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August 2012 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.

Isaac, the Drought Buster?

Aug 31, 2012

 

Market Watch with Alan Brugler

August 31, 2012

 

Isaac the Drought Buster?

 

The long term drought forecast still shows most of the central US in drought conditions through the end of October. However, Hurricane Isaac may change that forecast a little bit, if we are to believe the QPF models with their 5 to 8 inch rain accumulations over a 5 day period. These are a direct outgrowth of the movement of the remnants of Isaac into the Mississippi River valley. The rains will not be uniform, however, and there will be a tendency because of the heavy concentrations for much of it to run off. Still, most of the US soybean crop still has leaves and can benefit from the rains for pod fill. Winter wheat planting conditions are also being improved by this moisture. Negative impacts will likely include worse lodging of drought stressed corn, harvest delays of same, and some possible production losses due to local flooding.

 

Nearby corn futures ended the week 0.06% higher (by 1/4 cent from last week), as bulls and bears fought to a near draw for the fourth week in a row.  Weekly export sales for the prior week were very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. Weekly ethanol production also slowed down by 4,000 bpd from the previous week, the first slow down in more than a month. This is primarily due to scheduled downtime by plants ahead of new crop supplies being available in their local areas. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. Of course, the other question mark is production. Combines are running in most states, but in many cases it is the most damaged fields being taken out before the stalks collapse, or short season varieties planted in order to hit the presumed old crop shortage at the end of the marketing year. That hole closed up, due to the slow exports. The market ignored several downward revisions in production forecasts this week, suggesting that 120 bpa is built into current prices.

 

Soybeans were 1.55% higher this week, a 27 cent increase in price. Meal futures were actually up $113.70/ton and supported product value and soy oil was also up $0.18 or 0.32%.  The USDA weekly soybean export sales were a net reduction for 2011/12 of 10,100 MT with new crop sales a net 731,400 MT in line with trade estimates of 500 to 800 thousand MT. Old crop export shipments continue to run higher than in the past three years, but this was expected given heavy bookings when the extent of Argentine drought damage became known. The bottom line is that yield prospects may have improved in the ECB, but traders are not at all convinced that export sales are slowing at the needed pace. The US needs to meet world needs for 6-8 months and then have enough beans held back to run crush operations and meet domestic soybean meal needs from April or May through the end of the year.

The three wheat markets were up by $.02 (CBT), $0.04 (KCBT) and $0.17 (MGEX) for the week although they closed lower on Friday.  The main story was Russia, with the trade concluding that Russia will have to limit exports because of a production short fall. Russian officials met late this week and the result of the meeting was there are adequate supplies to provide the needed reserve for the country and no export restrictions will be applied at this time. Down the road there could be some areas where restrictions are imposed however according to the Ag Minister. Projected Russian exports are currently 8 MMT, and roughly 4 MMT of that will have been shipped by the end of the month of August. Egypt and others have been buying Russian wheat because it is being offered at a discount (embargo risk discount) to other global wheat.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

08/10/12

08/17/12

08/24/12

08/31/12

Change

% Change

Sep

Corn

$8.00

$7.99

$8.02

$8.03

$0.00

0.06%

Sep

CBOT Wheat

$8.85

$8.75

$8.68

$8.70

$0.02

0.29%

Sep

KCBT Wheat

$8.93

$8.86

$8.77

$8.81

$0.04

0.48%

Sep

MGEX Wheat

$9.36

$9.28

$9.20

$9.37

$0.17

1.85%

Sep

Soybeans

$16.73

$16.71

$17.38

$17.65

$0.27

1.55%

Sep

Soybean Meal

$521.10

$522.70

$533.40

$547.10

$13.70

2.57%

Sep

Soybean Oil

$53.78

$53.11

$56.24

$56.42

$0.18

0.32%

Aug

Live Cattle

$120.60

$121.08

$119.88

$118.08

($1.80)

-1.50%

Aug

Feeder Cattle

$139.48

$140.43

$140.50

$144.60

$4.10

2.92%

Oct

Lean Hogs

$75.52

$76.20

$72.38

$74.18

$1.80

2.49%

Oct

Cotton

$72.90

$72.66

$74.45

$76.48

$2.03

2.73%

Sep

Oats

$3.88

$3.84

$3.89

$3.89

$0.00

0.00%

Sep

Rice

$15.95

$15.42

$15.41

$15.01

($0.40)

-2.60%

Nearby cotton futures had a good week and were up 2.73% this week under the threat of Hurricane Isaac.    USDA reported net weekly upland cotton export sales for last week were 88,600 running bales for 2012/13 and 1,700 running bales for 2013/14 for Turkey, with exports of 154,100 RB. China was the main receiver at 57,500 RB. China indicated that it would begin marketing some of the cheap cotton it had purchased for the government reserve. A Chinese consortium is also working a deal with the Australian government to purchase 93,000 hectares of one of the largest cotton farms in southwest Queensland.

