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December 2008 Archive for Market Watch

RSS By: Alan Brugler, AgWeb.com

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

It’s Beginning To Look A Bit Like Christmas

Dec 19, 2008
Trading volume is down, market players are reducing their holdings, and flights out of Chicago are booked. The holidays appear to be in full force. Wheat has been a beneficiary. It was the big gainer for the week. KC got the publicity, with talk about winterkill in the Plains HRW crop. SRW in Chicago had the biggest gain, however, due mostly to trapped shorts trying to buy their way out of the contract before year end. With thin volume, they were moving the price. A weak dollar aided gains early in the week, but a sharp rally in the dollar on Friday also coincided with a sell off in the wheat market.
 
Below is a table showing the net weekly change of selected agricultural futures contracts:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
28-Nov
5-Dec
12-Dec
19-Dec
Change
% Change
March Corn
$3.66
$3.06
$3.73
$3.81
0.07
1.97%
March CHI Wht
$5.64
$4.76
$5.13
$5.63
0.50
9.80%
March KC Wht
$5.82
$5.03
$5.38
$5.83
0.45
8.36%
March MGE Wht
$6.11
$5.51
$5.90
$6.25
0.35
5.97%
Jan Soybeans
$8.83
$7.84
$8.54
$8.68
0.14
1.67%
Jan Soy Meal
$254.30
$238.30
$257.70
$267.50
9.80
3.80%
Jan Soy Oil
$33.34
$28.93
$30.92
$30.60
0.32
-1.03%
Dec Live Cattle
$87.38
$81.55
$83.32
$86.10
2.78
3.34%
Jan Feeder Cattle
$91.70
$86.65
$87.17
$93.50
6.33
7.26%
Feb Lean Hogs
$67.03
$64.20
$62.28
$61.70
0.57
-0.92%
March Cotton
$48.00
$41.52
$43.34
$45.09
1.75
4.04%
March Oats
$2.17
$1.99
$2.13
$2.19
0.06
2.62%
Jan Rice
$13.35
$14.13
$14.90
$14.89
0.01
-0.07%
 
Cattle futures had a sharp short covering rally on Friday ahead of the USDA report. The USDA Cattle on Feed report on Friday afternoon showed November placements at 95.2% of year ago, with marketings at 90.6%. A light marketings numbers had been expected, due to the weight breakdown of cattle available for the month. Marketings were very close to the placed against figure, confirming the very current condition in the country. The net result is 11.345 million head on feed as of December 1, 93.77% of year ago.
 
Hogs were down 57 cents for the week. Sliding pork cutout values were the problem, limiting packer interest in paying up for hogs. The pork carcass cutout was up a thin dime on Friday, to $57.92, but had been at $59.28 on Monday. There was some interest from packers in accumulating hogs, in order to build up a little inventory ahead of the holiday.
 
Corn prices were up 7 cents per bushel for the week, despite giving up 8 ¾ on Friday. The weaker dollar was supportive early in the week, and cold weather was also seen as perhaps extending feeding times a little bit and using more corn. Export sales continue to be an Achilles heel for the bulls. Corn use for ethanol is also suspect due to gasoline prices dropping faster than ethanol.
 
Soybean futures were up 14 cents, boosted by a 3.8% advance in soybean meal futures as the cold weather expanded. USDA’s cut in projected DDG production the prior week firmed up soy meal prices, and technical action was also bullish as prices rallied through the 18-day moving averages. Soy oil held back the complex a little bit. Bean oil stocks continue to be burdensome, and the market needs biodiesel demand to whittle them down. With crude oil dropping to the $34 neighborhood that was a tough argument to sell. February heating oil (diesel) futures posted new lows for the move on Thursday, keeping pressure on the bean oil. The rally in the dollar on Friday was also not bullish.
 
Cotton futures jumped 4% for the week despite yet another poor weekly export sales report and a total absence of the main world buyer (China) from last week’s export business. Part of the rally was mechanical. A large LDP encouraged producer pricing on up days, with resulting commercial hedging and spec buying. The weak dollar early in the week also was seen as potentially stimulating buying interest overseas.
 
