Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.
The No Theme Theme
Apr 12, 2013
Market Watch with Alan Brugler
April 12, 2013
The No Theme Theme
Regular readers of this column know that we usually start out with an introductory theme for the week, and then follow with our summaries of the features of the individual commodity markets. This week, our theme is that there really wasn’t a theme. Money was moving in a lot of different directions. Gold was collapsing, down more than $60 per ounce on Friday alone. That would be a dis-inflationary or strong dollar theme. Retail sales in March were poor, which suggests a slowdown except for the improvement in home sales, and the lousy weather that might have meant folks were just staying home. The dollar was weaker, typically inflating commodity prices in dollar terms. Crude oil was lower, however. Fund traders were exiting cattle futures despite solid cash cattle trade several dollars above the futures market. Corn and soybeans rallied despite bearish USDA world stocks numbers.
Corn futures for the May contract gained 30 cents per bushel this week, up 4.81%. Ethanol production jumped 40K barrels to 847K barrels/day. This is the highest daily average production since July 2012. The EIA reported ethanol stocks increased by 307K barrels to 17.788 million barrels, which is still 3.312 million barrels smaller than a year ago. Cold wet weather kept most of the planters out of the fields, with much of the WCB and Southeast catching more than an inch of rainfall. May corn futures are getting an extra boost on fears of a delivery squeeze due to limited old crop stocks in deliverable position, and the strong cash corn basis. The USDA report on Wednesday was supportive, as USDA found that most of the "extra" bushels in the March 28 Grain Stocks report will be used prior to the end of the marketing year on August 31.
Soybeans rallied 3.8% this week. May futures were up 52 cents. November futures did not participate to the same degree, gaining less than 4 cents on the week. US export sales last week were neutral with 383,700 MT in sales for the week. In Wednesday’s WASDE report, the USDA left projected 2012/13 ending stocks UNCH at 125 million bushels. Reduced residual use was offset by larger crush expectations and a modest 5 million bushel bump in expected US exports. US export commitments are now 99% of the revised expectation for the year. There are still concerns about cancellations this summer if exporters are double bought and the South American beans they have purchased are finally delivered. USDA made no changes in projected Argentine or Brazilian soybean production, but did see them keeping more of those beans at home. Projected Chinese imports for 12/13 were lowered 2 MMT to 61 MMT.
Wheat futures gained 2.22% in Chicago, 2.54% on the Minneapolis exchange, and KC wheat gained 3.65% this week. The Brugler500 index for Winter Wheat condition started out the year at 299 and did not change this week. That masked changes in the underlying wheat classes. The HRW rating declined again, with TX, OK, NE and SD ratings all hurt by freezing weather. The SRW rating improved this past week, thanks to warmer weather and some rainfall filling in needy areas. Some areas actually got too much rain, with reports of localized ponding in some wheat fields in Ohio. USDA cut estimated feed use for 2012/13 by 15 million bushels, in order to match up with the March 1 stocks number. Ending stocks were revised upward to 731 million bushels. World stocks estimates were hiked to 182.3 MMT, a 4.07 MMT jump from last month.
Cotton was down 163 points on the week, after rallying to close today’s session 212 points off the low of the day. Global cotton consumption is expected to increase by 4% in 2012/13. Global stocks are expected to shrink 10% due in part to China holding 55% of the world supply. The shining star in cotton’s book continues to be strong export sales, with a combined 324,400 RB reported for the week. Overall commitments stand at 93% of the USDA estimate for the marketing year. The five year average pace is 96% for this date. USDA left US ending stocks UNCH at 4.2 million bales. World ending stocks were revised to 82.45MMT from 81.74MMT last month in the Wednesday WASDE report.
Cattle futures were down 0.14% for the week. Boxed beef was also lower for the week; Choice lost $1.80 and Select was down $2.87. This brought the spread to $5.38, up $1.07 on the week. Cash cattle trade showed some improvement from last week with sales taking place in Nebraska, Kansas, and Texas at $1.28 while going for $202 on a dressed basis. The weekly slaughter numbers continue to run behind last year’s pace, with the expected slaughter for this week including Saturday estimates at 606,000 head. The year-to-date slaughter is 2.7% behind the pace set last year. Beef export sales for the week totaled 10,196 MT.
Hog futures finished Friday with the April contract up 2.75% as it headed into expiration. The CFTC report, which runs Tues to Tues, shows managed money added to their net short position with an increase of 2,967 contracts. The pork carcass cutout gained 0.59 or $0.73% for the week, with a 4.76% gain in Pics and 4.45% gain in hams supporting the overall cutout. The estimated weekly slaughter is 2.089 million head including Saturdays projected kill. Hog slaughter is now running 0.7% behind a year ago. The CME lean hogs index finished with a $0.36 loss to settle at $81.39. USDA reported weekly pork export sales of 13,278 MT which was down sharply from the prior week when they were put at 48,355 MT.
The grain trade will begin the week looking at the monthly NOPA crush report on Monday morning. NOPA is expected to show March crush was larger than in February, but below the level from March 2012. Traders are also keenly interested in the USDA winter wheat condition ratings to be released on Monday evening. The crop undoubtedly took a hit from the winter storms, but the question is how much will appear in this week’s report. USDA is also expected to show corn planting progress for the first time this year. That 5 year average pace for this week is 4% complete. Weekly export inspections on Monday and Export Sales on Thursday are also key fundamental news inputs. The main USDA inputs for livestock producers will occur on Friday afternoon, when USDA is scheduled to release the monthly Cattle on Feed report and the monthly Milk Production numbers.
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