Cattle futures were down $1.80 per cwt for the week with the August contract expiring today at an $8.00 discount to October cattle futures. Cash cattle prices started up to $120-121 on Thursday in Nebraska with Friday trade at $122. Cash cattle in TX and KS were up $2 to $3 from last week at $123. Wholesale beef prices fell every day this week with retailers having the holiday needs covered. Weekly slaughter was estimated at 622,000 head vs. 634,000 last year. Weekly beef export sales for the prior week were 15,558 MT for 2012 delivery and 300 MT for 2013 delivery to Canada. We continue to see declining supplies of ready cattle coming out of the feedlots, with October being the bottom of the hole. The cattle market is very good at closing those holes, however, by backing cattle into them or pulling cattle ahead.

 

Hog futures were up 2.49% this past week.  Estimated pork production was up 1.028% from last year. Average weights are still running 2 pounds above last year but the high feed prices are beginning to take a toll with the hog corn ratio hitting a 40 year record low of 9:1 this week. Cash hogs eroded almost daily this week and were down $1.25 on average in IA/MN, down $2.28 in the WCB and down $2.55 in the ECB today.    The pork carcass cutout value was down $4.72 for the first four days of the week.  

 

Market Watch:

The reports that will be watched next week will be the crop progress report and export inspections. All reports will be delayed a day from normal because of the Labor Day holiday Monday.  The trade will be looking for any change in the crop condition ratings for soybeans and cotton as a result of Hurricane Isaac and the added moisture brought to the Southeast and central part of the Corn Belt. Weekly export sales will be Friday morning with the last of the 2011/12 marketing year reported (minus one day). This week’s report saw the effect of more price rationing in corn and what appears to be the beginning of price rationing for soybeans.

 

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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

Copyright 2012 Brugler Marketing & Management, LLC

Harvest Expanding

Aug 24, 2012

 

Brugler

Market Watch with Alan Brugler

August 24, 2012

 

Harvest Expanding

Judging by the drop off in phone calls to our office, harvest activity picked up sharply this week. Both silage harvest and corn combining were noted up into Minnesota and South Dakota. Missouri producers were hitting it hard, with much of their corn fully mature. Further north, harvesting was mostly focused on very early varieties planted in late March, or stressed corn that was in danger of going down in a storm. You expect low yield numbers in that stressed corn, and that is what we’ve been hearing. Aflatoxin has been a concern due to weather conditions, with mixed testing results from elevators. Soybean activity is still minimal, with much of the crop just starting to turn color or not even that far along.

Nearby corn futures eked out a 4 cent per bushel net gain for the week, despite losing 6 ½ cents on Friday. Weekly export sales for the prior week were very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. On the other hand, weekly ethanol production (and thus corn consumption) rose another 4,000 barrels per day. Ethanol stocks rose slightly, while Brazilian ethanol imports into the United States slowed from the previous week. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. Widespread pre-harvest downtime has not yet been seen, although a number of plants are running at less than full capacity. The Brugler Marketing Virtual Corn Tour projected US national average yield at 124.3 bushels and final (January) production of 10.826 billion bushels. Pro Farmer projected a 10.48 billion bushel crop on a national average yield of 120.25 bpa, using their Crop Tour as input for the estimate.

Soybeans were up nearly 4% for the week. Reporters on the widely followed Pro Farmer crop tour were finding a sharp decline in pod counts vs. last year. The drop off was consistent across all states in the Tour, although the severity varied by state. While seed size and the number of 2, 3 and even 4 bean pods heavily influences final yield, the assumption was that the crop was smaller than previous estimates. Pro Farmer projected a 2.6 billion bushel crop on 34.8 bushels per acre, emphasizing that the estimate is not directly tied to the Tour data. Weekly export sales were at or above expectations, with China and others continuing to buy when prices were around $16.50 in the futures. In our opinion, exports will fall off a cliff sometime in the spring. US stocks don’t have to last all year if South America in fact has a record crop in 2012. The US needs to meet world needs for 6-8 months and then have enough beans held back to run crush operations and meet domestic soybean meal needs from April or May through the end of the year. We are hearing of crushers in the US who are reluctant to commit to delivering meal in the last half of the 2012/2013 marketing year due to questions about soybean availability.

