Sep 14, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin


Market Watch

RSS By: Alan Brugler, AgWeb.com

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

Trying to Kill the Futures Market?

Dec 09, 2011

Brugler

Market Watch w/Alan Brugler

December 9, 2011

Trying to Kill The Futures Market?

 

At times this fall, it seems like events are conspiring to kill off the futures markets or at least make them a lot more unpopular and less liquid to use. It started with the CFTC discussions about expanding position limits to a lot more commodities. Then the MF Global debacle came along with $1.2 billion missing from the segregated customer accounts. That’s money which is always supposed to be there. More than 50,000 traders, many of them elevators and farmer hedgers are still without large chunks of their cash. Others have had to borrow money to margin existing hedge positions when the cash didn’t transfer to their new broker. Speculators with cash in an account in most cases haven’t been able to get at it. That surely cuts interest in trading or hedging! The House Ag Committee hearing on Thursday was badly needed to shine light on this still festering situation, but wasn’t exactly an advertisement to use futures to pass off market risk.

 

On top of all this, the CME Group and ICE seem to feel that raising the cost of trading won’t discourage use of the market. The CME group announced this week that it is raising real time quote fees for livestock by 13.4% effective January 1. They will now cost $76 per month. New York Merc, NYMEX and CBOT fees for grains are also increasing by the same amount. ICE, not to be left out is increasing real time end user fees to $80/month from $70, a 14.2% increase. These increases are roughly 7 times the rate of inflation. Since these markets are too volatile for many folks to trade without real time quotes, that is another knock on potential volume and liquidity.

 

If you are a cash only marketer, don’t feel too smug. Your prices are dependent on your buyers being able to hedge, somewhere in the system. Basis will get a lot worse if they can’t. You should also be concerned that at least some of the price you have been seeing for grains and livestock and cotton has been put there by buy-and-hold index funds or buying by hedge funds and CTA’s. If they pare back futures activity, your prices will likely suffer (everything else being equal).

 

Corn was up 1 cent per bushel lower for the week, after a 4 cent gain last week. Weekly export sales were improved for the second week in a row, and weekly shipments were over a million metric tonnes. China also bought another cargo, but the big concern remains sluggish sales to large customers like Japan. On Friday, USDA cut FSI use of corn by 5 million bushels, preferring to wait for the Grain Stocks report before making further adjustments to feed & residual use or ethanol use. They did lower the mid-point of the average cash price forecast for the year to $6.40 from $6.70, however.

 

The wheat complex had losses at all three exchanges this week. Chicago rose 6.57% last week, and was down the most this week at -6.33%. MPLS was the firmest, down only 1.5%. The wheat market was hit by a flood of bearish news this past week, including record wheat production in Australia, an increase in final crop size for Canada, and increased forecasts for Argentina. USDA capped it all on Friday with increases in both old crop and new crop global ending stocks estimates. They also trimmed projected US exports by another 50 million bushels to reflect poor sales in recent weeks and the substantial competition in the world market. The US isn’t the only country having trouble selling wheat. The EU has issued export licenses for only 6.6 MMT thus far, compared to 10.3 MMT in 2010/11.

 

Soybeans were down 2.53% this week after being up 2.6% last week. All but about 3 cents of the decline came on Friday after the USDA reports. There actually wasn’t much bearish in the WASDE estimates. There was no change in Brazilian or Argentine production nor in Chinese imports. USDA cut estimated Chinese domestic soybean production as well, in theory implying a larger need for imports. So why the sell off? USDA cut projected US crush by 10 million and trimmed exports by another 25, with other countries capturing more of the business than previously expected. That boosted ending stocks to 230 million bushels. That’s a comfortable level, with the stocks/use ratio now the "loosest" since 2006/07. Beans need a pre-Christmas sale to stir up buying interest. USDA was also more bearish on soy oil, raising ending stocks 200 million pounds due to larger production (higher oil yield) and smaller exports.

