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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.

Can You Say V-Bottom?

Jul 02, 2010

Market Watch with Alan Brugler
July 2, 2010
Can You Say V-Bottom?
Corn couldn’t stand poverty any more than it did the previous prosperity. After a two week gain of 21 cents per bushel, futures were down 20 cents last week and back up a whopping 23 cents this week. The gain for the week was over 6%. The entire rally came on Wednesday, Thursday and Friday. It took only two days to erase the full 7 days of decline ahead of the key June 30 reports. By now, you probably know that USDA found only 4.31 billion bushels of corn in the nation’s bins on June 1, almost 300 million bushels less than the average trade guess going into the report. The Planted Acreage surveys also showed a reduction in corn plantings from the March intentions, with the three very wet states losing 950,000 acres. USDA is very likely to raise its residual use estimate on Friday, dropping old crop ending stocks to 1.4 billion bushels or lower. New crop ending stocks will also likely be tightened from previous estimates.
            Wheat futures rallied sharply. The USDA numbers weren’t bullish for wheat, and in fact were on the surface bearish because ending stocks rose to 973 million bushels. Spring wheat and durum acreage were also both larger than initially expected by traders. However, wheat is a substitute for corn in feed rations, and basis is weak enough to encourage more such feed use. There was a substantial speculative short position in wheat, and those shorts were liquidating from Wednesday on. In the background, dryness is afflicting wheat in part of the old FSU, and some areas of Russian and Ukraine were hurt by either winterkill or other weather problems. USDA is expected to trim overall world wheat production in the July 9 report.

           Soybeans initially weren’t participating in the feed grain rally, since USDA raised projected new crop planted acreage and the old crop June 1 stocks estimate was within 20 million bushels of what traders were expecting. However, July futures have shown some independent strength during deliveries. Crop condition ratings have also been dropping for soybeans due to heavy rains creating small lakes in fields from MN to MO. Those rains have also slowed planting of the last 3% of the crop, and USDA is estimating that double crop beans will be a smaller % of total bean acreage in 2010. If accurate, that is likely to bias national average yields to the upside, with fewer low yielding double crop fields to weigh down the number. Old crop July beans were up 6 cents for the week, aided by meal advancing 1.8% and held back by lower soy oil.

           Cotton saw a lot of selling pressure after USDA confirmed the planted acreage was above 10.9 million. Crop condition ratings continue to be above average, although some drop is expected this week because of the heavy rains from Hurricane Alex in the states bordering the Gulf. Chinese stocks continue to appear to be on the tight side, and U.S. cert stocks deliverable against July futures have declined from over 1.1 million bales to under 400 thousand bales. The rest have been shipped out as U.S. ending stocks got tighter and the market was forced to pull cotton out of the delivery warehouses.
Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:
Market Watch
% Change
CBOT Wheat
KCBT Wheat
MGEX Wheat
Soybean Meal
Soybean Oil
Live Cattle
Feeder Cattle
Lean Hogs
Not Final
Hogs rallied for the week despite the drop in the stock market and talk about a consumer in worse shape. Unemployment dropped to 9.5% in May from 9.7%, which was a little supportive. The US dollar index also dropped, potentially aiding exports. The Hogs & Pigs report from last Friday was supportive, showing continued downsizing of the U.S. herd and smallish farrowing intentions through fall. A number of packers were either on reduced hours or dark for the weekend, with nearly all dark on Monday. That meant they needed fewer hogs for the week, but will presumably want to do a little catch up in the week ahead.
Cattle futures were 47 cents lower on Friday, but up 10 cents for the week. Wholesale prices were up $1.14 in the Choice on a Thursday/Thursday basis. Select was seeing more pressure from pork and chicken, and up 23 cents for the week. Cash cattle trade was mostly at $91 for the week, unchanged from the previous week and above the Friday futures settlement. That benefits futures hedgers because it represents basis gains.
Market Watch: The US markets are closed on Monday for the Independence Day holiday. Corn and soybean traders will come back on Monday night asking “Are we still looking at near record yield potential, or are crop conditions still deteriorating as they have the past two weeks?” With the substantial tightening of the new crop U.S. balance sheet for corn following the Grain Stocks and Acreage reports, getting the last bushel of yield takes on greater significance. USDA’s export inspections and Crop Progress reports will be delayed until Tuesday because of the holiday. Weekly Export Sales will also be deferred until Friday. The main USDA reports for the week will be on Friday morning, however. USDA will release updated Crop Production and World Supply & Demand (WASDE) estimates. They’ve telegraphed some of their punches for the latter via the June 30 reports, but the wheat crop production number will be new. Most analysts are also looking for a cut in world wheat production.
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 more extensive paid subscription and consulting services.
                                                                                                                                      Copyright 2010 Brugler Marketing & Management, LLC
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