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September 2008 Archive for Market Watch

RSS By: Alan Brugler, AgWeb.com

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

An Ill Wind Blows Some Good

Sep 26, 2008
The two largest gainers for the week were November rice and November soybeans. Both are widely grown in the southern US and specifically the Delta and Mississippi/Ohio River Valley region. That happens to be the area that Hurricane Ike and its remnants affected the most with heavy rains and high winds, as well as port and barge transport disruptions. Beans got a little extra help from higher soy oil prices driven by a tight supply of cash diesel caused by refinery shutdowns during the hurricane and aftermath. Rice’s problems were focused on shatter and other harvest loss issues, along with lagging harvest progress. A weak dollar on Monday helped buoy prices of both, even though the buck spent most of the rest of the week trying to rally back.
 
Below is a table showing the net weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5-Sep
12-Sep
19-Sep
26-Sep
Change
% Change
Dec Corn
$5.49
$5.63
$5.42
$5.44
0.02
0.32%
Dec CHI Wht
$7.52
$7.19
$7.18
$7.16
0.02
-0.28%
Dec KC Wht
$7.95
$7.60
$7.57
$7.46
0.11
-1.39%
Dec MGE Wht
$8.15
$7.88
$7.85
$7.90
0.05
0.61%
Nov Soybeans
$11.81
$12.01
$11.44
$11.67
0.23
2.06%
Oct Soy Meal
$327.25
$336.30
$312.50
$315.00
2.50
0.80%
Oct Soy Oil
$48.40
$47.51
$46.92
$47.32
0.40
0.85%
Oct Lv Cattle
$102.90
$102.15
$101.55
$100.95
0.60
-0.59%
Oct Fdr Cattle
$110.68
$108.93
$105.85
$105.80
0.05
-0.05%
Oct Ln Hogs
$69.45
$66.10
$68.20
$69.62
1.42
2.08%
Oct Cotton
$63.25
$62.17
$60.01
$58.20
1.81
-3.02%
Dec Oats
$3.41
$3.35
$3.32
$3.31
0.00
-0.15%
Nov Rice
$19.10
$19.04
$19.21
$21.10
1.89
9.84%
 
Corn futures eked out a modest 2 cent per bushel gain for the week, limping home with a 15 cent loss on Friday. Harvest activity continues to lag the 5 year average, and is likely to do so for much of the fall because crop maturity is still lagging. Nearly all of the crop will be at dent stage or later by this week, reducing yield risks due to a freeze. Export sales have slowed, due primarily to competition from world feed wheat and substantially higher year over year prices. Word of slow downs at several ethanol plants was a drag on prices but cutting likely annual consumption.
 
Wheat prices were under a little pressure in KC, handled it better in Chicago, and ended the week a nickel higher in Minneapolis. The large spec traders continue to maintain a net long position in Minneapolis. Commercials were also slightly net long as of Tuesday night’s CFTC Commitment of Traders data collection for futures and options. The leaves the small speculators and hedgers as the major shorts in the market. Fundamentals were so-so, with IGC hiking projected world production another 4 MMT, and Egypt passing on US wheat in preference for cheaper Russian offerings.
 
Cotton futures had a tough week, losing 3% of their value. The October contract has been in a fairly straight line decline since June, with only minor spikes for hurricanes and the like. The presence of substantial cert stocks in delivery locations is a warning to speculative long players to get out of the contract before deliveries. Most heeded the warning, putting pressure on prices. There were in fact substantial deliveries against the October futures by Dunavant.
 
Cattle futures have been trading in a fairly tight range over the past month, and closed 60 cents lower for the current week. Wholesale prices were on the soggy side, with consumers uncertain about their incomes and the export market showing signs of a seasonal slowdown (keep in mind that official export data is at least 45 days behind and the unofficial Export Sales data are a week behind events). Cash trade was $97-99, with most holding steady when compared to week ago. Problems at poultry giant Pilgrims Pride didn’t translate into less competition, but broiler placements and egg sets continue to run below year ago.
 
Hog futures were solid bullish performers for a second week, gaining another 2%. The market sold off sharply in August, and some of the futures buying is doubtless profit taking heading into the end of the quarter. Some were also just getting out ahead of Friday’s Hogs & Pigs report. The report came in close to advertised, with All Hogs at 102% of year ago, the breeding herd at 97.4%, and market hogs at 102.5% of year ago. All three numbers were within 0.1% of the average trade estimate. Litter size continues to rise rapidly, with Jun-Aug at 102.6% of year ago. This is countering some of the reduction in sow numbers.
 
Market Watch: This will be another tricky week for making marketing decisions. In addition to any frost/freeze risk, the market will have to deal with the outcome of the weekend Congressional decisions on the support package. There is also month end and quarter end position squaring and asset allocation adjustments. Then you can throw in the USDA Grain Stocks and Small Grains reports on Tuesday morning. Livestock traders will be dealing with the aftermath of the Hogs & Pigs report on Monday, and October cattle options expiration on Friday.
 