Market Watch:  The cattle market will begin the week reacting to the COF report. Cash trade will have an unusual pattern, with Christmas falling on a Thursday and neither buyers nor sellers much interested in working on Friday. The futures markets will be closed on Thursday, but open on Friday in an orphan session. USDA will issue a Cold Storage report on Monday afternoon. The monthly Census Crush and Cotton Consumption reports were delayed from this past week until the 23rd, Tuesday. Friday will mark the last trading day for January grain options, as well as heating oil and RBOB gasoline.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
 
Copyright 2008 Brugler Marketing & Management LLC. 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 Ag Market Professional or SRR subscription information or visit the web site @ www.bruglermktg.com.
 

Dead Cat Bounce, Or Big Turn?

Dec 12, 2008
Corn lost 16% of its value last week. This week it was up 22%. That’s a simple illustration of the wild and wooly world of commodities prices. Futures were dragged down by a strong dollar and weak export sales. USDA threw additional bearish news at the market on Thursday, dropping ethanol corn use by 300 million bushels and dropping exports by 100 million bushels. They hiked feed use by 50 million, for a net increase in ending stocks of 350 million bushels to 1.474 billion. They even dropped the estimated cash price by 40 cents per bushel. The good news is that despite the bad news, futures closed higher on the day. They also extended the rally on Friday, aided by a weakening US dollar and what was perceive to be a low corn acreage estimate for 2009 by a private firm. Now we’re trying to figure out if this is yet another dead cat bounce in a steeply down trending market, or if it is the beginning of the much awaited post harvest rally.
 
Below is a table showing the net weekly change of selected agricultural futures contracts:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
21-Nov
28-Nov
5-Dec
12-Dec
Change
% Change
March Corn
$3.54
$3.66
$3.06
$3.73
0.67
22.03%
March CHI Wht
$5.18
$5.64
$4.76
$5.13
0.37
7.72%
March KC Wht
$5.49
$5.82
$5.03
$5.38
0.35
6.91%
March MGE Wht
$5.92
$6.11
$5.51
$5.90
0.39
7.08%
Jan Soybeans
$8.40
$8.83
$7.84
$8.54
0.70
9.00%
Jan Soy Meal
$250.50
$254.30
$238.30
$257.70
19.40
8.14%
Jan Soy Oil
$31.46
$33.34
$28.93
$30.92
1.99
6.88%
Dec Live Cattle
$84.90
$87.38
$81.55
$83.32
1.77
2.17%
Jan Feeder Cattle
$89.40
$91.70
$86.65
$87.17
0.52
0.60%
Feb Lean Hogs
$64.10
$67.03
$64.20
$62.28
1.93
-3.00%
March Cotton
$41.56
$48.00
$41.52
$43.34
1.82
4.38%
March Oats
$2.17
$2.17
$1.99
$2.13
0.14
7.24%
Jan Rice
$13.32
$13.35
$14.13
$14.90
0.76
5.41%
 
Wheat futures were higher at all three exchanges, but hampered by their use as the short leg of inter-market spreads. USDA also increased projected ending stocks by 20 million bushels, showing 10 million bushels more in imports from Canada. They also cut projected food use by 10 million bushels due to higher flour yields.
 
All three legs of the soybean complex were higher. Meal rose with assistance from the higher corn and wheat markets, reduced DDG competition, and USDA’s expectations for an even smaller 2008/09 soybean crush. Soy oil rose on a bounce in the energy futures, which benefitted from a weaker US dollar. With the products higher, beans were free to bounce. USDA left ending stocks UNCH at 205 million bushels, with lower crush use cancelling out larger exports.
 