The three wheat markets were down this week, by 0.80 to 1.02%. Russia will have to limit exports because of a production short fall. The question is how soon. They were still selling this week at prices below prevailing market values because of the risk of a 2010 style embargo. Buyers willing to take the risk were scrambling to lock up cheap wheat. The US is eventually expected to sell to Egypt and other buyers currently dependent on Russia and Ukraine because of their historical tendency to sell wheat at below market rates. Here in the U.S. excellent rains were being received on Friday that should be very helpful to winter wheat planting in the southern Plains. Producers are expected to be aggressive with winter wheat planting due to a favorable crop insurance revenue guarantee level and the need for cash flow. Some in that area have also had a bad experience trying to diversify into the more water intensive corn and soybeans. Stats Canada reported production of more than 27 MMT is likely for Canada, the second largest crop in a decade.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

08/03/12

08/10/12

08/17/12

08/24/12

Change

% Change

Sep

Corn

$8.10

$8.00

$7.99

$8.02

$0.04

0.47%

Sep

CBOT Wheat

$8.91

$8.85

$8.75

$8.68

($0.07)

-0.80%

Sep

KCBT Wheat

$8.96

$8.93

$8.86

$8.77

($0.09)

-1.02%

Sep

MGEX Wheat

$9.45

$9.36

$9.28

$9.20

($0.08)

-0.81%

Sep

Soybeans

$16.36

$16.73

$16.71

$17.38

$0.66

3.98%

Sep

Soybean Meal

$509.80

$521.10

$522.70

$533.40

$10.70

2.05%

Sep

Soybean Oil

$52.28

$53.78

$53.11

$56.24

$3.13

5.89%

Aug

Live Cattle

$119.98

$120.60

$121.08

$119.88

($1.20)

-0.99%

Aug

Feeder Cattle

$138.95

$139.48

$140.43

$140.50

$0.07

0.05%

Oct

Lean Hogs

$75.85

$75.52

$76.20

$72.38

($3.83)

-5.02%

Oct

Cotton

$73.22

$72.90

$72.66

$74.45

$1.79

2.46%

Sep

Oats

$3.78

$3.88

$3.84

$3.89

$0.05

1.24%

Sep

Rice

$15.98

$15.95

$15.42

$15.41

($0.01)

-0.06%

 

Cotton futures were up 2.46% this week. Weekly net US export sales were 94,100 RB for the week ending August 16th for upland cotton. Net Pima sales were 9,700 RB for both marketing years. Cumulative commitments are at 39% of the USDA forecast for the year, keeping up with the 5 year average of 38%. A surge in India’s cotton exports is expected to lower cotton stocks by year end to 2.8 million bales. India is expected to export 12.7 million bales for the marketing year ending September 30. Last year India exported 7.6 million bales. Friday’s Commitment of Traders report showed a sudden surge of bullish enthusiasm from the large money managers. They bought 7,245 contracts in the week ending August 21, which put their net long position at 8,097 contracts of futures and options.

Cattle futures lost $1.20 for the week, as the upward momentum in wholesale prices slowed, as did reported weekly export sales for the prior week when announced on Thursday morning.  Estimated beef production for the week was down 1.2% from the same week a year ago, but was up 1.8% from the previous week on a late week bump up in slaughter. Estimated weekly slaughter was up 10,000 head from the previous week, including Saturday. Beef production YTD is down 2.1%. Average dressed weight is running 18-19 pounds above last year, despite the high feed costs. This is a function of the high feeder cattle prices and the need to put more pounds on them.

Hog futures were down more than 5% this week. Estimated pork production for the week jumped 4.5% from the previous week, and was up 7.2% from the same week in 2011. Slaughter was 6.7% larger than the same week in 2011, as producers aggressively moved hogs into the market channel so that they could focus on this year’s very early corn harvest. Estimated carcass weight wasn’t any lower than last week at 201 pounds, and is still above the 200# number from a year ago. Thus, it is hard to read much into the sales surge in terms of forced liquidation due to high feed prices. You would expect hog weights to decline if that were the case. Pork production year to date is up 2% from year ago. Sow slaughter is thought to be up as much as 6%, but the data lags.

