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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.

End of the Aughts

Dec 31, 2009

 

Market Watch with Alan Brugler

December 31, 2009

 

End of the Aughts

 

Experience tells me it is hard to accomplish some of my “oughts”, as in “I ought to give more compliments to my wife” or “I ought to change those tires before all the tread is gone”. It is easier to end the “aughts”, as in the decade of years with zeros in them since we passed the “double aught” known as the year 2000 or Y2K. With this column, we end the decade of the aughts and replace it with the decade of the teens, eventually. After we get used to saying “twenty ten” or something like that.

 

Some, perhaps most, will be glad that the aughts are over. After all, this was the decade of the World Trade Towers, and Hurricane Katrina, and the worst recession in decades. There were some real milestones reached by commodities during the aughts, however, and we pause to note a couple of them. First and foremost, we finally traded beans in the teens! This elusive price had been talked about in the 70’s, and hoped for in the 80’s and 90’s. It took the index fund and hedge fund led rally that began in 2006 to get the deed done. January 14, 2008 was the first day when front month soybean futures topped the $13 mark. Not to be forgotten, Minneapolis wheat hit $24.30 in February 2008, a feat for which we are still paying the price in terms of excess world production. And, of course, crude oil got into the $150 neighborhood, which most of us would prefer not to experience again.

 

Coming back to the present, all of the commodities in our basket with the exception of rice were higher for the week. The biggest gainer was the oats market, up 6.54%. Since this is a family column, we won’t discuss that market further. Soy oil came in second at 4.91%, trailed closely by soybean meal and soybeans. The soy complex continues to see strong demand from China for veg oil, and that in turn demands soybeans. Brazil reported some limited new crop supplies being harvested in the north, but for the moment the US has the bulk of the world market to itself. We know that large South American crop is going to put pressure on prices eventually, but the tipping point has yet to be reached, or at least confirmed.

 

Corn futures posted a second weekly gain, another 6 cents per bushel. For the year, corn was up 1.8% despite what appears to be the second or third largest crop in history. Net weekly export sales for the week were 772,510 MT. Commitments for the marketing year to date are 25.01 MMT, compared to 21.04 MMT a year ago. That’s an 18.8% improvement, even if most of the extra business has yet to be shipped.

 

Wheat futures also posted gains of 2.5-3.2% for the week. Traders were puzzled by the rally, given US ending stocks that have grown as large as those at the beginning of the aughts, and world ending stocks/use ratios that are looser than they have been for several years. From the broad perspective the market did what it needed to do. For the year as a whole, December to December, the Chicago wheat was down 11.3%, KC was down 14.9%, and MPLS was down 16.8%.

 

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

 

           

Market Watch

 

 

 

 

Weekly

Weekly

12/11/09

12/18/09

12/24/09

12/31/09

Change

% Change

March Corn

$4.05

$3.98

$4.09

$4.15

0.06

1.47%

March CBOT Wheat

$5.38

$5.28

$5.25

$5.42

0.17

3.24%

March KCBT Wheat

$5.28

$5.24

$5.22

$5.36

0.15

2.83%

March MGEX Wheat

$5.43

$5.35

$5.32

$5.45

0.14

2.54%

January Soybeans

$10.35

$10.12

$10.00

$10.40

0.40

4.03%

January Soy Meal

$306.50

$305.40

$301.40

$313.90

12.50

4.15%

January Soy Oil

$39.57

$38.33

$38.46

$40.35

1.89

4.91%

December Live Cattle

$80.15

$82.05

$83.07

$86.00

2.93

3.53%

January Feeder Cattle

$91.57

$94.72

$94.62

$95.87

1.25

1.32%

February Lean Hogs

$65.42

$65.12

$63.80

$65.60

1.80

2.82%

March Cotton

$74.31

$75.28

$73.43

$75.60

2.17

2.96%

March Oats

$2.59

$2.60

$2.60

$2.77

0.17

6.54%

March Rice

$15.94

$15.23

$14.97

$14.89

-0.08

-0.53%

 

Cotton futures gained 2.96% for the week. Weekly export sales were stronger than anticipated and hopeful data on retail sales and employment supported ideas of stronger demand in 2010. Tightening ending stocks are also fueling talk of cotton re-entering the acreage war in 2010. Wheat has surrendered, but ending stocks are low enough for both corn and soybeans to have a vested interest in keeping cotton from grabbing any major chunks of ground.

 

 Cattle futures posted a third consecutive higher weekly close. December futures expired with a bang, jumping to $86 ahead of expiration on the back of higher cash cattle trade for the week. The wholesale market was a reluctant participant, and was down 29 cents on Friday after also being down on Thursday. Placed against data suggest a couple more weeks of fairly abundant cattle supplies, and then a tightening for the rest of the quarter. USDA is projecting 1Q10 beef production to be at a 4 year low.

 

Hogs kept pace with the cattle, up 2.82%. It was another short kill week, due to the New Years holiday. Despite much gloom and doom and red ink, a loss of several months of  export sales due to H1N1, and a consumer who was retrenching, nearby hog futures were 7.8% higher on December 31 than they were a year earlier. That’s a bigger advance than those in meal and corn, so there are some reasons to be cautiously optimistic heading into 2010. Wednesday’s Hogs & Pigs report showed a little less herd reduction than had been hoped for, but the herd in fact has been downsized in both the US and Canada, and if consumer incomes pick up in 2010 there will be a need for even higher prices to ensure expansion.

 

Market Watch:  There was no trading activity on Friday, due to the New Years holiday. There’s not a lot on the USDA docket for the first week of January, just the regular weekly export inspections and export sales reports, and broiler hatchery numbers. That’s the calm before the storm, with the mega-report day of January 12 looming just over the horizon. Traders will also be looking for signs of fresh money being allocated to commodities in 2010. Index fund re-allocation buying could be seen in corn, soybeans, wheat, et al, but those moves have been widely disseminated. The wildcard is fresh money coming in (or not) through conventional CTA’s, pools and hedge funds. Delivery mechanics will also influence the soybean complex and rice.

 


 

 

There is a risk of loss in futures and options trading.  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, or of any particular risk management technique. 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 subscription content.

 

Brugler Marketing & Management, LLC

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