There is a substantial risk of loss in futures & options trading. Past results are not necessarily indicative of future results.                         
 
Copyright 2008 Brugler Marketing & Management LLC

Good Week for Hogs

Sep 19, 2008
It was a good week for hog producers, one of the best in months. Corn dropped almost 4%, mean futures were down 7% and nearby hogs were up more than 3%. That’s the trifecta! Fundamentally, the hogs saw a little improvement in the value of the carcass components that stabilized the cash hogs. Since futures had been discounting the cash, there was room for a rally.
 
Below is a table showing the weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29-Aug
5-Sep
12-Sep
19-Sep
Change
% Change
Dec Corn
$5.85
$5.49
$5.63
$5.42
0.21
-3.73%
Dec CHI Wht
$8.01
$7.52
$7.19
$7.18
0.01
-0.17%
Dec KC Wht
$8.40
$7.95
$7.60
$7.57
0.03
-0.39%
Sep MGE Wht
$8.65
$8.15
$7.88
$7.85
0.03
-0.35%
Nov Soybeans
$13.26
$11.81
$12.01
$11.44
0.58
-4.81%
Oct Soy Meal
$358.50
$327.25
$336.30
$312.50
23.80
-7.08%
Oct Soy Oil
$53.67
$48.40
$47.51
$46.92
0.59
-1.24%
Oct Lv Cattle
$104.05
$102.90
$102.15
$101.55
0.60
-0.59%
Sep Fdr Cattle
$111.15
$111.20
$109.90
$108.25
1.65
-1.50%
Oct Ln Hogs
$68.42
$69.45
$66.10
$68.20
2.10
3.18%
Oct Cotton
$67.53
$63.25
$62.17
$60.01
2.16
-3.47%
Dec Oats
$3.62
$3.41
$3.35
$3.32
0.03
-0.82%
Nov Rice
$18.99
$19.10
$19.04
$19.21
0.17
0.89%
 
Corn prices were down 21 cents per bushel for the week, with significant liquidation of hedge fund and index fund positions as the stress intensified on Wall Street and AIG (sponsor of the DJ-AIG Commodity Index fund) was propped up by a massive government loan program. Crop yield estimates dropped in the private sector due to widespread “down” corn caused by Hurricane Ike, but USDA won’t show that until the October crop report.
 
Soybeans fell 58 cents per bushel, or almost 5% for the week. Both meal and oil were under pressure. DDG prices (corn ethanol feed byproduct) were down sharply due to localized oversupply, and that put pressure on soybean meal. So did the drops in corn and wheat. Beans were hurt by the loss of product value, and also by unwinding of speculative long positions and the flight to cash.
 
Wheat futures were lower at all three exchanges, but only by 1 to 3 cents per bushel. It was a violent week in terms of trading action, once again bringing to mind the trade axiom “trade wheat and sleep in the street”. The market continues to be technically oversold, but also faced with record world production that must be priced into human and/or livestock use.
 
Cotton futures were down 3.5% for the week, but it would have been worse had it not been for a 126 point rally on Friday. Liquidation of speculative and commercial positions pressured the market to the lowest front month futures prices since August 2007. Weekly export sales were regarded as bull friendly, but the impact was swamped by the panic selling at mid-week. Friday’s rally was sponsored by higher prices for competing fibers, due to higher crude oil costs. There are also legitimate concerns about production losses and quality losses from Hurricanes Gustav and Ike.
 
Cattle futures lost a mere 60 cents for the week despite a hard down day on Thursday. Profit taking ahead of the Friday afternoon Cattle on Feed report pulled the market back up, along with solid export buying by South Korea and others. The COF report showed Placements at 97.3% of year ago, with Marketings at 91.2% and On Feed at 97%. The report is slightly bull friendly because of the lower total numbers on feed and the likelihood of very tight available supplies of finished cattle into the first quarter.
 
Feeder cattle futures would normally be helped by the weakness in corn, but with the live cattle prices lower, and a fairly low speculative interest, they slipped 1.5% for the week.
 
Market Watch: Monday is the first day of Autumn, with most stock market watchers and farmers hoping it isn’t the first day of Fall! USDA will have the regular weekly Export Inspections and Crop Condition reports, as well the issuing the monthly Cold Storage report. Wednesday is first notice day for deliveries against October cotton futures contracts. On Thursday morning, we’ll get USDA Export Sales, along with Census Cotton Consumption and Census Crush reports. Friday will feature the quarterly USDA Hogs & Pigs report, and will also be the last trading day for October grain options.
 
There is a substantial risk of loss in futures & options trading. Past results are not necessarily indicative of future results.                         
 
Copyright 2008 Brugler Marketing & Management LLC

A Bottom, Or a Dead Cat Bounce?

