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Market Watch

RSS By: Alan Brugler, AgWeb.com

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

Implosion

Jul 26, 2013

 Brugler

Market Watch with Alan Brugler

July 26, 2013

Implosion

 

The web site FreeDictionary.com defines an implosion as:

1. A violent collapse inward, as of a highly evacuated glass vessel.

2. Violent compression.

 

Corn and soybean basis imploded this week, and the spot futures contracts did as well. Such a collapse happens every time we have an inverse coming into a year with larger crops. The timing is almost always a surprise, and sometimes the move is violent. For beans, the break was violent because the short squeezes in May and July futures had provided a road map of higher prices due to zero expected delivery notices. There are still no old crop deliveries expected, so the squeeze could still unfold in August. In the short run, meal bids collapsed and put a lot of pressure on crush margins. Once spot futures started to break, the big specs headed for the exit and couldn’t all get out gracefully. It was a "get me out" situation driven by the margin clerks. They may have been given extra incentive by the pending expiration of their protective options positions, which happened on July 26, and the upcoming end of month asset allocation adjustments. Then the merchandisers pulled cash soybean bids or rolled them to November in an attempt to avoid the volatility. Producer sales of old beans were not the main factor in the drop. 

 

September corn futures were down 52 cents per bushel, or 9.6% in a single week. December was better, but still lost 24 ¾ cents as weather conditions and forecasts improved at a time that much of the crop is pollinating. Weekly ethanol production dropped off by 5,000 bpd, while ethanol imports were large at 41,000 bpd as Brazil had more early ethanol production due to weather that was not favorable for sugar. Ethanol stocks rose again as combined production and imports were larger than domestic offtake. RIN values dropped back below $1. Weekly export sales were net negative for old crop, with more cancellations than sales. New crop bookings were over a half million metric tonnes. China has also been aggressively buying DDGs from the US, confirming 300,000 MT in the past week or so.

 

Nearby August soybeans plunged $1.41 per bushel for the week, a 9.5% decline.  Soy oil was only down 4.2%, which is the only reason soybeans weren’t down as much as soybean meal. The latter sank 10.8% in a single week. Soybean commitments YTD are 102% of the USDA forecast for the year ending August 31. Soybean meal commitments are 102% of the forecast as well.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

07/05/13

07/12/13

07/19/13

07/26/13

Change

% Change

Sep

Corn

$5.26

$5.45

$5.44

$4.92

($0.52)

-9.56%

Sep

CBOT Wheat

$6.60

$6.81

$6.65

$6.50

($0.14)

-2.14%

Sep

KCBT Wheat

$6.8575

$7.085

$7.053

$6.915

($0.14)

-1.95%

Sep

MGEX Wheat

$7.64

$7.67

$7.51

$7.37

($0.14)

-1.87%

Aug

Soybeans

$14.32

$14.29

$14.91

$13.50

($1.41)

-9.46%

Aug

Soybean Meal

$428.60

$442.90

$482.40

$430.30

($52.10)

-10.80%

Aug

Soybean Oil

$47.11

$46.22

$45.50

$43.58

($1.92)

-4.22%

Aug

Live Cattle

$121.95

$121.85

$121.98

$121.80

($0.18)

-0.14%

Aug

Feeder Cattle

$151.80

$150.13

$152.25

$152.60

$0.35

0.23%

Aug

Lean Hogs

$97.75

$94.90

$96.48

$97.78

$1.30

1.35%

Oct

Cotton

$86.43

$85.13

$86.52

$85.37

($1.15)

-1.33%

Sep

Oats

$3.60

$3.52

$3.55

$3.31

($0.24)

-6.69%

Sep

Rice

$15.18

$15.50

$15.17

$15.89

$0.72

4.71%

 

Wheat futures were almost a bastion of strength compared to the corn and beans. Chicago was down 2.14%, while KC was off 1.95% and MPLS was down 1.87%. Wheat benefitted from tightening global stocks forecasts, and also from the fact that winter wheat harvest is just about over and the hedge pressure is gone. Egypt found credit to buy 240,000 MT of wheat for early September shipment. None was US origin due to US prices being too high. USDA reported weekly export sales last week were 661,400 MT. Outstanding export commitments are now 42% of the USDA forecast for the year vs. the 5 year average of 32% for this date. Total commitments are 45% larger than they were on this date in 2012. We are off to a good start.  US spring wheat condition ratings continue to point to trendline or higher yields, despite the late planting of the crop.

Cotton futures were down 1.33% this past week. Weekly export sales totaled 130,100 running bales (RB) of upland and 7,400 RB of pima. Cotton export sales commitments are 105% of the USDA forecast for the year. They would typically be 111% with only 2 weeks left in the marketing year. Texas and the Southeast have been wetter recently, but the forecasts call for much of Texas to go back to the dry side and up to one third of the Texas acreage is still at risk of abandonment if moisture conditions do not improve.

Cattle futures were down 18 cents after being up 13 cents last week and down 10 the week before that. This is the poster child for a sideways market! Of course that is expected to change at some point! Feeders were up 0.23%. Choice beef prices are still reverting to the mean after their record levels in May. Wholesale beef prices were lower this past week, with Choice down 1.1% and Select down 0.8% on a Friday/Friday basis. USDA reported weekly beef export sales were 14,900 MT vs. 15,200 MT the prior week. Weekly beef production was up down 1.6% from the previous week and 1.5% larger than the same week in 2012. Slaughter was 1.1% larger than year ago. YTD beef production is still 0.8% below last year.

 

Hog futures were up 1.35% for the week.  The estimated weekly slaughter is 1.9882 million head. That was down 0.9% from last week, and 1.1% smaller than the same week in 2012. Pork production YTD is down only 0.3%. The pork carcass cutout value gained 0.58% this week. Pork belly quotes were up more than 5% for the week. USDA weekly export sales report improved to 6,800 MT vs. 4,100 MT from the prior week. Cash hogs were a little higher in the IA/MN market on Friday, but weaker in the eastern Corn Belt.

 

Market Watch

 

Grain traders will begin the week adjusting to life without August grain options to help buffer futures positions. Those expired on Friday. USDA will issue the usual weekly Export Inspections and Crop Progress reports on Monday. The Export Sales report will be on Thursday morning. Friday will mark the expiration of the August live cattle options. Delivery notices for August soy complex futures will be out on Wednesday. Funds with big gains on short positions may be lightening positions on Monday, Tuesday or Wednesday as we come into month end. Some might also have a few longs left to dump that they don’t want to admit owning after the implosion this past week.

 

Visit our Brugler web site at https://www.bruglermarketing.com or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

Attend the Brugler Marketing Summer Seminar in Richmond, Indiana on July 29-30. See the agenda and registration info on our web site.   

 

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.               

 

Copyright 2013 Brugler Marketing & Management, LLC

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