Market Watch:

The trade is still interested in the weekly Crop Progress report on Monday night, and will be looking for any improvement in the crop condition ratings now that we are in a somewhat cooler and slightly wetter pattern. Weekly export sales on Thursday morning will also be of interest, as that is the timeliest gauge of the effect of price rationing. September grain futures expired on Friday the 24th, so there may be some folks with unexpected long or short futures positions to adjust on Monday. Thursday will be the last trading day for August Feeder Cattle, and Friday marks the expiration for August live cattle futures. Friday will also be FND (First Notice Day) for any deliveries vs. September grain futures contracts. Not to be overlooked, a week from Monday is the Labor Day holiday in the U.S., and the trader population can be expected to be down late this week as folks expand that into a 4 day weekend.

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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

 Copyright 2012 Brugler Marketing & Management, LLC

Working it Out

Aug 17, 2012

 

Brugler

Market Watch with Alan Brugler

August 17, 2012

 Working it Out

How much rain does it take to revive the US soybean crop? How much does it take to stop the erosion in US corn yields? How much additional pricing "disincentive" does it take to curtail US corn and soybean exports and slow ethanol production further? These are the questions the grain markets are still trying to resolve. As we get further into harvest the emphasis will likely switch more to demand and away from supply, but right now the trade doesn’t have a good handle on supply. What we do know is that the news will be the most bullish at the top, and the top will occur when few realize it is occurring. If there was a surprise this week, it was the strength of the wheat market. It was still lower on the week, but came back on Thursday and Friday and arguably pulled corn with it.

Nearby corn futures ended the week 0.19% lower, as bulls and bears fought to a near draw. Weekly export sales for the prior week were very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. On the other hand, weekly ethanol production (and thus corn consumption) rose slightly and ethanol stocks declined despite a record import week for Brazilian ethanol into the United States. That suggested the industrial sector isn’t yet willing to cut back much. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. Of course, the other question mark is production. Combines are running as far north as I-80, but in many cases it is the most damaged fields being taken out before the stalks collapse, and may not be representative of all yield potential. An Ohio tour this past week found an average Ohio yield of 139 bushels per acre. A larger scale Midwest crop tour will begin at both ends of the Corn Belt on Sunday evening.

Soybeans were down 0.12% this week, a 2 cent decline. Meal futures were actually up $1.60/ton and supported product value but soy oil was down 1.25%.  The USDA weekly soybean export sales were slightly stronger than expected at 1.1 MMT, with much of that business previously telegraphed to the industry ahead of time under the USDA daily reporting system. Old crop export shipments continue to run higher than in the past three years, but this was expected given heavy bookings when the extent of Argentine drought damage became known. The bottom line is that yield prospects may have improved in the ECB, but traders are not at all convinced that export sales are slowing at the needed pace. In our opinion, they will fall off a cliff sometime in the spring. US stocks don’t have to last all year if South America in fact has a record crop. The US needs to meet world needs for 6-8 months and then have enough beans held back to run crush operations and meet domestic soybean meal needs from April or May through the end of the year.

The three wheat markets were down this week, by 0.84 to 1.21%. All three were up more than corn on Friday. The main story was Russia, with the trade concluding that Russia will have to limit exports because of a production short fall. The question is how soon. Projected exports are 8 MMT, and roughly 4 MMT of that will have been shipped by the end of the month of August. Egypt had two tenders this week, and despite being burned to the tune of hundreds of millions of dollars in the 2010 embargo they elected to buy Russian origin wheat for late September delivery. The trade had expected the Russian wheat for that time period would be more expensive than other origins, but the buy was not bearish. USDA left projected US exports at 1.2 billion bushels for the year, despite lagging the pace needed to hit that target. The US is eventually expected to sell to Egypt and other buyers currently dependent on Russia and Ukraine because of their historical tendency to sell wheat at below market rates.

