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March 2009 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.

Dollar Fixation

Mar 27, 2009

Market Watch with Alan Brugler

March 27, 2009

 

Dollar Fixation

 

The US Dollar Index continued to be a major influence on grain prices, as well as the CRB Index and the stock market. All of those asset classes had strong negative price correlations to the dollar index. As the dollar rallied throughout the week, we saw sell signals in the commodities, and at least on Friday the stock market was also backing off. While it is easy to see potential inflation down the road with all of the deficit spending that is being planned, the dollar dropped sharply a week earlier on the Fed actions and was rallying back from oversold technical conditions. If other supply/demand fundamentals are fairly static, a stronger dollar means fewer dollars needed to buy a fixed amount of a commodity priced in dollars. Thus, we saw lower prices for almost all of the commodities in our basket.

 

The hog market lost about 2% for the week heading into the quarterly Hogs and Pigs report. Most of the selling was due to weaker pork cutout values, but we did see a little bit of position adjusting going on prior to the report as well. A smaller hog herd was expected, and that is what USDA found. The All Hogs figure was 97% of year ago. The breeding herd was down by just over 3%, and the market hog numbers as of March 1 were also down 3%. The breeding herd figure was on the low end of trade estimates, while the other numbers were comfortably within the range of trade guesses.

 

Corn prices declined 2.4% for the week. The loss was mitigated by a solid weekly export sales figure of 1.191 MMT, but profit taking ahead of the Planting Intentions report weighed on prices, as did increased producer cash sales and the aforementioned strength in the dollar. Feed demand continues to be a concern, with egg sets and broiler placements still running well below year ago. The Hogs & Pigs report also confirmed fewer mouths to feed, particularly in the younger weight categories.

 

Soybeans retreated about 2.5% for the week. Meal futures were down 5.5%, which took product value down and was only partially offset by higher soy oil futures. The Census report on Thursday showed meal stocks on March 1 at 435,000 tons. That isn’t a record, but it does suggest some difficulty in getting the product sold. Soy oil benefitted from tightening stocks of palm oil and a seasonal increase in demand for that low priced veg oil competitor. Higher diesel prices also improved the prospects for some soy oil to be used in biodiesel production. Census soy oil stocks were about as expected, at 3.027 billion pounds.

 

Wheat was down at all three exchanges. KC had the worst performance, losing 53 cents per bushel as a snow storm deposited some much needed moisture in the southern Plains HRW growing area.The market responded by removing weather premium. Chicago futures were also down nearly 8% on spread trading and continued weakness in export sales. Minneapolis spring wheat fell only 4.4% because of a major flooding threat in the Red River Valley that some industry types estimated could result in 500,000 acres of intended spring wheat ground being planted later to other crops. The market was still down because of the improved prospects for HRW, and because of the weak export interest.

 

Cotton futures dropped 1.7% for the week. The USDA export sales report on Thursday was friendly to the bulls, but commercial selling was active near the highs of the week, with the combination of futures/cash prices and a big LDP sufficient to attract bales out of loan. Several economic indicators came in a little better than the gloom and doom forecasters had predicted, but that has yet to translate to stronger clothing and textile demand. Consumers appeared to be buying electronics instead. Traders are looking for USDA to show cotton planting intentions in the 8.5 million acre range, plus or minus about 400,000 acres.

 

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Weekly

Weekly

 

03/06/09

03/13/09

03/20/09

03/27/09

Change

% Change

May Corn

$3.62

$3.89

$3.97

$3.87

0.09

-2.40%

May CBOT Wheat

$5.27

$5.18

$5.50

$5.07

0.43

-7.81%

May KCBT Wheat

$5.74

$5.70

$6.03

$5.50

0.53

-8.79%

May MGEX Wheat

$6.13

$6.09

$6.36

$6.08

0.28

-4.40%

May Soybeans

$8.67

$8.77

$9.41

$9.17

0.24

-2.55%

May Soy Meal

$265.30

$276.70

$300.50

$283.80

16.70

-5.56%

May Soy Oil

$31.03

$30.17

$32.25

$32.42

0.17

0.53%

April Live Cattle

$82.45

$84.65

$85.20

$84.32

0.88

-1.03%

April Feeder Cattle

$90.63

$92.05

$93.78

$93.12

0.66

-0.70%

April Lean Hogs

$62.50

$63.20

$61.75

$60.47

1.28

-2.07%

May Cotton

$41.43

$42.83

$44.08

$43.34

0.74

-1.68%

May Oats

$1.83

$1.86

$2.00

$1.96

0.04

-2.25%

May Rice

$12.33

$11.63

$12.83

$12.38

0.45

-3.51%

 

Cattle futures were down 88 cents for the week, or about 1%.  The winter storm in the southern Plains shut down some packing plants on Friday, and limited cash cattle trade. Some $83 business was reported. Northern cattle traded at $134, about $1 higher than the previous week. Wholesale prices continued to be mess, with choice again dropping below the lower quality select cuts due to a mismatch between production of cattle grading choice and the consumer (mostly restaurant) demand for those higher quality cuts.

