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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.

Will The Well Run Dry

Sep 10, 2010

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Market Watch with Alan Brugler

September 10, 2010

Will The Well Run Dry? 

We ran out of adjectives for a smoking hot corn market, but you do use a lot of water in fighting a fire. The water level in the well analogy is appropriate since the projected level of ending stocks for 2011 continues to decline.  USDA reduced projected production to 13.16 billion bushels on Friday, while also tweaking demand.  Ending stocks are seen dropping to only 1.116 billion bushels by next August. The stocks/use ratio under current assumptions would be the tightest since 1995/96 (The $5 corn, HTA rally year). There are a few cracks developing in the bullish façade, with USDA reporting a slowdown in weekly export sales through September 2. Higher prices doubtless are having an impact.

 

Wheat ended the week with a small loss in Chicago, while the hard wheat markets in KC and MPLS posted gains. The US really doesn’t have much soft wheat to export, and the hard wheats are seeing what USDA believes could be record buying interest. USDA reported very strong weekly export sales for wheat of more than 1.6 MMT on Friday morning. That was easily 500,000 MT above the trade average guess. The big surprise was 660,000 MT of 2011/12 bookings. Russia indicated that the export ban was likely to be extended until the fall of 2011 after new crop supplies were assured. That drove those who had been hoping for deferred shipment of August Russian orders to go to other sources. USDA did not, however, cut projected Russian exports to zero as a few brokerage analysts had been anticipating. They really can’t, since Russia was in fact shipping wheat from June 1 to August 15 and that period is part of the standardized 2010/11 marketing year.

Soybeans were double digits lower on Friday, and that resulted in a net loss for the week. Pundits looking for USDA to increase the national average yield estimate in August were correct, with USDA going to a new record level of 44.7 bushels per acre. Pod counts in the objective yield plots were increased to record levels after very conservative numbers were used in August. Fortunately for soybean producers, world demand for soybeans is phenomenal. USDA now sees U.S. soybean exports for the year exceeding last year’s record. This comes despite a record high world carryover projection, and basically says the U.S. has a freight and availability advantage to some of the major Asian buyers. Strong basis levels in Brazil and decisions by some processors there to shut down early suggest that perhaps last year’s crop was overestimated. USDA made no change in projected Brazilian or Argentine production for the crop they are just now beginning to plant.

Cotton futures posted the highest prices since 2008 on their daily charts, and the highest prices since October 1995 on the front month continuation charts. However, the net gain for the week was negligible. The U.S. crop is still looking to be a big one, with USDA putting production at 18.84 million bales on Friday morning. However, the balance sheets show most of it being used or more accurately shipped out of the country. Projected ending stocks shrank to only 2.7 million bales by July 31, 2011.

Hogs digested their advance from the previous week, but were able to gain only 5 cents this week.  The cash hog market was volatile, with several $2-3 swing days. Producers are anxious to move hogs before they get bogged down in harvest. Packers are looking at favorable margins, but concerned about a seasonal slowdown in product values as we get into late September and October.  On a Thursday/Thursday basis the pork carcass value dropped 2.3%. On Friday morning, USDA cut projected 2010 U.S. pork production by 35 million pounds from the August estimate.  They also trimmed 15 million pounds off of 2011. Higher feed costs are expected to dampen expansion plans. USDA did raise the estimated average cash hog price for 2010 by $1 per cwt.

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:

 

Commodity

 

 

 

 

Weekly

Weekly

Month

08/20/10

08/27/10

09/03/10

09/10/10

Change

% Change

Sep

Corn

$4.21

$4.21

$4.50

$4.64

0.14

3.17%

Sep

CBOT Wheat

$6.79

$6.63

$7.08

$7.05

0.03

0.49%

Sep

KCBT Wheat

$7.06

$7.00

$7.44

$7.47

0.04

0.50%

Sep

MGEX Wheat

$7.00

$7.07

$7.42

$7.43

0.01

0.10%

Sep

Soybeans

$10.09

$10.22

$10.30

$10.24

0.06

0.61%

Sep

Soybean Meal

$300.80

$307.80

$308.20

$297.20

11.00

3.57%

Sep

Soybean Oil

$39.52

$40.20

$40.32

$41.25

0.93

2.31%

Oct

Live Cattle

$99.25

$98.10

$94.45

$97.15

2.70

2.86%

Sep

Feeder Cattle

$116.65

$116.27

$114.17

$111.70

2.47

2.16%

Oct

Lean Hogs

$77.20

$74.82

$77.20

$77.25

0.05

0.06%

Oct

Cotton

$87.15

$89.03

$90.95

$90.87

0.08

0.09%

Sep

Oats

$2.72

$2.66

$2.83

$3.17

0.34

12.01%

Sep

Rice

$10.91

$11.22

$11.51

$11.58

0.07

0.65%

 Cattle futures staged a nice 2.86% comeback from the nasty sell off the previous week. Cash cattle prices pretty much ignored the Board in both weeks, with cash trade mostly in the $97-98 area. USDA raised projected 2010 beef production for the U.S. by 60 million pounds from their August figure. The increased tonnage is seen having zero effect on the average steer price for the year, which they put at $93-95. The Choice beef wholesale price was down 2.2% for the week on a Thursday/Thursday basis. Select beef is seeing more competition from chicken and hamburger, and lost 2.5%.

Looking for professional help with your marketing decisions? Consider subscribing to our daily Ag Marketing Professional service or Special Research Reports. Call our office for details at 402-697-3623, or visit www.bruglermarketing.com.

Market Watch:  We’ll start next week off with the NOPA crush report, and Retail sales numbers. We’ll end the week with USDA Cattle on Feed and CPI data on Friday. Next week will see an expansion of harvest activity and this will give traders more data to consider as they further digest The September 10  USDA 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 2010 Brugler Marketing & Management, LLC

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