 
 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

07/27/12

08/03/12

08/10/12

08/17/12

Change

% Change

Sep

Corn

$7.99

$8.10

$8.00

$7.99

($0.01)

-0.19%

Sep

CBOT Wheat

$8.98

$8.91

$8.85

$8.75

($0.11)

-1.21%

Sep

KCBT Wheat

$9.06

$8.96

$8.93

$8.86

($0.07)

-0.84%

Sep

MGEX Wheat

$9.72

$9.45

$9.36

$9.28

($0.08)

-0.86%

Sep

Soybeans

$16.28

$16.36

$16.73

$16.71

($0.02)

-0.12%

Sep

Soybean Meal

$502.10

$509.80

$521.10

$522.70

$1.60

0.31%

Sep

Soybean Oil

$52.23

$52.28

$53.78

$53.11

($0.67)

-1.25%

Aug

Live Cattle

$119.60

$119.98

$120.60

$121.08

$0.48

0.39%

Aug

Feeder Cattle

$137.75

$138.95

$139.48

$140.43

$0.95

0.68%

Oct

Lean Hogs

$81.32

$75.85

$75.52

$76.20

$0.68

0.90%

Oct

Cotton

$70.73

$73.22

$72.90

$72.66

($0.24)

-0.33%

Sep

Oats

$3.77

$3.78

$3.88

$3.84

($0.04)

-1.16%

Sep

Rice

$15.60

$15.98

$15.95

$15.42

($0.53)

-3.29%

 

Nearby cotton futures were own a modest 0.33% this week. USDA reported net weekly export sales for last week were 77,800 running bales, with exports of 122,900 RB. Last week’s pre report rally did not curb export sales but sales under 100,000 bales are nothing to write home about as we head into harvest.

Cattle futures rose 48 cents per cwt for the week. Prices backed into the gain for the week with a loss on Thursday and a modest advance on Friday, due to the USDA Cattle on Feed report to be released after the end of trading on Friday. The report was neutral, with August 1 numbers 100.7% of year ago and almost exactly matching the average trade guess. Cash cattle prices moved up to $120 for the week. Wholesale beef prices were up 4.4% for the week, over $8 per cwt. for choice carcasses. That gave packers some margin to play with.  Weekly slaughter was estimated at 643,000 head vs. 669,000 last year. Weekly beef export sales for the prior week shot back up over 20 thousand metric tonnes. The combination of smaller supply and larger exports put the value on the cutouts and ultimately on the cash cattle. Futures had a premium to cash, but it shrank by the end of the week.

Hog futures were up nearly 1% this past week. Estimated pork production was up 0.8% from the previous week. It was up 4.7% from the same week in 2011. Cumulative pork production for the year is 1.9% larger than last year on 1.4% more hogs slaughtered. Average weights are still running 2 pounds above last year but the high feed prices are beginning to take a toll.  The pork carcass cutout value was down $1.50 for the week, a 1.62% decline.  Ham quotes rallied back on Friday, but were still down 4.8% for the week.  

Market Watch:

The big reports are over for the month, with the exception of the Cold Storage report scheduled for Wednesday. The trade is still interested in the weekly Crop Progress report on Monday night, and will be looking for any improvement in the crop condition ratings now that we are in a somewhat cooler and slightly wetter pattern. Weekly export sales on Thursday morning will also be of interest, as that is the timeliest gauge of the effect of price rationing. September grain futures options will also expire on Friday the 24th, so there may be a bit of "options pin" positioning later in the week. 

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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

 Copyright 2012 Brugler Marketing & Management, LLC

Mega Reports

Aug 10, 2012

Brugler

Market Watch with Alan Brugler

August 10, 2012

Mega Reports

The much anticipated August USDA crop reports are now out of the way. The first Crop Production report of the year for corn and soybeans was key to understanding yield potential going forward, and there was a great deal of curiousity about how the WAOB analysts would make a 2 billion bushel drop in production disappear on the demand side. Somebody has to stop using the stuff. These are mega reports, these summer crop reports in tight stocks situations. As an example, trading volume in Dec corn was over 100 million bushels in the first 5 minutes after the release of the report. Of course, anyone who bought on that bullish frenzy and stuck around for the rest of the day was out 20 cents per bushel. The release of these reports during trading hours is resulting in some huge price swings, and provoking debate about whether that is healthy for the industry. Thankfully, prices were not limit up or limit down. That seems to be reserved for the quarterly Grain Stocks reports, which also typically fall at the end of a calendar quarter and thus also get involved in asset allocation adjustments and other fund money flows unrelated to the market.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

