Aug 22, 2014
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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.

Gotcha!

Jul 11, 2014

 Brugler

Market Watch with Alan Brugler

July 10, 2014

Gotcha!

In seminars, I often warn producers about the Gotcha trade.  That is as in "I’ve got you over a barrel", a colloquialism for "You’re So Screwed." The Gotcha trade is a sell off in any ag commodity that occurs after the producers is fully financially committed to the production process and can do little or nothing about the outcome. For grains, this means after planting, for hogs this is after farrowing, etc. I am basically warning folks that regardless of how good prices were when they planned the production, if too many people raise the same thing you are going to see pricing pressure after you can’t change the production plan. It is a powerful argument for being a hedger, and for forward contracting enough bushels at profitable levels to at least cover your input costs. This week was a classic Gotcha sell off in the grains, with USDA delivering the expected bearish production news and the weather for at least the moment making record corn and bean crops look like a certainty.    

Corn lost 17  cents on the week,  a 4.1% drop following a 5.9% decline the previous week.  The highest late June weekly crop condition ratings since 2000 weighed on the market, as they suggest little incentive to lower projected national average yield. USDA left it at a record 165. 3 bpa in the Friday WASDE report. They did cut new crop production by 75 million bushels due to lower harvested acres. On the other hand, they had to trim old crop feed & residual use to reflect the "extra" corn found in the Grain Stocks report.

Soybean futures ended the week  6.6% lower. The old crop/new crop spreads were collapsing as there was no delivery squeeze against the July futures, and it became clear that crushers thought they had enough domestic and imported beans to make it to new crop.  On Friday, USDA confirmed that basis premise by raising old crop ending stocks to 140 million bushels. They boosted projected crush by 25 million and exports by 20 million, but showed a -69 million bushel resisdual use. As we teach, a negative residual means "we found it and we don’t know where it came from". USDA is likely to raise the 2013 crop production estimate, but usually won’t do that until they have the final use number from the September Grain Stocks report. For new crop, the theme is "too much", with a 3.8 billion bushel bean crop currently projected, and record large global ending stocks to go with it. The crop is not yet in the bin, but the market is trying to price "what if it is" and send the signal for more consumption.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

06/20/14

06/27/14

07/03/14

07/11/14

Change

% Change

July

Corn

$4.53

$4.43

$4.17

$4.00

($0.17)

-4.14%

July

CBOT Wheat

$5.85

$5.85

$5.68

$5.15

($0.53)

-9.38%

July

KCBT Wheat

$7.21

$7.26

$6.97

$6.34

($0.63)

-9.00%

Sept

MGEX Wheat

$6.94

$6.92

$6.72

$6.28

($0.44)

-6.55%

July

Soybeans

$14.16

$14.32

$13.88

$12.96

($0.92)

-6.63%

July

Soybean Meal

$459.20

$469.80

$447.00

$421.80

($25.20)

-5.64%

July

Soybean Oil

$40.04

$39.98

$38.56

$36.71

($1.85)

-4.80%

Aug

Live Cattle

$146.32

$151.12

$155.00

$149.13

($5.88)

-3.79%

Aug

Feeder Cattle

$206.88

$214.33

$217.63

$210.38

($7.25)

-3.33%

Aug

Lean Hogs

$129.15

$129.83

$131.60

$128.68

($2.92)

-2.22%

Oct

Cotton

$77.49

$74.30

$71.79

$68.74

($3.05)

-4.25%

July

Oats

$3.40

$3.32

$3.91

$3.49

($0.42)

-10.81%

July

Rice

$14.64

$14.59

$14.55

$14.50

($0.05)

-0.34%

 

Wheat futures ended the week more than 9% lower in Chicago and Kansas City.  Minneapolis was down more than 6%. USDA revealed last week that US producers had expanded spring wheat plantings to 12.709 millin acres since the March intentions report. On Friday they bumped up projected spring wheat production to 564.6 million bushels, 20 million more than the trade had expected. KC HRW is a substitute with MPLS HRS wheat, and took some of the selling pressure despite a USDA cut in projected HRW production to only 703 million bushels. USDA was forced to reduce projected US wheat exports by 25 million bushels because of slow export bookings YTD and the growing world ending stocks estimates. The average cash price estimate for the year was cut 40 cents to $6.60/bushel.

October Cotton futures were big losers this week, down 4.25%.  USDA  raised projected US cotton acreage to 11.369 million acres, but also reduced expected abandonment in the Southwest because of improved soil moisture conditions. They hiked projected US production by 1.5 million bales and put 2015 ending stocks at 5.2 million. That would be the largest surplus since 2008 for the US. Global ending stocks are seen record large at over 105 million bales. Old crop ending stocks were left UNCH at 2.7 million bales. The marketing year for cotton ends July 31.

Front month cattle futures were down 3.8% for the week, ending an amazing run  that covered $21.10 per hundred from the end of May to the peak. The news is always the most bullish at the top, and in fact wholesale beef prices set new record higs this week. Weekly export sales were also undeterred by the high prices, but there is considerable doubt about demand for late July and early August, a traditional soft spot ahead of Labor Day pipeline activity. Most of the selling was long liquidation, taking in some cases obscene profits out of cattle and feeder cattle futures longs and looking for an undervalued market to buy. Grain producers should be waving signs saying "Hot money welcome here".  Beef production YTD is still down 6.1%.

August Hog futures were down 2.2%  this week.  July futures were holding their ground pretty well ahead of expiration this coming Tuesday. The CME Lean Hog Index continues to climb, hitting $131.63 on Friday (actually the Wednesday data).  Pork production for the week was up 13.9% vs. the July 4th week, but down 4.2% from the same week in 2013.  Production YTD is down 4.5%. Carcass weights are still running an estimated 10# above year ago, but have dropped a little from their peak due to summer weather.  USDA is now projecting 2014 pork production will be down 1.9% from 2013, with the revised estimate for 2015 up 2.1% from the lower 2014 projection.

 Market Watch

The trade will begin the week dealing with the margin clerks, although producer short hedgers should be in really good shape. Any shifts in the weekend weather forecast will have to be toward both hot and dry to get folks excited. USDA will issue the regular Export Inspections and Crop Progress reports on Monday, along with Export Sales on Thursday. Monday will also mark the expiration of the July grain futures contracts. Hogs will expire on Tuesday. The NOPA crush report is also expected on Tuesday.

Visit our Brugler web site at http://www.bruglermarketing.com, find our iPad app "AgMarket" in the Apple app store, or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.

Copyright 2014 Brugler Marketing & Management, LLC

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