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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.

Working it Out

Aug 17, 2012

 

Brugler

Market Watch with Alan Brugler

August 17, 2012

 Working it Out

How much rain does it take to revive the US soybean crop? How much does it take to stop the erosion in US corn yields? How much additional pricing "disincentive" does it take to curtail US corn and soybean exports and slow ethanol production further? These are the questions the grain markets are still trying to resolve. As we get further into harvest the emphasis will likely switch more to demand and away from supply, but right now the trade doesn’t have a good handle on supply. What we do know is that the news will be the most bullish at the top, and the top will occur when few realize it is occurring. If there was a surprise this week, it was the strength of the wheat market. It was still lower on the week, but came back on Thursday and Friday and arguably pulled corn with it.

Nearby corn futures ended the week 0.19% lower, as bulls and bears fought to a near draw. Weekly export sales for the prior week were very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. On the other hand, weekly ethanol production (and thus corn consumption) rose slightly and ethanol stocks declined despite a record import week for Brazilian ethanol into the United States. That suggested the industrial sector isn’t yet willing to cut back much. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. Of course, the other question mark is production. Combines are running as far north as I-80, but in many cases it is the most damaged fields being taken out before the stalks collapse, and may not be representative of all yield potential. An Ohio tour this past week found an average Ohio yield of 139 bushels per acre. A larger scale Midwest crop tour will begin at both ends of the Corn Belt on Sunday evening.

Soybeans were down 0.12% this week, a 2 cent decline. Meal futures were actually up $1.60/ton and supported product value but soy oil was down 1.25%.  The USDA weekly soybean export sales were slightly stronger than expected at 1.1 MMT, with much of that business previously telegraphed to the industry ahead of time under the USDA daily reporting system. Old crop export shipments continue to run higher than in the past three years, but this was expected given heavy bookings when the extent of Argentine drought damage became known. The bottom line is that yield prospects may have improved in the ECB, but traders are not at all convinced that export sales are slowing at the needed pace. In our opinion, they will fall off a cliff sometime in the spring. US stocks don’t have to last all year if South America in fact has a record crop. The US needs to meet world needs for 6-8 months and then have enough beans held back to run crush operations and meet domestic soybean meal needs from April or May through the end of the year.

The three wheat markets were down this week, by 0.84 to 1.21%. All three were up more than corn on Friday. The main story was Russia, with the trade concluding that Russia will have to limit exports because of a production short fall. The question is how soon. Projected exports are 8 MMT, and roughly 4 MMT of that will have been shipped by the end of the month of August. Egypt had two tenders this week, and despite being burned to the tune of hundreds of millions of dollars in the 2010 embargo they elected to buy Russian origin wheat for late September delivery. The trade had expected the Russian wheat for that time period would be more expensive than other origins, but the buy was not bearish. USDA left projected US exports at 1.2 billion bushels for the year, despite lagging the pace needed to hit that target. The US is eventually expected to sell to Egypt and other buyers currently dependent on Russia and Ukraine because of their historical tendency to sell wheat at below market rates.

 
 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

07/27/12

08/03/12

08/10/12

08/17/12

Change

% Change

Sep

Corn

$7.99

$8.10

$8.00

$7.99

($0.01)

-0.19%

Sep

CBOT Wheat

$8.98

$8.91

$8.85

$8.75

($0.11)

-1.21%

Sep

KCBT Wheat

$9.06

$8.96

$8.93

$8.86

($0.07)

-0.84%

Sep

MGEX Wheat

$9.72

$9.45

$9.36

$9.28

($0.08)

-0.86%

Sep

Soybeans

$16.28

$16.36

$16.73

$16.71

($0.02)

-0.12%

Sep

Soybean Meal

$502.10

$509.80

$521.10

$522.70

$1.60

0.31%

Sep

Soybean Oil

$52.23

$52.28

$53.78

$53.11

($0.67)

-1.25%

Aug

Live Cattle

$119.60

$119.98

$120.60

$121.08

$0.48

0.39%

Aug

Feeder Cattle

$137.75

$138.95

$139.48

$140.43

$0.95

0.68%

Oct

Lean Hogs

$81.32

$75.85

$75.52

$76.20

$0.68

0.90%

Oct

Cotton

$70.73

$73.22

$72.90

$72.66

($0.24)

-0.33%

Sep

Oats

$3.77

$3.78

$3.88

$3.84

($0.04)

-1.16%

Sep

Rice

$15.60

$15.98

$15.95

$15.42

($0.53)

-3.29%

 

Nearby cotton futures were own a modest 0.33% this week. USDA reported net weekly export sales for last week were 77,800 running bales, with exports of 122,900 RB. Last week’s pre report rally did not curb export sales but sales under 100,000 bales are nothing to write home about as we head into harvest.

Cattle futures rose 48 cents per cwt for the week. Prices backed into the gain for the week with a loss on Thursday and a modest advance on Friday, due to the USDA Cattle on Feed report to be released after the end of trading on Friday. The report was neutral, with August 1 numbers 100.7% of year ago and almost exactly matching the average trade guess. Cash cattle prices moved up to $120 for the week. Wholesale beef prices were up 4.4% for the week, over $8 per cwt. for choice carcasses. That gave packers some margin to play with.  Weekly slaughter was estimated at 643,000 head vs. 669,000 last year. Weekly beef export sales for the prior week shot back up over 20 thousand metric tonnes. The combination of smaller supply and larger exports put the value on the cutouts and ultimately on the cash cattle. Futures had a premium to cash, but it shrank by the end of the week.

Hog futures were up nearly 1% this past week. Estimated pork production was up 0.8% from the previous week. It was up 4.7% from the same week in 2011. Cumulative pork production for the year is 1.9% larger than last year on 1.4% more hogs slaughtered. Average weights are still running 2 pounds above last year but the high feed prices are beginning to take a toll.  The pork carcass cutout value was down $1.50 for the week, a 1.62% decline.  Ham quotes rallied back on Friday, but were still down 4.8% for the week.  

Market Watch:

The big reports are over for the month, with the exception of the Cold Storage report scheduled for Wednesday. The trade is still interested in the weekly Crop Progress report on Monday night, and will be looking for any improvement in the crop condition ratings now that we are in a somewhat cooler and slightly wetter pattern. Weekly export sales on Thursday morning will also be of interest, as that is the timeliest gauge of the effect of price rationing. September grain futures options will also expire on Friday the 24th, so there may be a bit of "options pin" positioning later in the week. 

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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