Cotton futures saw a nice 4.4% bounce for the week despite bearish USDA numbers on Thursday. USDA reported the sharpest expected year/year drop in world cotton consumption since World War II. That included further cuts in projected US exports and domestic mill use. That didn’t matter during a week where short covering was in vogue, and the dollar was weaker. It was also a case of “sell the rumor, buy the fact” with most of the report changes anticipated prior to the report.
 
Cattle futures managed to claw out a $1.77 gain in the nearby December contract, despite considerable selling pressure in the wholesale beef market. Cash cattle trade was down in line with the wholesale, as mid-week trades were in the $83-84 range. Plains trade on Friday afternoon firmed to $85, down $1-2 from last week. December futures continue to be at a discount, settling at $83.32.
 
Hogs were the sole loser for the week, down 3% in the February contract. December expired at $56.025 after marking time for a couple weeks while the CME cash index rallied. The lean pork cutout held above $60 for the week, thanks to strong pre-Christmas ham demand. Weekly slaughter had been expected to be well above year ago in the 4th quarter, but the numbers have been holding close to year ago. USDA is still calling for total 4Q production to be record large.
 
Market Watch: Now that the main USDA report for the month is out of the way, the market has a little more tidying up to do before traders can get into full holiday mode. The fall out from December futures expirations begins on Monday, with some sizeable expiration gaps on the corn and wheat charts. NOPA will release its monthly soybean crush estimate on Monday. Census is expected to release their monthly Crush and Cotton Consumption reports on Thursday, a little earlier than usual in the month because of Christmas falling on the following Thursday. On Friday, USDA will issue the monthly Cattle on Feed report.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
 
Copyright 2008 Brugler Marketing & Management LLC. 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 Ag Market Professional or SRR subscription information or visit the web site @ www.bruglermktg.com.

Cats and Mice

Dec 05, 2008
There’s an old folk saying that “When the cat’s away, the mice will play”. After this week’s price action, it is pretty clear that the ag commodity market bulls seem to share some DNA with the mice, and the bears seem to have a bit of cat in them. Futures prices rallied in the light volume Thanksgiving week, when in hindsight the cats were away. The bullish mice were playing. When the big cats (or at least those on a mission to sell stuff) came back on Monday the bear markets resumed.
 
Corn sustained the most damage, losing 16% of its value in a single week. On Friday, prices dropped below the low for calendar year 2007 on the continuation charts, and closed below that marker. Technically, we continue to see hedge fund investors asking to withdraw cash by December 31, and the managers of those funds selling commodity index positions and in some cases individual commodities in order to generate the liquidity. Corn open interest declined as those former long positions were unwound. Fundamentally, exports, feed use and ethanol use are all declining and threatening much larger 2009 ending stocks.
 
Below is a table showing the net weekly change of selected agricultural futures contracts:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
14-Nov
21-Nov
28-Nov
5-Dec
Change
% Change
Dec Corn
$3.80
$3.39
$3.50
$2.93
0.56
-16.05%
Dec CHI Wht
$5.54
$4.99
$5.43
$4.58
0.85
-15.65%
Dec KC Wht
$5.93
$5.34
$5.63
$4.90
0.73
-13.04%
Dec MGE Wht
$6.58
$5.87
$6.00
$5.61
0.39
-6.42%
Jan Soybeans
$8.96
$8.40
$8.83
$7.84
1.00
-11.27%
Dec Soy Meal
$265.50
$249.90
$256.00
$240.50
15.50
-6.05%
Dec Soy Oil
$32.60
$30.70
$32.58
$28.25
4.33
-13.29%
Dec Lv Cattle
$90.05
$84.90
$87.38
$81.55
5.83
-6.67%
Jan Fdr Cattle
$95.28
$89.40
$91.70
$86.65
5.05
-5.51%
Dec Ln Hogs
$55.57
$56.87
$59.50
$57.45
2.05
-3.45%
Dec Cotton
$41.15
$40.99
$45.75
$39.33
6.42
-14.03%
Dec Oats
$2.16
$2.06
$2.02
$1.84
0.17
-8.49%
Jan Rice
$14.28
$13.32
$13.35
$14.13
0.78
5.84%
 
Wheat is a feed grain in many parts of the world. With record 2008 production there are a number of countries taking desperate measures to sell product and generate cash. Argentina is cutting the export tariff, and Russia is subsidizing feed wheat exports. The EU has authorized 9.9 MMT of export licenses. You get the picture. With all that competition (and Stats Canada boosted their Canadian wheat crop estimate again this week), sales of US export wheat are dragging.
 
