.585

7.54

7.87

0.3300

4.38%

July

CBOT Wheat

8.065

8.1975

7.7375

7.5925

0.1450

1.87%

July

KCBT Wheat

9.3325

9.43

9.1425

8.68

0.4625

5.06%

July

MGEX Wheat

9.9975

10.5625

10.605

10

0.6050

5.70%

July

Soybeans

13.8025

13.7975

14.145

13.8725

0.2725

1.93%

July

Soybean Meal

360.6

355.6

368.4

373.3

4.9000

1.33%

July

Soybean Oil

57.46

58.61

58.73

56.85

1.8800

3.20%

June

Live Cattle

104.975

104.1

104.175

102.725

1.4500

1.39%

Aug

Feeder Cattle

125.75

122.72

124.25

123.625

0.6250

0.50%

June

Lean Hogs

91.975

88.925

89.225

91.7

2.4750

2.77%

July

Cotton

155.61

152.67

161.63

150.03

11.6000

7.18%

July

Oats

3.64

3.8275

3.78

3.955

0.1750

4.63%

July

Rice

15.1

15.185

14.475

14.895

0.4200

2.90%

 

Cattle futures were down $1.45 for the week despite higher cash cattle trade and a supportive rise in hog prices.  Packers could afford the higher cash prices, due to excellent margins built up over the past several weeks. Beef production for the week was up 10.5% over the holiday week, and up 3.1% from last year for the same week. That put some pressure on the carcass value, which closed the week at $171.55 for choice and $165.37 for select. Those were down 3.3 and 3.5% respectively on a Friday/Friday basis. Average carcass weight is estimated to be 1 pound lighter than last year, which is a significant improvement in currentness.

 

Hog futures gained 2.77% for the week.  Pork production YTD is now only 1.1% ahead of last year, and estimated weekly production of 413.3 million pounds was down 0.2% from the same week a year ago. The pieced out value of the hog rose 2.5% on a Thursday/Thursday basis, with erratic daily swings in the reported value of the primal cuts.  Pork loins went from $104 to $110 to $104 to $110 over a period of 6 market days.  USDA cut projected 2011 pork production by 10 million pounds on Thursday, and trimmed likely 2012 production by 40 million to reflect the effects of historically high feed costs and their increased potential for remaining high if crop production doesn’t improve.

 

Market Watch:  The USDA reports may be out of the way, but the calendar is still full. We start the coming week with USDA export inspections and the well followed weekly Crop Progress and condition reports. Tuesday is Flag Day, as well as the expiration day for June hog futures and options. NOPA crush is also expected on Tuesday. Wednesday is a full moon, as if things weren’t crazy enough already. USDA will release weekly Export Sales on Thursday morning and the macro traders will get the weekly Initial Jobless Claims and monthly Housing Starts numbers to play with.  On Friday, USDA will weigh in with the monthly Cattle on Feed report.


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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