Market Watch with Alan Brugler
March 13, 2015
The weather in much of the country has suddenly shifted to above-normal temps, prompting a lot of spring-like behavior among the populace! Spring officially begins on Friday but the weather has finally turned the focus away from 2014 fundamentals to 2015 potentials in the US. The US dollar index bounced like a tightly coiled spring that had been tripped, raising costs to import a wide variety of commodities from the US and conversely making imports cheaper. Cotton acted like a broken spring, dropping pretty hard back into LDP territory. The grains and livestock are acting more like another famous spring, the Slinky. Prices are moving up and down in fairly well-defined ranges, awaiting concrete reasons to go elsewhere. Those reasons won’t be available for grains until the March 31 USDA reports, although we can’t rule out a preliminary outbreak attempt. For livestock, we think the coiling mechanism is meat export sales and shipments. Those have to go up to allow hogs to have a dollar-like bounce.
May corn futures lost 1.45% for the week, down 5½ cents for the week after posting a 13.5 cent trading range. Friday trade took the price down 8 cents, and that was the lowest closing price posted for the May contract since Feb. 2. US export sales reported this week were 514,400 MT, on the low end of expectations due to a large 343,300 MT cancellation of a prior sale to “unknown.” Total export commitments are 79% of the full-year USDA estimate, running ahead of the 77% average pace for this date. Weekly ethanol production rose from the previous week, and ethanol stocks declined by 400,000 barrels. Low gasoline prices and better weather are improving consumption, as is a return to a 35-cent discount of ethanol to gasoline. USDA this week confirmed that ethanol plants use less corn to produce fuel than the conversion rate they had previously used. As a result, they cut the 2014/15 corn use for ethanol estimate by 50 million bushels. The Commitment of Traders report published on Friday afternoon showed the large spec funds continued to lighten up on their net long position in corn futures and options for the week ending Tuesday March 10. Their net long position reported this afternoon was down to just 32,660 contracts, which was 17,533 contracts smaller than the previous week. The net change for the commercials was 30,136 contracts less-short than the previous week.
May soybeans posted a loss of 11 cents this week, after losing 16 ½ cents per bushel on Friday. Net soybean export sales reported this week were 198,700 MT, well below trade estimates. Meal sales were slower at 101,800. Accumulated meal exports as a percent of the total projection are only 48%, vs. 59% at this point last year and the five-year average pace of 59% for this date. Soybean export commitments as a % of the total projected by USDA for the year are at 98% vs. the 5-yr average of 94% for this week of the year. USDA left the domestic balance sheet for soybeans unchanged in the WASDE report earlier this week; effectively kicking that can down the road until after the monthly crush report from NOPA on Monday and more concrete data in the quarterly grain stocks report at the end of March. In the weekly COT report from the CFTC realeased this afternoon, showing positions as of the Tueday close, managed money accounts were shown to be going back to a net-short position in soybeans during the reporting week that ended with the closing bell on Tuesday. The net short position reported this afternoon was -17,414 contracts. Commercial accounts were reported to be net short -23,088 contracts.
Chicago wheat ended the week with a 3.88% gain, after May posted a new life of contract low during the previous week. KC HRW added 3.15%, and MPLS wheat notched out a gain of 1.94% on the week. Wheat export sales reported this week by USDA were slightly above published expectations, coming in with 493,200 MT of combined old and new crop bookings. Accumulated wheat exports are only 70% of the USDA projection for the year, compared to the 77% at this point last year, and the five-year average of 73%. The weekly Commitment of Traders Report from the CFTC showed managed money getting shorter in Chicago wheat, but adding to their net long position in KC wheat. The official positions for managed money as of the Tuesday close was net short -67,411 contracts in CBT wheat, and net long 5,270 contracts in KC wheat.
May cotton futures lost more than 4% for the week. The March contract expired on Monday and the monthly WASDE report didn’t give the bulls anything to work with. After a net reduction in weekly export sales the previous week, the USDA showed new bookings of 36,800 RB for old crop and another 92,800 RB sold for delivery in the new crop marketing year. Pima cotton export sales were strong with China buying more than half of the total. Export commitments for 2014/15 are 95% of the USDA forecast, which is higher than the 92% for this week last year and the 94% five-year average. In the weekly COT report from the CFTC managed money accounts took a net -13,008 contracts off of their net long position in cotton futures and options, leaving them net-long 35,098 contracts.
April cattle futures lost about 37 ½ cents this week, settling at $154.28 on Friday, despite very light volume in the cash trade, and more than a $5 discount to the last established cash market. Choice boxed beef lost $4.36 from Friday to Friday, while Select boxes lost just 32 cents. The Choice/Select spread was just five cents in the Friday afternoon report. March feeders added another $2.95 this week, up 1.39% as the front month futures caught up with the CME index. Beef production in the week ended March 14 is estimated down 2.5% from a week earlier and down 5.7% from the same week in 2014 despite slaughter being down 8.7% on the year. Year to date, production is now down 6.6% from last year. Weekly beef export sales and shipments were both the best of calendar year 2015, with the former at 17,300 MT. Managed money added a net 2,356 contracts to their net long position in cattle during the week ending last Tuesday.
Hog futures lost another four bucks this week, and nearly 6.5%, as the perception of excess production continues to lean on the market. The carcass cutout average price lost $1.34, or 1.95% from Friday to Friday; down $1.02 in the Friday afternoon report. USDA weekly pork production was up a substantial 10.4% from the same week in 2014, with slaughter also up 10%. On the positive side, it was up only 0.2% from the previous week. The total year to date is 4.981 billion pounds, up 3.9% from a year ago. Weekly net pork export sales this week dropped from 30,900 MT to only 18,700 MT. Export shipments did show signs of recovery. The total for the week was 20,600 MT. The managed money accounts added a net 299 contracts to their net long position in lean hogs, taking them to net long 6,016 contracts according to the weekly COT report from the CFTC.
This coming week is most notable for things green, including the Chicago River, the beer at the local tavern and a host of other items on Tuesday, St. Patrick’s Day. Friday also marks the first official day of spring. The USDA report lineup is pretty standard, with export inspections on Monday and weekly export sales on Thursday. The main monthly report will be cattle on feed, scheduled for release on Friday afternoon. The trade also will watch the monthly NOPA soybean Crush report at the beginning of the week, and some sort of announcement or non-announcement on interest rate policies will come from the Fed Open Market Committee on Wednesday afternoon.
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