 

Market Watch:  Spring training is ending, and it is the beginning of the big league season. That’s true for the grain markets as well. The opening pitch is the Planting Intentions report, due out on Tuesday morning at 7:30 am CDT. USDA will also release the quarterly Grain Stocks report on Tuesday morning. On Monday, we’ll have the usual fallout from the expiration of the April grain options on the 27th, and the weekly Export Inspections report. Weekly Export Sales is on Thursday morning, and April live cattle options are due to expire on Friday.

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.  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 more extensive paid content, or visit the web site @ www.bruglermktg.com.

© 2009 Brugler Marketing & Management, LLC

 

Inflation Hopes and Fears

Mar 20, 2009

 

           

 

Market Watch with Alan Brugler

March 20, 2009

 

Inflation Hopes and Fears

 

All of our tracked commodities except for hogs were higher for this past week. There is a common denominator, which was an expectation of commodity price inflation and/or at least a weaker US dollar. A weaker dollar results in higher commodity prices for things priced in dollars, if no other change to the supply/demand balance is underway. A weaker dollar also tends to make US commodities appear cheaper in terms of the buyers’ currency. That presumably results in increased export sales. The exception of course is countries that have a de facto peg of their currencies to the dollar. China did allow the yuan to rise slightly against the dollar this week, but it has essentially been moving parallel to the buck since last fall.

 

The Fed can take credit for the inflation and weak dollar assumptions. At the meeting on Wednesday, they left the target interest rate alone at zero to .25%. However, they announced a plan to buy back over one trillion dollars worth of long term Treasuries and various types of mortgage debt. This is an effort to stimulate and stabilize the housing market through lower interest rates. They are effectively printing money, thus the weakness in the value of the dollar. We would point out that they have 6 months to buy the Treasuries, so the market reaction could be ahead of the fact.

 

Rice and the soy complex were the most “inflated” for the week, with the thinly traded May rice up 10.3% for the week. May beans were up 8.6% (75 cents per bushel), supported by a similar 8.6% gain in soybean meal. Soy oil was up a more modest 6.9% as it again was considered as a possible fuel molecule. Palm oil prices were sharply higher on reduced Malaysian stockpiles, and a seasonal increase in export activity. Crude oil futures also rallied above the $50 mark, with diesel futures rising 15 cents per gallon. At roughly 7 pounds of BO per gallon of biodiesel, such a move would add 2.14 cents to the price of soy oil. It was up 2.08 cents for the week.  Looking past product value, soybeans also rallied in response to political developments in Argentina, and ignored smaller Chinese purchases.

 

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Weekly

Weekly

 

02/27/09

03/06/09

03/13/09

03/20/09

Change

% Change

May Corn

$3.59

$3.62

$3.89

$3.97

0.08

2.06%

May CBOT Wheat

$5.22

$5.27

$5.18

$5.50

0.32

6.17%

May KCBT Wheat

$5.60

$5.74

$5.70

$6.03

0.33

5.79%

May MGEX Wheat

$6.06

$6.13

$6.09

$6.36

0.27

4.35%

May Soybeans

$8.72

$8.67

$8.77

$9.52

0.75

8.61%

May Soy Meal

$269.80

$265.30

$276.70

$300.50

23.80

8.60%

May Soy Oil

$31.11

$31.03

$30.17

$32.25

2.08

6.89%

April Live Cattle

$85.93

$82.45

$84.65

$85.20

0.55

0.65%

March Feeder Cattle

$92.60

$90.50

$91.95

$93.67

1.72

1.87%

April Lean Hogs

$60.90

$62.50

$63.20

$61.75

1.45

-2.29%

May Cotton

$43.26

$41.43

$42.83

$44.08

1.25

2.92%

May Oats

$1.94

$1.83

$1.86

$2.00

0.14

7.53%

May Rice

$12.61

$12.33

$11.63

$12.83

1.20

10.32%

 

Feed grains were not as robust as the oilseeds, but did rally. Corn was up 2.06% for the week despite poor weekly export sales. Outstanding sales (sold but not shipped) are 47% smaller than last year at this point. The rising fuel market did offer some hedging opportunities for ethanol plants. Potential future corn consumption for ethanol was also enhanced by the purchases of Verasun’s 17 ethanol plants at an auction this week. The combined capacity of those plants is 1.5 billion gallons, or approximately 525 million bushels of corn consumption per year. AgStar Financial is expected to shop its plants to a different buyer, so they will not be operational for a while. Valero, which bought 7 existing plants plus the site at Reynolds, IN is expected to keep the 4 currently operating plants going, and eventually start up the other 3 that have been in “hot idle” status.

