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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.

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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