 

Cotton was down 1.54% for the week. On paper the US has excellent export sales commitments, but they keep disappearing. Weekly export sales through Dec 1 were net negative for upland cotton, with more cancellations than new bookings. USDA left projected exports for the year UNCH at 11.3 million bales, but cut likely domestic use by 200,000 bales. Cotton production was reduced on Friday, to 15.83 million bales from the previous 16.3 million. This was due to a yield cut, and allowed the cotton ending stocks forecast to tighten to 3.5 million bales. Price is expected to average 90 cents per pound.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

11/18/11

11/25/11

12/02/11

12/09/11

Change

% Change

Dec

Corn

6.1025

5.825

5.865

5.855

0.0100

0.17%

Dec

CBOT Wheat

5.9825

5.745

6.1225

5.735

0.3875

6.33%

Dec

KCBT Wheat

6.6725

6.435

6.76

6.5375

0.2225

3.29%

Dec

MGEX Wheat

9.145

8.2725

8.5575

8.43

0.1275

1.49%

Jan

Soybeans

11.6825

11.065

11.3575

11.07

0.2875

2.53%

Dec

Soybean Meal

298.4

282.7

286.4

275.5

10.9000

3.81%

Dec

Soybean Oil

50.88

48.23

50.05

49.34

0.7100

1.42%

Dec

Live Cattle

119.7

121.1

121.9

118.3

3.6000

2.95%

Jan

Feeder Cattle

147.425

144.625

147.075

142.1

4.9750

3.38%

Dec

Lean Hogs

87.475

88.3

86.25

85.4

0.8500

0.99%

Mar

Cotton

93.27

93.27

91.84

90.43

1.4100

1.54%

Dec

Oats

3.04

2.92

3.18

3

0.1800

5.66%

Jan

Rice

14.68

14.235

14.455

14.01

0.4450

3.08%

 

Lean Hog futures dropped 85 cents or 1%.  The Dec futures are discounting a further decline in cash hog prices, but with the contract expiring on Wednesday they had to rally on Friday to narrow the gap. The firmer wholesale price made it slightly less likely that cash hogs would be down below $85, although there is no rule that the average basis has to be in place every year. The pork cutout value continues to run more than $15 higher than last year, and does have a seasonal tendency to firm in early December. The question was whether it could do so while already this high. For this week the answer was yes, with a 1.8% gain. Estimated pork production was down 1.2% from the previous week, but still running 4% above December 2010 for the same week. It is a nice trick to have higher prices and higher production at the same time.

 

Cattle futures sank a huge 2.95% for the week, or $3.60 per cwt. Wholesale prices succumbed to the effects of $195 choice beef on the average consumer (i.e. buy less!), and dropped 3.1% in the choice and 1.8% in the select this week.  Weekly export sales for the week ending December 1 were actually stronger than expected at 15,800 MT, but that was also past history. Cash cattle trade reflected the loss in value to the packer, with Texas trading at $119-120.

 

Looking to enhance your existing Ag Marketing Professional subscription? Add free futures market quotes sent to your cell phone via our Market Monitor service. Or "push" the daily recommendations out to your phone as they happen with Market Messenger 2. Call in consulting service with Alan is also 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: The main USDA reports for grain producers this week are the Export Inspections on Monday and weekly Export sales on Thursday. THE theme between now and the January crop reports will be whether the US is capturing enough export business with these lower futures prices to hit USDA’s diminished expectations for the year. NOPA will give us an update on soybean crush activity on Wednesday morning. Wednesday will also mark the expiration of the December grains and the Dec hog contract. Cattle producers will receive USDA’s monthly count of Cattle on Feed on Friday afternoon.

 

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

Log In or Sign Up to comment

COMMENTS

No comments have been posted, be the first one to comment.

Receive the latest news, information and commentary customized for you. Sign up to receive Dairy Today's eUpdate today!

 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions