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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.

Tough Export Environment

Nov 18, 2011

Brugler

Market Watch w/Alan Brugler

November 18, 2011

Tough Export Environment

 

The main idea of the week is that exports of commodities are going to be a tough slog. As they say, high prices cure high prices. Global production is up for many commodities. Demand is rising in Asia and South America, but iffy for the EU due to all the deleveraging that is taking place and the austerity programs that are of necessity denting incomes and the spending power of consumers. US cotton exports are gradually picking up after being decimated by cancellations in August and September. Wheat exports are still in the downward mode, and net new sales for corn can’t get a lot worse. Corn is losing share to feed wheat, notably from the Ukraine. While down on Friday, the US dollar index was up for the week and working against rapid gains in exports.

Corn was crushed on Thursday, one of those tipping point moments where the bearish stars all aligned. Weekly USDA export sales were poor, there were 17 million bushels of previous sales cancelled, and December contract longs were looking to get out ahead of the holidays and first notice day. Large funds may also have been liquidating some positions to meet year end payout requirements. Ethanol remains a bright spot, with weekly production rising and thus using more corn. Ethanol stocks rose slightly to 17.11 million barrels. Ethanol exports are also strong, with corn exiting the country in liquid form. Exports do not qualify for the blend credit, and thus should not be affected by the debates about extending the Bush tax cuts and blend credits or renewing them.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

10/28/11

11/04/11

11/11/11

11/18/11

Change

% Change

Dec

Corn

6.55

6.5575

6.385

6.1025

0.2825

4.42%

Dec

CBOT Wheat

6.445

6.3675

6.1675

5.9825

0.1850

3.00%

Dec

KCBT Wheat

7.38

7.18

7.04

6.6725

0.3675

5.22%

Dec

MGEX Wheat

9.205

9.2375

9.3425

9.145

0.1975

2.11%

Jan

Soybeans

12.26

12.21

11.755

11.6825

0.0725

0.62%

Dec

Soybean Meal

317.5

315.4

299.5

298.4

1.1000

0.37%

Dec

Soybean Oil

51.77

51.87

50.98

50.88

0.1000

0.20%

Dec

Live Cattle

119.05

124.5

120.55

119.7

0.8500

0.71%

Jan

Feeder Cattle

145.6

147.4

145.675

147.425

1.7500

1.20%

Dec

Lean Hogs

86.675

86.85

86.45

87.475

1.0250

1.19%

Dec

Cotton

104.37

98.54

99.24

94.9

4.3400

4.37%

Dec

Oats

3.3625

3.29

3.215

3.04

0.1750

5.44%

Jan

Rice

17

16.125

15.22

14.68

0.5400

3.55%

 

The wheat complex still had a split personality, but this week all three exchanges were in the red. MPLS futures were down 2% for the week, with Chicago down 3% and KC down 5%. Firm demand for spring wheat in delivery position continued, with mills not importing enough Canadian wheat to cover their needs. KC protein premiums reflected strong substitution demand, but futures lost ground because of improved moisture and winter wheat crop condition ratings. All three markets were hurt by the aggressive wheat sales out of the Black Sea region, with Ukrainian feed wheat working into Japan and South Korea, while US wheat isn’t even being offered to Egypt at the present time. The EU has also lost export share, reflected in the smaller number of licenses approved to date. Russia is now hinting that it will start buying wheat for intervention stocks after Thanksgiving, trying to support prices which have not really responded to the large export removals.

Soybeans saw fractional losses in all three legs of the complex. The good news is that US soy oil stocks are shrinking rapidly, as shown in the NOPA report last Monday. Part of that is due to biodiesel plants having excellent margins and having problems keeping up with mandated use. The rest is because of a much slower crush pace than was seen in October 2010. South American production estimates are all over the map, but there is general agreement that weather to date has been favorable for planting and early crop development.

Cotton was down a sharp 4.37% for the week, despite being up more than 300 points in one session. Weekly export sales were 998,000 RB for 2011/12 delivery the previous week, but slowed to 639,600 RB for Upland cotton in the most recent reporting period. China indicated that it had been importing cotton for government stocks in October, but officials hinted that they thought they had enough for now. Mills are still the main buyers, regardless of country. Increased global supplies are making it more difficult for the US to capture the business without a downshift in US prices.

Lean Hog futures rebounded 1.2% for the week, up $1.02 after a modest 40 cents drop the previous week. The pork carcass cutout value was down 2.6% on the Thursday/Thursday basis, but popped up $1.75 on Friday to end the week only 0.35% lower. That gave bulls reason to hope that the seasonal turn is coming, with slaughter numbers likely to be reduced by the holiday, and thus reduced pork production helping to support the cutout value received by the packer. Pork production YTD is up 1.1% from last year, and in fact this week’s production is estimated to be 3.3% larger than last year.

Cattle futures were down again, but only 85 cents this week. The board remained skeptical of the $125-126 cash prices paid the previous week, and that attitude proved correct. Cash prices dropped $2-3 this week after the broad commodity sell off on Thursday. Wholesale prices remain stout, with Choice boxes quoted at $195.12 on Friday. That was up 2.1% for the week. The USDA COF report on Friday afternoon showed October marketings to be larger than expected at 103% of last year. Placements were in line at 99.44%, but with the larger marketings the November 1 on feed total was 3.7% above year ago, and thus slightly friendly to the bulls.

Call in consulting service with Alan is available for a limited number of new customers in our Ag Marketing Professional Premium package. Call our office for details on either service at 402-289-2330. 

Market Watch: This week will have a holiday attitude to it, with all major markets closed on Thursday for the US Thanksgiving. Trading activity is typically depressed, as traders take extra days for travel around the mid-week holiday. That can result in erratic price moves. The CME is open on Friday, and December options are scheduled to expire on Friday. The main reports for the week from USDA will be Export Inspections and Crop Progress on Monday, and the monthly Cold Storage report on Tuesday afternoon. Wednesday will be first notice day for December cotton deliveries. The European debt crisis overhangs all of the above, with sporadic worries about US banks or the US dollar or both.

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 2011 Brugler Marketing & Management, LLC

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