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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.

Isaac, the Drought Buster?

Aug 31, 2012

 

Market Watch with Alan Brugler

August 31, 2012

 

Isaac the Drought Buster?

 

The long term drought forecast still shows most of the central US in drought conditions through the end of October. However, Hurricane Isaac may change that forecast a little bit, if we are to believe the QPF models with their 5 to 8 inch rain accumulations over a 5 day period. These are a direct outgrowth of the movement of the remnants of Isaac into the Mississippi River valley. The rains will not be uniform, however, and there will be a tendency because of the heavy concentrations for much of it to run off. Still, most of the US soybean crop still has leaves and can benefit from the rains for pod fill. Winter wheat planting conditions are also being improved by this moisture. Negative impacts will likely include worse lodging of drought stressed corn, harvest delays of same, and some possible production losses due to local flooding.

 

Nearby corn futures ended the week 0.06% higher (by 1/4 cent from last week), as bulls and bears fought to a near draw for the fourth week in a row.  Weekly export sales for the prior week were very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. Weekly ethanol production also slowed down by 4,000 bpd from the previous week, the first slow down in more than a month. This is primarily due to scheduled downtime by plants ahead of new crop supplies being available in their local areas. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. Of course, the other question mark is production. Combines are running in most states, but in many cases it is the most damaged fields being taken out before the stalks collapse, or short season varieties planted in order to hit the presumed old crop shortage at the end of the marketing year. That hole closed up, due to the slow exports. The market ignored several downward revisions in production forecasts this week, suggesting that 120 bpa is built into current prices.

 

Soybeans were 1.55% higher this week, a 27 cent increase in price. Meal futures were actually up $113.70/ton and supported product value and soy oil was also up $0.18 or 0.32%.  The USDA weekly soybean export sales were a net reduction for 2011/12 of 10,100 MT with new crop sales a net 731,400 MT in line with trade estimates of 500 to 800 thousand MT. Old crop export shipments continue to run higher than in the past three years, but this was expected given heavy bookings when the extent of Argentine drought damage became known. The bottom line is that yield prospects may have improved in the ECB, but traders are not at all convinced that export sales are slowing at the needed pace. The US needs to meet world needs for 6-8 months and then have enough beans held back to run crush operations and meet domestic soybean meal needs from April or May through the end of the year.

The three wheat markets were up by $.02 (CBT), $0.04 (KCBT) and $0.17 (MGEX) for the week although they closed lower on Friday.  The main story was Russia, with the trade concluding that Russia will have to limit exports because of a production short fall. Russian officials met late this week and the result of the meeting was there are adequate supplies to provide the needed reserve for the country and no export restrictions will be applied at this time. Down the road there could be some areas where restrictions are imposed however according to the Ag Minister. Projected Russian exports are currently 8 MMT, and roughly 4 MMT of that will have been shipped by the end of the month of August. Egypt and others have been buying Russian wheat because it is being offered at a discount (embargo risk discount) to other global wheat.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

08/10/12

08/17/12

08/24/12

08/31/12

Change

% Change

Sep

Corn

$8.00

$7.99

$8.02

$8.03

$0.00

0.06%

Sep

CBOT Wheat

$8.85

$8.75

$8.68

$8.70

$0.02

0.29%

Sep

KCBT Wheat

$8.93

$8.86

$8.77

$8.81

$0.04

0.48%

Sep

MGEX Wheat

$9.36

$9.28

$9.20

$9.37

$0.17

1.85%

Sep

Soybeans

$16.73

$16.71

$17.38

$17.65

$0.27

1.55%

Sep

Soybean Meal

$521.10

$522.70

$533.40

$547.10

$13.70

2.57%

Sep

Soybean Oil

$53.78

$53.11

$56.24

$56.42

$0.18

0.32%

Aug

Live Cattle

$120.60

$121.08

$119.88

$118.08

($1.80)

-1.50%

Aug

Feeder Cattle

$139.48

$140.43

$140.50

$144.60

$4.10

2.92%

Oct

Lean Hogs

$75.52

$76.20

$72.38

$74.18

$1.80

2.49%

Oct

Cotton

$72.90

$72.66

$74.45

$76.48

$2.03

2.73%

Sep

Oats

$3.88

$3.84

$3.89

$3.89

$0.00

0.00%

Sep

Rice

$15.95

$15.42

$15.41

$15.01

($0.40)

-2.60%

Nearby cotton futures had a good week and were up 2.73% this week under the threat of Hurricane Isaac.    USDA reported net weekly upland cotton export sales for last week were 88,600 running bales for 2012/13 and 1,700 running bales for 2013/14 for Turkey, with exports of 154,100 RB. China was the main receiver at 57,500 RB. China indicated that it would begin marketing some of the cheap cotton it had purchased for the government reserve. A Chinese consortium is also working a deal with the Australian government to purchase 93,000 hectares of one of the largest cotton farms in southwest Queensland.

Cattle futures were down $1.80 per cwt for the week with the August contract expiring today at an $8.00 discount to October cattle futures. Cash cattle prices started up to $120-121 on Thursday in Nebraska with Friday trade at $122. Cash cattle in TX and KS were up $2 to $3 from last week at $123. Wholesale beef prices fell every day this week with retailers having the holiday needs covered. Weekly slaughter was estimated at 622,000 head vs. 634,000 last year. Weekly beef export sales for the prior week were 15,558 MT for 2012 delivery and 300 MT for 2013 delivery to Canada. We continue to see declining supplies of ready cattle coming out of the feedlots, with October being the bottom of the hole. The cattle market is very good at closing those holes, however, by backing cattle into them or pulling cattle ahead.

 

Hog futures were up 2.49% this past week.  Estimated pork production was up 1.028% from last year. Average weights are still running 2 pounds above last year but the high feed prices are beginning to take a toll with the hog corn ratio hitting a 40 year record low of 9:1 this week. Cash hogs eroded almost daily this week and were down $1.25 on average in IA/MN, down $2.28 in the WCB and down $2.55 in the ECB today.    The pork carcass cutout value was down $4.72 for the first four days of the week.  

 

Market Watch:

The reports that will be watched next week will be the crop progress report and export inspections. All reports will be delayed a day from normal because of the Labor Day holiday Monday.  The trade will be looking for any change in the crop condition ratings for soybeans and cotton as a result of Hurricane Isaac and the added moisture brought to the Southeast and central part of the Corn Belt. Weekly export sales will be Friday morning with the last of the 2011/12 marketing year reported (minus one day). This week’s report saw the effect of more price rationing in corn and what appears to be the beginning of price rationing for soybeans.

 

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 individualized subscription and consulting services. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

Copyright 2012 Brugler Marketing & Management, LLC

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