07/20/12

07/27/12

08/03/12

08/10/12

Change

% Change

Sep

Corn

$8.25

$7.99

$8.10

$8.00

($0.10)

-1.23%

Sep

CBOT Wheat

$9.43

$8.98

$8.91

$8.85

($0.06)

-0.67%

Sep

KCBT Wheat

$9.41

$9.06

$8.96

$8.93

($0.03)

-0.33%

Sep

MGEX Wheat

$10.32

$9.72

$9.45

$9.36

($0.09)

-0.95%

Aug

Soybeans

$17.58

$16.84

$16.56

$17.10

$0.53

3.22%

Aug

Soybean Meal

$543.00

$527.70

$531.50

$544.50

$13.00

2.45%

Aug

Soybean Oil

$54.36

$52.04

$52.04

$53.60

$1.56

3.00%

Aug

Live Cattle

$117.95

$119.60

$119.98

$120.60

$0.62

0.52%

Aug

Feeder Cattle

$136.10

$137.75

$138.95

$139.48

$0.52

0.38%

Aug

Lean Hogs

$93.70

$95.20

$89.55

$91.88

$2.33

2.60%

Oct

Cotton

$72.06

$70.73

$73.22

$72.90

($0.32)

-0.44%

Sep

Oats

$3.87

$3.77

$3.78

$3.88

$0.10

2.71%

Sep

Rice

$15.54

$15.60

$15.98

$15.95

($0.03)

-0.19%

 

Corn prices were actually down 10 cents per bushel for the week. The USDA is clearly trying to get in front of this drought problem after leaning the wrong way last spring and projecting record high yields. The new estimate is 123.4 bushels per acre, with production at 10.779 billion bushels. The Brugler500 index is now slightly below the 1988 reading this week. A weak correlation equates the index to a final yield of 124 bushels per acre, in alignment with the USDA number at the present time. The index changes week to week, however, so the final estimate is likely to be different. Weekly ethanol production rebounded slightly from the previous week. Export sales are still lagging well behind year ago, and USDA trimmed the old crop estimate by 50 million bushels on Friday. The bullish story is that they raised the cash price range for the 2012/13 marketing year to $7.50-8.90. Futures trading above $8.00 don’t seem out of line with that estimate. Global corn stocks are seen shrinking, but remaining well above 2006/07 levels. However, the global corn stocks/use ratio is projected to be record tight because of big demand growth around the world.

 The three wheat markets were all down again this week, by .33 to .95%.  Weekly export sales were stronger than expected; with interest in US supplies rising as the extent of the Russian shortfall becomes known. USDA trimmed projected Russian production to 43 MMT on Friday from 49 MMT in July. Exports were cut to 8 MMT from 12 MMT. The Russians are still shipping, but hint at tariffs or other restrictions after the first of the year. Buyers remember the 2010 embargo and are making sure they have some alternative supply sources. Closer to home, USDA bumped up US wheat production, taking Other Spring to 499 million bushels and also revising Winter wheat production higher. Ending stocks were loosed by the extra supply, as USDA made no change in predicted exports.

Soybeans were up 3.22% this week.  China bought an estimated 725,000 MT of new crop beans over 4 days ahead of the crop report, taking advantage of the early month price correction and some positive crush margins. It is not clear how high they are willing to go on import prices. In the WASDE report, USDA cut projected yield all the way to 36.1 bushels per acre, putting production at only 2.692 billion bushels. They had to drop projected exports by 260 million bushels in order to come up with a bare minimum ending stocks figure of 110 million bushels. The average cash price estimate range was bumped up to $15.00-17.00 for the year in order to scare off enough import buyers. They did show the effect of higher prices on South American farmers, increasing projected South American soybean production by 6 MMT in Argentina and Brazil alone. Paraguay is also expected to increase production in 2013.

Nearby cotton futures were firm early in the week but lost 0.44% Friday close to Friday close. The USDA report was fundamentally bearish. Harvest area was increased by 410,000 acres. With a minor 1 pound per acre drop in yield the crop was 650,000 bales larger. The trade had been looking for a smaller number around 16.8 million rather than 17.65 million. Due to large world supplies and rising world stocks, USDA made no change in projected US cotton exports, pushing all the increased production into a burdensome 5.5 million bale ending stocks number. India has suffered from a poor monsoon season thus far. USDA did trim projected Indian production by a modest 500,000 stat bales (480 lb). Indian ending stocks were trimmed by the same amount, with no effect on exports.