 

Wheat futures were higher at all three exchanges. The dryness argument for the Plains HRW is wearing a little thin, although clearly still a fact. Some rains were expected for the weekend, but the 7 day forecasts for soil moisture call for an additional net drying. The US continues to lose competitive export tenders because prices are too high compared to those being offered from other origins. The inflation argument carried the day, along with some unwinding of corn/wheat spreads that meant wheat buying. MPLS futures had the smallest advance, suggesting that the market was in no way trying to buy additional acres for 2009 (spring wheat is the only place to send that signal).

 

Cotton was up nearly 3% for the week. Total export commitments are actually fairly high compared to the USDA forecast for the year. With new paperwork barriers to sell cotton to China the last half export numbers could drop enough to get in line, but for the moment it makes export demand look good. The inflation play certainly was a factor, and the higher stock markets for most of the week offered hope of an improvement in consumer buying interest.  ICE announced an expansion of the trading hours, effective March 29.  Trading will now begin in the evening (US time) instead of the middle of the night.

 

Cattle eked out a 55 cent advance for the week. Choice beef continues to suffer an imbalance between production and consumption, resulting in price pressure. For the second time this year, the choice/select spread went negative. Cash cattle were on a different page, trading $1-2 higher in the north on Thursday. Packers were reluctant buyers, but tighter numbers required them to pay up for at least minimum numbers. Friday afternoon’s Cattle on Feed report showed lighter than expected February placements and slightly larger marketings than the average trade guess. The net result was March 1 numbers at 94.7% of year ago.

 

Hogs were net losers for the week, down $1.45 per hundredweight. Futures continue to maintain a premium to cash hogs, and if cash isn’t moving up aggressively, the Board has to drift lower or mark time. Summer futures are already priced high enough to cover the annual average cash hog rally to the summer peak. The USDA Cold Storage report on Friday showed frozen pork supplies building 5% from last month, and up 4% vs. 2008. Pork belly stocks were larger than the published trade estimates, at 77.748 million pounds. That was a 12% rise from January, and only 2% below last year.

 

Market Watch:  Cattle and hog traders will begin the week reacting to the numbers from Friday afternoon’s Cattle on Feed and Cold Storage reports. Grain traders have Export Inspections on Monday and weekly Export Sales on Thursday. Census will also release the monthly Census Crush report on Thursday morning, along with Cotton Consumption. On Friday, USDA will release a quarterly Hogs & Pigs report, which is expected to show some reduction in the size of the herd. Friday will also be the last trading day for April serial grain options. Lurking in the background are the usual month end position squaring by the managed money crowd, and the 800 pound gorillas. Those would be the Planting Intentions report on March 31, and the quarterly Grain Stocks Report on the same morning. The latter isn’t getting much attention, but provides the numbers that USDA uses to make changes in projected feed use.

 

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.  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 more extensive paid content, or visit the web site @ www.bruglermktg.com.

© 2009 Brugler Marketing & Management, LLC

Mixed Bag

Mar 13, 2009

 

           

 

Market Watch with Alan Brugler

March 13, 2009

 

Mixed Bag

 

Corn was the bull leader this week, with most producers saying “It’s about time!” We won’t get the official USDA Grain Stocks numbers until March 31, but producers appear to be holding a large percentage of the cash corn that is out there, and have been waiting for a rally to sell. That requires demand from either the spec community or the real world end users. Corn got a little help on all fronts this week. Weekly export sales were back above 1 MMT after several slow weeks. Ethanol prices were higher due to a rally in the energy market, allowing the industrial sector to be a bidder. On Friday, two private analysts issued corn acreage estimates for 2009 that were smaller than last year’s crop. Informa was by far the most bearish, at 81.419 million acres. This was smaller than their previous estimate. Brokerage firm Allendale released a 2009 acreage estimate of 85.4 million, down about 576 thousand from last year.

