Cinderella and the Pumpkin
Nov 08, 2013
Market Watch with Alan Brugler
November 8, 2013
Cinderella and the Pumpkin
Reading all of the mainstream ag media marketing commentaries coming into the USDA reports, one would have concluded that Cinderella needed to get into that carriage right away or it was going to turn into a pumpkin with $3CORN on the license plate. Or maybe $10SOY? Some of the web headlines even alluded to Death Row. Private advisors and technical analysts such as ourselves were a little more guarded in our approach, because not everyone can be on the same side of the boat. When the sentiment is overwhelmingly bearish, the current price already reflects the expected news. If the news turns out to be not as bad as expected, you get rallies like the one seen in soybeans and soybean meal on Friday. Cinderella must have forgotten to set back her clock an hour. The Death Row inmates received a stay.
December corn futures were down 0.12% this week, thanks to a 6 ¼ cent rally on Friday. They traded at the lowest level since August 2010 for the Dec 13 contract, hitting $4.15 ½ just ahead of the Friday USDA report. That seller was sure surprised! USDA showed nearly 2 million fewer harvested acres than in September, due to more complete FSA Prevented Planting numbers. With a yield of 160.4 bpa, the crop remained under 14 billion bushels at 13.989 billion. That is still a record larger crop despite very wet conditions in IA/MN last spring and some local drought issues. Low prices (USDA cut projected national average price 30 cents/bu on Friday) are curing low prices. USDA reported stronger than expected weekly export sales again on Thursday morning, and bumped up projected shipments for the year by 175 million bushels on Friday. Ending stocks are seen growing to 1.887 billion bushels. The Friday night CFTC report was finally up to current week data, and showed the spec funds reducing their net short position in corn by in fact taking on more long positions against expanding commercial hedge activity.
November soybean futures were up 40 cents per bushel this week, or more than 3%. Most of that gain came on Friday after USDA raised projected US ending stocks to a still snug 170 million bushels and cut projected world ending stocks for 2013/14. The huge 7% jump in soybean meal futures was backed up by larger projected meal exports, and contributed to the bean advance through product value. Weekly soybean export inspections for the previous week were again over 80 million bushels as the large forward sales book starts to head out of the ports.
Wheat futures were lower in all three markets this week again this week, with KC HRW the weakest class. Weekly export sales slowed a bit due to increased competition from Canada and the winding down of the Brazilian import program. Total commitments are still a larger % of the USDA forecast than usual for this date, but USDA chose to leave the forecast UNCH at 1.1 billion bushels due to the slower pace. A larger world ending stocks forecast also suggested more difficulty moving US wheat into the world market. WASDE ending stocks were a little larger than the average trade estimate on Friday morning, at 565 million bushels. They left the cash average price UNCH at $7.00 (midpoint).
Cotton futures had a bit of a dead cat bounce this week after falling about 10% in less than a month. Technical selling was a big part of the decline, along with traders anxious to get out of Dec futures ahead of December options expiration on Friday. Global ending stocks are still projected to be record large, and USDA raised that forecast once again on Friday to 95.71 million bales. Put another way, the world will have 87% of the 2014/15 consumption already in the warehouse on July 31 (assuming no growth from 2014 in that consumption). USDA raised projected US average cotton yield to 808 pounds per acre from 796 million in September. The ending stocks forecast was bumped up to 3 million bales from 2.9 million, a smaller increase than some had feared.
Cattle futures picked up 25 cents for the week. Beef production YTD is down 1.1% from 2012. Production this week was 2.7% smaller than the same week in 2012. Our calculations show that ready numbers should be below year ago into December, based on the Cattle on Feed placement data. Weekly slaughter was only 607,000 head vs. 632,000 head a year ago. Wholesale beef prices were down 0.9% on a Fri/Fri basis in the Choice, and up 0.3% in the Select. USDA is anticipating that 4Q13 beef production will be down 4.2% from last year.
Hog futures were down 0.25% this week. Pork production YTD is down 1.3% from year ago. Production this week was 1.5% smaller than the same week in 2012, but up 1.3% from the previous week as a few more hogs showed up (+0.8%). The slaughter run was down 2.8% from year ago. Thus, you might conclude that average carcass weights were a little higher. USDA estimates them up 2 pounds vs. year ago but we are hearing a lot of 210 dressed numbers and USDA is using 208. The pork carcass cutout value was up 80 cents for the week, due mostly to a 3.4% rise in the ham primal.
We will get the regular Monday USDA Export Inspections and Crop Progress reports on Tuesday, due to the federal holiday on Monday. US futures markets will be open and trading, however. Weekly Export Sales will be out on Friday, again due to the Veterans Day holiday. December cotton options expired on Friday, leaving a few people with surprise futures positions to deal with on Monday. The monthly NOPA crush report is scheduled for Thursday morning. Thursday is also the last trading day for November canola, rice and soybean futures. Friday will mark the expiration of most November equity market options.
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