Cattle futures rose 62 cents per cwt. for the week, adding to the 38 cents picked up last week. Futures remain in a rising regression channel on the weekly continuation chart, but the slope is very shallow. Wholesale beef prices were up 3.8% for  the week, supported by improved beef export sales and generally cooler (but still above normal) temps that were more amenable to grilling demand. Estimated weekly beef production was1.5% smaller than the same week in 2011. YTD production is down 2.2%. Weekly beef export sales reported by USDA again improved from the week before. USDA hiked projected 2012 beef production, now seen at 2.4% smaller than last year. They did trim 2013 estimates due to expected negative feeding margins.

Hog futures were up 2.6% for the week. August expires on the 14th and needs to converge with the CME Index used to settle the contract. Cash hogs were strong enough that the Index wasn’t coming down to the futures, so the futures had to rally. Estimated pork production was up 0.1% from the previous week. It was up 1.0% from the same week in 2011. Cumulative pork production for the year is 1.7% larger than last year on 1.2% more hogs slaughtered. Average weights are still running 3pounds above last year but are declining seasonally.  The pork carcass cutout value was down 0.49% for the week. Ham prices were the weakest link. Larger than expected broiler supplies here in 2012 caused USDA to reduce expected chicken prices, but summer death losses in the south due to the heat will trim supplies a little and high feed costs are also expected to drive the major firms to reverse expansion plans.

 Market Watch:

There will be a bit of a hangover from the big Friday USDA reports. The second guessing has begun on yields, and on whether current prices are accomplishing the price rationing foreseen by USDA. The Monday night crop progress and crop condition ratings will get deserved attention as a clue, with a particular focus on where there are improvements in soybeans that could hint at larger future numbers. Tuesday will see the monthly NOPA soybean crush report for July. Tuesday will also be the last trading day for August hogs and the August soy complex futures. Thursday will see the regular USDA weekly export sales report. The biggest USDA report for the week will be the Cattle on Feed report scheduled for Friday at 2 pm CDT. Monthly milk production will also come out at the same time.

 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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

How Much Does It Take?

Aug 03, 2012

 

Market Watch with Alan Brugler

August 3, 2012

 

How Much Does It Take?

 

How much rain does it take to revive the US soybean crop? How much does it take to stop the erosion in US corn yields? How much additional pricing "disincentive" does it take to curtail US corn and soybean exports and slow ethanol production further? These are the questions the grain markets are trying to resolve, and clearly have not yet fully digested. What we do know is that the news will be the most bullish at the top, and the top will occur when few realize it is occurring.

 

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

07/13/12

07/20/12

07/27/12

08/03/12

Change

% Change

Sep

Corn

$7.41

$8.25

$7.99

$8.10

$0.11

1.44%

Sep

CBOT Wheat

$8.48

$9.43

$8.98

$8.91

($0.07)

-0.75%

Sep

KCBT Wheat

$8.51

$9.41

$9.06

$8.96

($0.10)

-1.10%

Sep

MGEX Wheat

$9.59

$10.32

$9.72

$9.45

($0.28)

-2.83%

Aug

Soybeans

$15.95

$17.58

$16.84

$16.56

($0.28)

-1.66%

Aug

Soybean Meal

$480.80

$543.00

$527.70

$531.50

$3.80

0.72%

Aug

Soybean Oil

$53.70

$54.36

$52.04

$52.04

$0.00

0.00%

Aug

Live Cattle

$117.20

$117.95

$119.60

$119.98

$0.38

0.31%

Aug

Feeder Cattle

$139.00

$136.10

$137.75

$138.95

$1.20

0.87%

Aug

Lean Hogs

$90.40

$93.70

$95.20

$89.55

($5.65)

-5.93%

Oct

Cotton

$71.76

$72.06

$70.73

$73.22

$2.49

3.52%

Sep

Oats

$3.73

$3.87

$3.77

$3.78

$0.01

0.27%

Sep

Rice

$15.29

$15.54

$15.60

$15.98

$0.38

2.40%

 