 

Wheat futures were lower in CHI and MPLS, but higher in KC. The dryness in the southern Plains is getting more attention as we go further into the spring without meaningful relief. That accounted for the gain in KC, along with some potential winterkill as temps dipped into the low teens at mid-week for areas that didn’t have snow cover and may have had wheat actively growing. Weekly export sales were deemed neutral. It was actually a moral victory for the bulls to close any of the wheat contracts higher after USDA boosted projected US ending stocks from 655 million bushels to 712 million bushels while also hiking projected world ending stocks.

 

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Wkly

Wkly

 

02/20/09

02/27/09

03/06/09

03/13/09

Change

% Change

March Corn

$3.50

$3.51

$3.53

$3.75

0.22

6.31%

March CHI Wht

$5.19

$5.11

$5.16

$5.07

0.10

-1.89%

March KC Wht

$5.56

$5.52

$5.68

$5.70

0.02

0.35%

March MGE Wht

$6.22

$6.26

$6.31

$6.30

0.01

-0.16%

March Soybeans

$8.63

$8.75

$8.79

$8.83

0.04

0.40%

March Soy Meal

$270.00

$275.80

$274.25

$286.00

11.75

4.28%

March Soy Oil

$30.22

$30.85

$30.76

$29.80

0.96

-3.12%

Apr Live Cattle

$83.42

$85.92

$82.45

$84.65

2.20

2.67%

March Feeder Cattle

$88.38

$92.60

$90.50

$91.95

1.45

1.60%

Apr Lean Hogs

$57.95

$60.90

$62.50

$63.20

0.70

1.12%

May Cotton

$44.10

$43.26

$41.43

$42.83

1.40

3.38%

March Oats

$1.69

$1.85

$1.74

$1.78

0.04

2.30%

March Rice

$11.99

$12.37

$12.12

$11.50

0.62

-5.12%

 

 

 

Soybeans eked out a 4 cent gain for the week, thanks mostly to the decision by Argentine farmers to go back on strike. Shipping won’t be totally shut down unless the strike and road blockages last for a while, but it becomes less predictable and importers will shift more of their business to Brazil and/or the US. Meal futures were up sharply for the week, while soy oil was down. Crude oil posted the highest weekly close since January. Informa put projected 2009 soybean plantings at a whopping 81.502 million acres, an all time record. This could easily result in a 400-500 million bushel carryout in 2010 if normal yields are achieved and farmers actually plant all of those fields to soybeans. It will take much lower prices than we are currently seeing to gin up enough demand to shrink that pile.

 

Cotton futures rallied 3.4% for the week, primarily because of the rally in the financial markets and hopes that the economic weakness had been overdone. Retail sales data for furniture and apparel wasn’t as bad for February as had been feared, and imports in general were down. Weekly export sales were 294,500 RB, up 23% from last week. China is still a marginal buyer, taking 56,500 RB.

 

Cattle were up $2.20, or 2.7%. Wholesale beef prices rallied, thanks to tightening supplies of ready cattle and evidence that perhaps consumers weren’t cutting back spending quite as much as it appeared in December and January. Lower retail fuel prices may be the missing variable in the equation, although gasoline has gone back up in recent weeks as refiners switch over to their summer blends. Cash cattle traded mostly $1 lower than the previous week, keeping a lid on the futures rally. Weekly beef export sales were the largest of the marketing year, with Mexico the biggest single buyer.

 

Hogs were up 1.1% for the week. Pork cutout values rose, and cash hogs were also higher. The CME Lean Hog index started with a major discount to the April contract, but ended the week breathing down its neck. Index fund position rolling resulted in a lot of open interest moving from April to June, but was effectively neutralized by other spread traders positioned to work in the opposite direction. Slaughter hog numbers are also dropping seasonally, which is supportive to the pork market.

 

Market Watch:  We’ll start the week with the NOPA crush report, along with the weekly export inspections report form USDA. Some state NASS offices are also reporting winter wheat crop conditions on Monday nights, but the full reporting won’t begin until April. Tuesday is St. Patrick’s Day, with some of the Chicago and NY traders making a half day of it in order to share a little green beer. Officially the exchanges are open all day, and the computers won’t care. USDA will release weekly Export Sales on Thursday morning. On Friday, USDA will give us updated Cattle on Feed and Cold Storage report data. Please hold the applause, but Friday is also the official first day of Spring!

 

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.  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 more extensive paid content, or visit the web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

Spring Forward, Fall Back

Mar 10, 2009

 
Market Watch with Alan Brugler

March 6, 2009

 

Spring Forward, Fall Back

 

This is time change weekend, where most parts of the US advance their clocks one hour for Daylight Savings Time. The feed grain futures were able to also advance for the week, with corn up 2 cents and all three wheat contracts higher by 5 to as much as 16 cents. One of their main customers, the cattle market, saw futures prices down 4.16% for the week. Hogs on the other hand were able to respond to seasonally tighter numbers with a rally of 2.76%.

