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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.

Water, Water Everywhere

May 27, 2011

Brugler

Market Watch with Alan Brugler

May 27, 2011

Water, Water Everywhere

 

There is an old saying that there is water, water everywhere, nor any a drop to drink. That can mean saltwater as it did in the Ancient Mariner, or it can mean polluted water. In the case of US agriculture, it is a picture of water in the wrong places. The USGS is showing flooding at 238 of its 4865 gauges across the United States. Places from Montana to Maine to Louisiana have more water than the rivers can hold, and those rivers are spilling out in to cropland and making it unavailable for farming. The US Army Corps of Engineers indicted that flows on the Missouri River will increase in June and remain above normal for all of 2011, based on existing snow pack.

FloodMap 

Meanwhile, Parts of Texas, the OK Panhandle, SW KS and New Mexico can’t buy a raindrop. Some clients report less than an inch of precip since August 2010! That has had a negative impact on yields for winter wheat, and dim prospects for corn, cotton and milo in dryland areas.  This is all influencing the price of grain, where fundamentals still matter even if they are occasionally overshadowed by investment flows and fretting about the US dollar.

Corn peaked on Monday morning, then spent the last three days of the week recovering from a Monday/Tuesday sell off tied to a strong US dollar at the time and to fund liquidating July longs ahead of month end.  Old crop was not able to reach the highs set in April. December futures posted new life of contract highs because of ongoing planting delays and several surveys lowering projected US planted acres and projected production. Export sales were adequate, but there is definitely resistance to buying new crop at this price level until there is no other alternative. Weekly ethanol production was up from the prior week, as the market dip back at mid-month allowed plants to get some hedge coverage on and lock in positive margins. 

Soybeans fell ½ cent per bushel in the nearby July contract.  Soy oil gained 2%, but meal was down 1.39% for the week and there just wasn’t enough product value there to get the beans up on the week. The Census Crush report showed the smallest April crush since 2004. Despite the cutback, soybean meal inventories rose and soy oil stocks were also larger than expected.  Our work suggests that prevented planting payments are more attractive than planting soybeans, and planting corn at lower yields still beats soybeans at current prices in the revenue per acre. Thus, beans have not been threatened by the prospect of a slug of unanticipated acreage. Chinese demand is still a concern, with more than 6.7 MMT of imported soybeans reported to be at Chinese ports and the government still trying to force down veg oil prices, soybean prices or both as part of an anti-inflation campaign.

Wheat futures were up 1% in Kansas City, where the crop problems appear to have been built into the price structure, and where harvest is now underway. Minneapolis, on the other hand, rose 5.65% for the week. As of last Sunday only 54% of the spring wheat crop had been planted, and some of the growing areas reached the prevented planting insurance date or will do so in the next week. It is possible to plant after the PP date, but you lose insured yield and risk losing actual yield unless the weather is very good. Canadian planting conditions have also been hurt by too much water, raising questions about crop size there. Chicago futures were up a modest1.6%, still outstripping corn. November French futures rose above the February peak due to dryness problems there, and that helped boost the US contract.  The US dollar also slid from Tuesday to Friday, aiding dollar denominated commodity prices in general.

Cotton futures finished the week 1.89% lower. USDA confirmed that for the 9th consecutive week global buyers had cancelled or deferred more old crop cotton commitments than they bought. That is, net export sales were once again negative as buyers who got a little too enthusiastic back in Jan-Mar are trying to make their input costs resemble their selling prices for yarn and fabric. US cotton planting progress is sticking fairly close to the 5 year average pace despite flooding in the Mississippi River basis and the ongoing and severe drought in Texas.


Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

05/06/11

05/13/11

05/20/11

05/27/11

Change

% Change

July

Corn

6.8625

6.82

7.595

7.585

0.01

0.13%

July

CBOT Wheat

7.595

7.2775

8.065

8.1975

0.13

1.64%

July

KCBT Wheat

8.74

8.695

9.3325

9.43

0.10

1.04%

July

MGEX Wheat

9.0375

9.0025

9.9975

10.5625

0.57

5.65%

July

Soybeans

13.26

13.295

13.8025

13.7975

0.01

0.04%

July

Soybean Meal

349.5

345.4

360.6

355.6

5.00

1.39%

July

Soybean Oil

55.69

56.14

57.46

58.61

1.15

2.00%

June

Live Cattle

109.85

109

104.975

104.1

0.88

0.83%

Aug

Feeder Cattle

132.77

132.45

125.75

122.72

3.03

2.41%

June

Lean Hogs

92.375

94.55

91.975

88.925

3.05

3.32%

July

Cotton

145.56

145.15

155.61

152.67

2.94

1.89%

May

Oats

3.39

3.445

3.64

3.8275

0.19

5.15%

July

Rice

14.375

13.98

15.1

15.185

0.09

0.56%

 

Cattle futures were down sharply on Monday but came back to end the week down only 0.83%. Packers were in great position at midweek, with wholesale beef prices rising and cash cattle trading at lower levels than last week. Cash firmed as the week went on after hedge related selling knocked it down on Monday and Tuesday.  Choice boxed beef prices were up 1.62% on a Thursday/Thursday basis. For the week, USDA estimated production 2.9% larger than the same week in 2010. Slaughter was 2.8% larger, which is no surprise given larger feedlot inventory all year.

 

Hog futures were down a sharp 3.3% for the week, with all of the sell pressure on Monday and Tuesday. The lean hog value dropped$3.05. The wholesale value of the carcass lost $5.48 for the week, or 5.74%. Much of that came on a steep one day $12 drop in the reported value of pork loins on Thursday. They were back up $1.91 on Friday. USDA estimated pork production up 0.3% for the week, but 7% larger than the same week a year ago. Pork production YTD is now up 1.2% from 2010.

 

Market Watch:  The US markets will be closed on Monday for the Memorial Day holiday. That will delay the USDA Crop Progress report and Export Inspections report to Tuesday release slots.  The weekly Export Sales report will also be delayed from Thursday to Friday morning. Friday will also mark the last trading day for several June options series, notably June Live Cattle.

 

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.

 

 Copyright 2011 Brugler Marketing & Management, LLC

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