Soybeans dropped more than 11% for the week. The main culprit was soy oil, and more directly crude oil. With January crude oil futures dropping as low as $40.50 on Friday, heating oil/diesel futures got down below $1.42. That is putting a lot of pressure on biodiesel prices, and soy oil has been dropping in lockstep. The 433 point drop in bean oil futures was worth 50 cents per bushel to the value of the bean. Meal was down $15.50/ton because of large Census stocks and the weakness in feed grains which limited the pricing power of the crushers.
 
Cotton futures also had a pretty tough week, down 14%. That included a limit down Thursday, which came despite “as expected” weekly export sales. Those sales were poor, less than 100,000 running bales. However, most of the cotton selling pressure came from the spec community exiting longs or actively going short because of perceived diminished global textile demand.
 
Cattle futures also took a nasty fall of more than 6%. Demand is the issue, as cattle supplies aren’t really all that burdensome. Both export and domestic demand are concerns. Some major South Korean retail firms have finally started offering US beef, but that hasn’t translated into increased export sales. Weekly export sales have tailed off. Per capita consumption in the US is expected to be smaller in the 4th quarter, and again in 2009, because of the weak employment situation. While US gasoline prices have dropped sharply, the 6.7% of the work force currently not working are presumed to be eating out less often, and those who are working aren’t hitting the restaurants as frequently. On a positive note, average carcass weights are down and feedlots appear to be current. They just don’t appear to have a lot of leverage right now.
 
Hogs were another case of the mice at play. Some of the shorts took profits during the holiday week, and a few may have tried the long side. Rising pork cutout prices allowed cash hogs to advance, but post-Thanksgiving demand has been less than stellar. December futures still hold a premium to the cash index, and will have to pull back before expiration if cash hog prices fail to advance.
 
Market Watch: The “big” report day this week will be Thursday, when USDA releases its monthly crop production and WASDE supply and demand updates. Increased ending stocks for corn are a distinct possibility, due to ethanol plant closures and downtime, as well as sharp cutbacks in poultry production. A number of analysts look for USDA to raise projected soybean exports, which could tighten the balance sheet for that commodity. Friday will be the last trading day for December grain contracts, and also for December hog futures.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
 
Copyright 2008 Brugler Marketing & Management LLC. 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 Ag Market Professional or SRR subscription information or visit the web site @ www.bruglermktg.com.

Creeping Boredom

Dec 01, 2008
After the huge price moves in October, most of the markets have calmed down into trading range behavior. It remains to be seen whether this is the calm before the storm, but to exhausted speculator types it is a relief. To others it is boring, which is a problem in terms of market liquidity and getting some sort of year end rally. Ag producers clearly have a Santa Claus rally on their Christmas lists, as our calls over the past two weeks have been mostly on the order of “Can I lift my short hedges yet?” We at least got the Turkey Day rally, with all of the ag commodities except oats showing a net gain for the week.
 