 

KC wheat was our bull leader for the week. While FAPRI released a larger projected 2009 wheat planting number than the one from USDA, the trade remained skeptical about an increase in spring wheat acres. Some were also beginning to get more nervous about dryness in the southern Plains as the rainfall pattern continued to miss a big chunk of Texas and Oklahoma. That allowed KC to gain 10 cents on CHI in the spread. Spring wheat is the one variety where price can still stimulate more acreage in 2009, and that allowed MPLS futures to climb a nickel higher.

 

Corn futures were also higher for the week, a moral victory for the bulls. Weekly export sales were just slightly above the high end of the trade estimates going into the report (791,900 MT) , but still light compared to bookings in January. We were starting to get a little short covering/profit taking ahead of this week’s USDA WASDE supply/demand estimates, with expectations for a possible cut in Argentine or Brazilian production.

 

The nearby March soybeans were able to post a 4 cent gain for the week, despite lower prices for both the meal and oil. A total lack of delivery notices against March soybeans fueled a mini-squeeze and had some shorts who had been expecting to receive deliveries (to redeliver against their later dated short positions) scrambling to get out. Soybean oil demand has been nicked a little by the recession, and also by negative margins in the biodiesel industry. Census against reported a slowdown in monthly US methyl ester production from soybean oil feed stock. Weekly export sales were also down sharply from those reported in recent weeks, despite uncertainties about Argentine delivery schedules. The total of only 155,800 MT was the smallest of the marketing year, which began on September 1.

 

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Wkly

Wkly

 

02/13/09

02/20/09

02/27/09

03/06/09

Change

% Change

March Corn

$3.63

$3.50

$3.51

$3.53

0.02

0.57%

March CHI Wht

$5.36

$5.19

$5.11

$5.16

0.06

1.11%

March KC Wht

$5.75

$5.56

$5.52

$5.68

0.16

2.88%

March MGE Wht

$6.36

$6.22

$6.26

$6.31

0.05

0.80%

March Soybeans

$9.56

$8.63

$8.75

$8.79

0.04

0.52%

March Soy Meal

$297.70

$270.00

$275.80

$274.25

1.55

-0.57%

March Soy Oil

$33.00

$30.22

$30.85

$30.76

0.09

-0.30%

Apr Live Cattle

$87.00

$83.42

$85.92

$82.45

3.47

-4.16%

March Feeder Cattle

$94.47

$88.38

$92.60

$90.50

2.10

-2.38%

Apr Lean Hogs

$63.75

$57.95

$60.90

$62.50

1.60

2.76%

March Cotton

$44.03

$43.03

$42.06

$40.26

1.80

-4.18%

March Oats

$1.85

$1.69

$1.85

$1.74

0.11

-6.23%

March Rice

$12.51

$11.99

$12.37

$12.12

0.25

-2.04%

 

Cotton futures were down 4.18%, just about matching the cattle decline. Weekly export sales were slow at 240,300 RB, and China was only a marginal buyer of 88,700 RB. The trade had been looking for China to announce fresh stimulus moves at the People’s Congress, but new programs were not forthcoming as the week ended. The USDA hiked the LDP/MLG for this week to 19.21 cents per pound.

 

Cattle futures were lower, having trouble gaining bullish traction in the face of sluggish restaurant demand and some indications of reduced consumer spending on meat at home. The wholesale market was firmer on light packer offerings, but the choice/select spread continued to reflect a surplus of the fancier cattle compared to what the market was demanding. The stronger dollar is also a constraint on beef exports.

 

Hog futures saw gap higher price action at mid-week, on a combination of pre-positioning for the Goldman roll, seasonally tighter slaughter numbers, and reduced competition from poultry products. Estimated pork production for the week was up 0.2% vs. year ago, but cumulative production since January 1 is down 5.2%. The lean pork cutout still lost some ground during the week, ending at $55.06 with some softness in the rib cuts on Friday.

 

Market Watch:  USDA will headline things this week with their monthly WASDE report on Wednesday.  The market will be watching for changes to South American production in particular, and any world trade adjustments due to the economic slowdown. The other routine reports are the export inspections on Monday and the Export Sales on Thursday. March cotton futures expire on Monday the 9th. March grain and oilseed futures expire on Friday the 13th.

 

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.  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 more extensive paid content, or visit the web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

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