Corn prices were up 1.44% after a week of relatively choppy action.   National average yield estimates continue to decline as the high temperatures continue to hasten maturity and the drought continues to slowly kill the plants. The Brugler500 index was still slightly above the 1988 reading this week, at 256 vs. 252. Weekly ethanol production rebounded slightly from the previous week, and ethanol stocks also rose slightly. Ethanol production is currently running at about a 4.3 billion bushel corn consumption rate before DDG netback. This is a 700 million bushel reduction on an annualized basis, as price rationing does it’s work. Various groups are calling for a reduction in the mandated ethanol use for the balance of 2012 and 2013, but it is not at all clear that ethanol production would decline if in fact the EPA chose to lower the mandate. The same groups had called for the elimination of the blend credit, expecting a reduction and the market kept on using the product without the subsidy. There was a onetime price adjustment and use continued. We also need to remember that if plants actually shut down because of a change in the mandate that will add increased unemployment and higher gasoline prices to the equation.

 

Soybeans were down 1.66% this week.   The USDA weekly soybean export sales were below trade expectations for the reporting week ending July 26 just under 250,000 MT. With 79% of the crop blooming and 36% said to be setting pods, the Brugler500 index crop condition index is at 287. Compare that number to the same week in 1988 when the Brugler500 index was 303. Ratings are now lower than in 2008 and 1988. The Memphis based analytical firm Informa reduced their expected average US soybean yield to 37.2 BPA and put projected production at 2.79 billion bushels. There are even smaller numbers out there in the market, but the confidence level in bean estimates on August 3 is pretty low because much of the yield development occurs during August. In our opinion, the main thing the market is trying to figure out, besides the US production, is what price it takes to discourage Chinese buying. China did sell back 164,000 MT of previous new crop purchases a week ago, and their pace of buying has slowed. They do have the option of trying to live off of their own harvest for a couple months this fall.

The three wheat markets were down this week, by 0.75 to 2.83%. All three were up more than corn or soybeans on Friday. Weekly export sales were 520,700 MT, in the middle of trade expectations for the week with 4,500 of that for 2013/14 delivery. That was up 41% from the previous week with some weather concerns remaining in the Black Sea region and because of the Indian monsoon shortfall. The IGC expects Russian output will fall to 45 MMT with a French firm estimating 47 MMT.

Nearby cotton futures were up 3.52% this past week. USDA reported net weekly export sales for last week were 208,800 RB for Upland and 13,000 MT for Pima for combined marketing years. Total old crop commitments are 99.5% of the current USDA forecast for the year of 12.10 million bales. The marketing year ended on July 31, but the sales data is only through July 26. There could be a small quantity shown as both sold and shipped during the last 5 days of the month, but the more significant figure will be the exports. Anything not exported by July 31 will be rolled forward and treated as a 2012/13 export sale by USDA. The CFTC report on Friday afternoon showed Managed Money added 135 contracts to their net short bringing the total net short to 6,341 contracts.

 

Cattle futures rose 0.31% or $0.38 per cwt for the week. Prices backed into the gain for the week with a loss on Friday. That selling came despite a big jump in cash cattle prices for the week, with most moving at $118-119. Wholesale beef prices were lower at the beginning of the week but finished the end of the week on an uptick of $1.20 for Choice beef from last Friday. Estimated beef production for the week was 0.4% larger than the same week in 2011. YTD production is down 2.2%. Weekly beef export sales reported by USDA improved 8% from the week before.

 

Hog futures were down $5.65 or 5.93% for the week. Estimated pork production was up 0.8% from the previous week. It was up 4.7% from the same week in 2011. Cumulative pork production for the year is 1.8% larger than last year on 1.3% more hogs slaughtered. Average weights are still running 3-4 pounds above last year.  The pork carcass cutout value was up $0.88 for the week.  Pork bellies finally revealed hints of BLT demand, gaining $9.85 for the week.

 

Market Watch:

The main USDA reports for the week will be on Monday and Friday. The Monday afternoon crop condition ratings continue to be of significance, particularly to corn and soybeans. Spring wheat harvest is moving right along, and the tail end of winter wheat harvest is still bringing in bushels. The biggest numbers will be on Friday, August 10, when USDA releases the monthly Crop Production and WASDE Supply/Demand estimates. This will be the first Crop Production report of the year for corn and soybeans, with NASS using objective yield plots and farmer surveys to give us a number that should be more solid than the SWAG guesses currently in circulation. With such huge variations field to field this year, nobody will mistake these August numbers with a final production figure.

 

 

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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

 Copyright 2012 Brugler Marketing & Management, LLC

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