Below is a table showing the net weekly change of selected agricultural futures contracts:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
7-Nov
14-Nov
21-Nov
28-Nov
Change
% Change
Dec Corn
$3.75
$3.80
$3.39
$3.50
0.11
3.25%
Dec CHI Wht
$5.21
$5.54
$4.99
$5.43
0.44
8.72%
Dec KC Wht
$5.68
$5.93
$5.34
$5.63
0.30
5.53%
Dec MGE Wht
$6.40
$6.58
$5.87
$6.00
0.13
2.22%
Jan Soybeans
$9.21
$8.96
$8.40
$8.83
0.43
5.12%
Dec Soy Meal
$271.70
$265.50
$249.90
$256.00
6.10
2.44%
Dec Soy Oil
$33.90
$32.60
$30.70
$32.58
1.88
6.12%
Dec Lv Cattle
$92.80
$90.05
$84.90
$87.38
2.47
2.92%
Jan Fdr Cattle
$99.23
$95.28
$89.40
$91.70
2.30
2.57%
Dec Ln Hogs
$55.40
$55.57
$56.87
$59.50
2.63
4.62%
Dec Cotton
$42.07
$41.15
$40.99
$45.75
4.76
11.61%
Dec Oats
$2.34
$2.16
$2.06
$2.02
0.04
-2.18%
Jan Rice
$15.19
$14.28
$13.32
$13.35
0.04
0.26%
 
The much beleaguered cotton market was our bull leader this week, with December futures surging 11%. Weekly export sales weren’t all that exciting, at 167,400 MT. However, JP Morgan continues to show up as a stopper for nearly all of the December cotton delivery notices, and that is causing shorts to buy back their positions and exit the contract.
 
Corn futures posted a gain of 11 cents for the week, or 3.3%. This is pretty remarkable given the problems with Verasun forward contracts, weekly export sales of only 465,400 MT, and ongoing cuts in poultry numbers. One might conclude the market is bullish because bearish news failed to make it move lower. On the other hand, a quick look at the December corn chart shows that prices remained in the lower half of their Bollinger Bands, and spent the entire holiday week trading within the range set on the previous Friday.
 
Soybeans posted a fancier gain of 5%, aided by a 6% advance in soy oil. Energy futures traded sideways to higher for the week, continuing to find good buying around the $49 area in crude oil. Census soy oil stocks were smaller than expected, fueling (pardon the pun) ideas of larger biodiesel consumption. USDA weekly export sales of soy oil were also 8 times larger than the previous week, which was admittedly a low number.
 
Wheat prices were higher at all three exchanges. The $5 “round number” proved to be good support for December futures in Chicago, with a few buyers coming out of the woodwork. USDA showed weekly Export Sales for the previous week at 438,600 MT. On Thursday, Egypt bought 55,000 MT of US SRW, showing that the price decline has been sufficient to make us competitive in those GASC tenders.
 
Cattle futures were up nearly 3% as they recovered from their technical meltdown of the previous week. Wholesale prices were still under pressure for most of the week, as turkey and ham get most of the features at the meat counter. Beef production for the week was down 10.2% from the previous week, due to the holiday, and packers were gearing up for a bigger run next week. Cash traded at $90 in the south and $142-144 in the north.
 
Hogs continued to rally this week, up another 4.6%. There are perceptions that we were now past the peak seasonal numbers, and that consumer demand either is or will be propped up by reduced supplies of poultry. Pork production YTD is now up only 6.4%, after running as much as 10% above year ago earlier in the year. What that tells you is that the fall slaughter pace has been lighter. Average carcass weights are also running 2-3 pounds below year ago.
 
Market Watch: Now we’ve turned the calendar to December, and instead of month end liquidation and turkey, the focus will shift to year end position squaring and asset allocation adjustments. December 1 last year was the start of a major money injection INTO the commodity markets as those allocations were made. Because of changes in the overall economic environment any such campaign in 2008 is likely to be on a much smaller scale if it happens at all. Deliveries against December futures contracts will be an issue in the grains, with heavy notices against wheat and corn on first notice day. Friday will mark the expiration of the December cattle options. Routine USDA reports for the week will include Crop Progress and Grain Inspections on Monday, followed by Export Sales on Thursday. The Census Fats & Oils report is also tentatively scheduled for December 4. This is the one with the monthly biodiesel production numbers.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
 
Copyright 2008 Brugler Marketing & Management LLC. 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 Ag Market Professional or SRR subscription information or visit the web site @ www.bruglermktg.com.
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