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Market Watch

RSS By: Alan Brugler,

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Bulls Have Little Leverage

Nov 07, 2008
Corn prices are still trying to put in a harvest low, having failed to decisively do so in October. The problem is still the level of index fund investment, which as it declines is putting selling pressure on prices that normally isn’t there in mid-November. Friday’s CFTC report showed another 5,532 contract drop in the net index fund long in the most recent report week. Export sales commitments have also been lagging year ago by a considerable amount, although they are on track with USDA’s lower expectations for 2008/09. Broiler egg sets were down 10% in the most recent report, a cut back sponsored by credit problems as much as by feed costs. Corn futures were still more than a dime above the lowest October trade, but a lower weekly close after a higher close last week was not the way to build a rally.
Below is a table showing the net weekly change of selected agricultural futures contracts:
Market Watch
% Change
Dec Corn
Dec CHI Wht
Dec KC Wht
Dec MGE Wht
Nov Soybeans
Dec Soy Meal
Dec Soy Oil
Dec Lv Cattle
Nov Fdr Cattle
Dec Ln Hogs
Dec Cotton
Dec Oats
Nov Rice
Soybean futures lost 14 cents on the week. They got help from soy oil, which performed quite well in the face of sloppy energy markets. However, soybean meal was down $1.30/MT and could have been down much more if it had tracked Chinese futures more closely. Livestock feed demand in China has been screwed up by the melamine contamination problems (deliberately added to boost protein test readings).
Wheat is struggling to encourage demand. High prices last winter damaged demand in a number of ways, and also stimulated record world production estimated at 677-683 MMT by FAO, IGC et al. Feed use is expected to regain all of the loss from last year and some more. That is in fact needed to dispose of the larger crop, but requires prices to be competitive with corn and other coarse grains net of freight costs.
Cotton sank to 6 year lows this past week. The global economic slow down hits textile demand pretty hard, as consumers “shop in their closet instead of the store”. On Friday US unemployment was reported at 6.5%, the worst since the middle of the Clinton administration. The US dollar posted a net gain for the week, not seen as supportive to export competitiveness. Export sales for the previous week, when the dollar was weaker, were stronger than the trade had expected.
Cattle futures were up one thin dime for the week after peaking out on Tuesday. Wholesale prices firmed up, and packers paid up for the cattle. Choice boxed beef quotes were up $8.04/cwt. for the week. This may have more to do with tighter cattle supplies than it does with lower gasoline and more jingle in consumer pockets. It is welcome in either event.  The Goldman roll had a definite impact on its first day, with the Feb/Dec spread widening 92 cents on Friday. That activity (selling Dec and buying Feb) is expected to continue through the 9th trading day of the month, which is Thursday. It doesn’t always mean lower nearby futures, but it will if other players fail to find reasons (or the cash) to resist it.
Hogs were up 60 cents for the week, as measured by the Dec contract. Pork belly futures were up sharply on Friday, hoping for a repeat of the firmer tone in the pork cutout on Thursday. That wasn’t going to happen, with the cutout down 53 cents on Friday to $56.27. Fresh bellies were quoted 95 cents lower. The Goldman Roll held back December compared to February and the 2009 contracts, but Dec benefitted from its discount to cash and got a little short covering rally going.
Market Watch: We start off the week with USDA Crop Production and WASDE reports at 7:30 am CST on Monday. The trade on average is looking for USDA to revise ending stocks estimates for all the major crops, despite revisions that were just made on October 28 in the “special” crop report.
USDA will have their regular crop progress report on Monday afternoon. The cotton market will also be dealing with no options protection in the December futures, since those options expired on 11/7. NOPA crush will be released on Friday. Weekly export sales from USDA are also expected to be delayed until Friday because of the Veteran’s Day holiday on Tuesday. Friday will also be the last trading day for November 2008 soybeans and rice.
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.
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