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RSS By: Alan Brugler, AgWeb.com

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

The Long March

Mar 16, 2012

Brugler

Market Watch with Alan Brugler

March 16, 2012

The Long March

The historical Long March was a 370 day retreat by the Chinese Communist armies in 1934-35 during their civil war with the Chinese Nationalists. Some sources estimate the total ground covered at 8000 miles. Our Long March, however, is in terms of days and soybeans. The soybean market bottomed on December 14, and has been marching steadily higher for 63 market days and more than 90 calendar days. Such steady and directional price moves are often known as "realizing bull markets" where it is too late to change the supply side of the market and prices must rise enough to make consumption fit the now "known to be smaller" supply. As was the case with the Chinese, the actual end date and destination were not known for a long time. Please understand that we’re not suggesting the bean rally has to go 370 days! The Chinese are also key players in the soybean Long March, with USDA showing that an estimated 60.5% of global soybean exports in 2011/12 will end up in China.

Corn futures were up 8 cents per bushel for the week. While the USDA weekly export sales for the week ending March 8 were so-so, there were several sales announced under the daily reporting system that fired up the bulls. The most notable was the 240,000 MT sale to "unknown".  A number of Chinese purchases this year have been initially recorded as unknown destinations, and then identified the week they were actually being loaded to ship. Chinese futures prices for September traded over $10 per bushel on Friday, adding to ideas that they must need to import more corn to cool down the market. US futures also remain inverted, trying to pull stored and hedged grain forward into end user hands. There were no deliveries vs. March futures until after the contract expired, and those stoppers were both exporters. Ethanol production dropped, but stocks also fell back a little bit and offered hope to the bulls of a recovery in margins for the ethanol plants.

The wheat complex saw all three exchanges higher. Chicago got the biggest boost, up 4.5% for the week. KC was up less than 2%, due to improving crop condition ratings, forecasts for excellent rain in the Plains, and no sign of a killing frost that could hurt the advanced maturity and thus vulnerable crop in OK and KS. Weekly export sales were unexceptional, on the low end of trade estimates, but US exports in the week ending March 8 were the largest since June 2011. That got the attention of the cash market, and boosted the old crop May futures. It didn’t hurt that Egypt bought more US wheat, and Japan made up for a light week with a bigger purchase this week.

Soybeans were up 2.7% for the week, supported by a 3.2% gain in meal and a 2.3% gain in soy oil. Private production estimates for Brazil continue to leak lower as the combines roll and the full extent of the drought damage is uncovered. The combined Brazilian and Argentine production estimates USDA put out a week ago are 349 million bushels smaller than the year before, and if the private estimates are correct that gap gets a little larger. The port strike at Rosario has been suspended, but threw a kink into global logistics. Brazil is seeing the typical two to three week loading waits. The US export inspections are still miserable, down 280 million bushels from last year, but weekly export sales were stronger than the trade expected due to some fill in business and fears of even higher prices to come. Memphis cash soybeans hit $14 per bushel on Friday.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

02/24/12

03/02/12

03/09/12

03/16/12

Change

% Change

May

Corn

$6.44

$6.62

$6.65

$6.73

$0.08

1.16%

May

CBOT Wheat

$6.41

$6.75

$6.43

$6.72

$0.29

4.51%

May

KCBT Wheat

$6.97

$7.28

$6.93

$7.06

$0.14

1.95%

May

MGEX Wheat

$7.89

$8.26

$8.01

$8.23

$0.22

2.72%

May

Soybeans

$12.87

$13.33

$13.38

$13.74

$0.36

2.71%

May

Soybean Meal

$336.20

$359.10

$362.70

$374.40

$11.70

3.23%

May

Soybean Oil

$54.65

$55.25

$54.27

$55.50

$1.23

2.27%

Apr

Live Cattle

$129.50

$129.95

$126.03

$125.30

($0.73)

-0.58%

Mar

Feeder Cattle

$157.68

$158.10

$153.93

$153.40

($0.53)

-0.34%

Apr

Lean Hogs

$89.73

$90.43

$87.83

$85.88

($1.95)

-2.22%

May

Cotton

$90.15

$88.23

$88.80

$87.48

($1.32)

-1.49%

May

Oats

$3.11

$3.06

$2.88

$3.34

$0.47

16.26%

May

Rice

$14.47

$14.51

$14.16

$14.54

$0.38

2.68%

 

Cotton futures dropped 1.5% for the week. The USDA global estimates were bearish last week, with likely ending stocks raised to 62.32 million bales. Bulls got a little excited because of India’s export halt, but the reality is that US ending stocks are very comfortable and could tolerate another million bales of exports before the alarm bells start to go off. Weekly export sales are picking up a little, but are still modest. Weekly U.S. cotton export sales through March 8 were 239,900 RB for 2011/12 and 118,800 for 2012/13 marketing year for Upland cotton. Total commitments ARE 107% of the USDA forecast for the year, but there are always sales that get carried over to the following marketing year, so we can’t yet assume that USDA is too low in their forecast.

Cattle futures were down 0.6% this week. It was a tough week for cattle bulls, with wholesale prices under pressure, cash cattle down, and export sales down. This is evidence that price rationing has worked to slow demand. It wasn’t supply, as slaughter was down 1.9% for the week. Beef demand and packer offerings were both described as light on Friday, with the result that choice boxes were down 2% for the week. Feeders were being paid only $1.74 more for the Choice product over Select graded carcasses, vs. a $19.25 premium in November. Estimated beef production for the week was down 1.8% from the previous week, and total tonnage is still down 3.7% from last year at this time.

Lean Hog futures sank 2.2% this past week. The pork carcass cutout value lost 1% for the week, with pork bellies the weakest component. Pork production year to date is up 0.7% from last year. Production this past week was 2% larger than last week, putting pressure on packers to discount the product and get it to move. Carcass weights continue to be consistent with last year.

Market Watch: It has been spring for weeks now if you look at the trees and winter wheat in the Midwest. On Tuesday, the calendar makes it officially Spring. The main USDA reports for the week are the monthly Cold Storage report on Thursday and the Cattle on Feed report on Friday. Friday also marks the expiration of April grain options, which settle against May futures prices. We also get a USDA Milk Production report on Monday, along with the weekly Export Inspections report. Weekly Export Sales will be out on Thursday morning.

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.

 

 Copyright 2012 Brugler Marketing & Management, LLC

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