Blazing Saddles

Market Watch w/Alan Brugler

November 4, 2011

Blazing Saddles

OK, so maybe it should be Blazing Cattle. The cattle market bulls had a fire lit under them when cash cattle traded at $124 and $197 in the north early in the week. That came out of nowhere, with some southern cattle trading at $119 earlier the same day. Tight supplies of choice cattle, a solid export market (over 20 thousand MT two weeks ago and 15 thousand plus for last week), and tight ready numbers for a couple more weeks all contributed to the big jump. Estimated beef production for the week was 3.2% smaller than the previous week, and down 0.7% from year ago. Futures were up 4.58% for the week.

Corn extended its winning streak, rising ¾ of a cent for the week despite active selling of the nearby December contract by the DB index fund and a lackluster weekly export sales report on Thursday morning. USDA put reported weekly export sales at 622,618 MT for 2011/12 delivery. That was at the upper end of modest trade estimates. Export sales year to date are 15,364,000 MT compared to 12,797,800 MT for the same period last year. Shipments are lagging, however. US ethanol exports for September-August were the equivalent of 279 million bushels of corn being shipped out of the country. Domestic ethanol production rose to 916,000 bpd vs. 906,000 the previous week, as plants got into bigger new crop corn supplies. Ethanol stocks are tightening, and prices have been trading above gasoline in the futures market.

The wheat complex saw mixed results. Chicago was down 1.2% for the week, while KC fell 2.7% and spring wheat was up 0.35%. MPLS was the strongest as the long leg of spread trading and because of tight producer holding of the shrunken 2011 crop. Spread traders bet index fund liquidation of Dec positions would pressure Chicago and not MPLS, as most index funds don’t participate in the thin MGEX market. The Goldman Roll is expected to start on Monday. Egypt bought wheat from the Ukraine and Russia this week, at prices higher than the previous purchase.

Soybeans slipped a modest 0.37% for the week, 4 ½ cents per bushel. South America is making rapid planting progress, and in some areas planting is 10 days ahead of normal. China continues to buy soybeans from all sources, but the quantities shipped out of the US to date are closer to the pace of 2-3 years ago than to last year’s record early season shipments. Commercials stopped the deliveries made against November futures, spurring a rally at midweek because the trade assumed they had a market for the beans. There were also rumors of Chinese soy oil purchases for their reserves, but no confirmation.

Cotton was down 5.6% for the week. Weekly export sales dropped off sharply from the week before, but were still respectable at 92,029 RB for 2011/12 delivery. Sales for 2012/13 were the first in four weeks at 78,910 RB. Reports of additional abandonment in Texas are common, with insurance zeroing out the crop and producers then plowing it under.

Lean Hog futures eked out a 17 cent gain for the week. The pork carcass cutout value was the lowest since June on Thursday, and that hurt cash hog prices as it ate into packer margins. Futures were anticipating this drop in the cash hogs, and in fact were trading about $6 under the CME Index at points during the week. They didn’t need to drop proportionally. Estimated pork production for the week was up 2.2% from the prior week as we got into the heart of the fall run. However, it was also down 1.1% from the same week in 2010. Estimated carcass weights are still running 3 pounds below last year.

Call in consulting service with Alan is also available for a limited number of new customers in our Ag Marketing Professional Premium package. Call our office for details on either service at 402-289-2330. 

Market Watch: Don’t forget to turn your clocks back an hour over the weekend. The big news this week will likely come on Wednesday morning at 7:30 am CST, when USDA issues its November crop production estimates (NASS) and updates global supply and demand estimates (WASDE). Of course, fresh rumblings or positive vibes can come out of the European situation at any time. The meltdown of brokerage house MF Global was directly tied to taking an outsized speculative bet that the European debt situation would be resolved, and then not having enough capital to back up margining requirements. There will also be the usual USDA Export Inspections report on Monday and Export Sales on Thursday morning. December cotton options expire on the 11^th.

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