Sep 12, 2008
The 15 cent weekly gain in corn may not look like much, but it took a heroic effort by the bulls to get there. Prices were 15 cents lower through the first 4 days of the week. Then came Friday’s USDA crop reports. The corn report was fairly neutral, with USDA projecting a 152.3 bushel/acre national average yield and a crop of 12.072 billion bushel. Corn had been tracking with the crude oil and energy markets, but those markets were lower for most of the week. The rally on Friday, which ultimately went limit up, began with a sharply weaker US dollar tied to talk of taxpayer funded bailouts for Wall Street firms such as Lehman, and got an extra boost as the trade got more nervous about Hurricane Ike doing serious damage to the port of Houston and the refineries and energy facilities in that part of the Gulf of Mexico. Ike is expected to stall early corn harvest in an arc from Texas to Ohio due to excess moisture. Some Friday weather forecasts also showed the storm dragging much warmer temps up into the central US, which would be welcomed as an aid to crop maturity.
 
Below is a table showing the weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22-Aug
29-Aug
5-Sep
12-Sep
Change
% Change
Sep Corn
$5.87
$5.68
$5.33
$5.48
0.15
2.82%
Sep CHI Wht
$8.66
$7.79
$7.31
$7.04
0.27
-3.73%
Sep KC Wht
$9.00
$8.19
$7.68
$7.42
0.27
-3.45%
Sep MGE Wht
$9.38
$8.61
$8.03
$7.72
0.32
-3.92%
Sep Soybeans
$13.21
$13.32
$11.76
$14.90
3.14
26.70%
Sep Soy Meal
$360.30
$367.50
$342.00
$359.00
17.00
4.97%
Sep Soy Oil
$54.15
$53.40
$48.30
$47.15
1.15
-2.38%
Oct Lv Cattle
$105.78
$104.05
$102.90
$102.15
0.75
-0.73%
Sep Fdr Cattle
$112.95
$111.15
$111.20
$109.90
1.30
-1.17%
Oct Ln Hogs
$73.75
$68.42
$69.45
$66.10
3.35
-4.82%
Oct Cotton
$67.75
$67.53
$63.25
$62.17
1.08
-1.71%
Sep Oats
$3.65
$3.45
$3.28
$3.17
0.11
-3.35%
Sep Rice
$18.00
$18.90
$18.85
$19.20
0.35
1.86%
 
The soybean gain of 26% for the week looks VERY impressive, but it is an artifact. Due to the wet weather and hurricanes, shipping into and out of the Gulf ports has been interrupted. Harvest has also been delayed, and the early arrival of new crop was critical given the tight old crop ending stocks. The bottom line is that basis bids of more than $2 over November were being reported in the Gulf area, and 45-50 cents over was routine in the Midwest at processors. A few futures traders got caught short of inventory in the expiring September contract, resulting in the “get me out at any price” trades. The much more liquid November contract was up only 25 cents for the week. All of that gain occurred on Friday. On Friday morning, USDA put the size of the soy crop at 2.934 billion bushels. They dropped projected yield to 40 bushels per acre based on smaller than expected pod counts (with Nebraska down more than 300 per frame from last year). That average yield change had no impact on projected ending stocks, since USDA also foresees a drop in US soybean crush next year. The price forecast was increased 10 cents on both ends to reflect the price rationing. Higher diesel prices also boosted soy oil (biodiesel feed stock) on Friday and raised the product value of the soybean. Oil was still down for the week.
 
Wheat futures lost more than 3% of their value for the week. There was no change in USDA S&D numbers for the US crop, since the government is waiting for the Grain Stocks and Small Grains production reports on September 30 before making any changes. World production was hiked to 676.3 MMT, a larger figure than most of the trade estimates. USDA also sees additional growth in world ending stocks, to 139.9 MMT. Mix all of that together, and throw in a little spread trading with wheat as the short leg. That gives you the week’s sell off rationale.  
 
Cotton futures were also down for the week. Export sales have been sluggish, and until Friday’s collapse the dollar had been rising. That was making cotton comparatively more expensive to foreign buyers. USDA reported a larger than expected US crop, boosting average estimated yield by 7 pounds per acre from the August estimate. That took the upland crop to 13.387 million bales, and the “all cotton” crop to 13.846 million bales.
 
Cattle lost 75 cents on the week. Price action in the beef was back and forth, but cash cattle trade in the north was $2 lower than the previous week, and the daily futures price charts are still in a month long down trend. Estimated slaughter for the week was 657,000 head, about 12,000 more than the same week in 2007. Choice boxed beef is still at historically high levels for early September with Friday’s quote at $160.57. Beef production YTD is up 1.3% vs. year ago.
 
Hogs had the distinction of being the biggest loser for the week. They were down 4.82%. The pork cutout value was under pressure all week, with production outstripping demand. Domestic demand has been seeing a little pressure from both squeezed paychecks and cheaper chicken prices. However, the real problem appeared to be in the export sector. The market had been very dependent on exports to absorb supply, with nearly 22% of Jan-June production exported. The US now appears to be having trade issues with Russia and Mexico. Chinese post-Olympic demand has also been a question mark, although Census statistics aren’t yet available to confirm or deny that assumption.
 
Market Watch: September futures expired on Friday, with a few surprises like the $2 plus jump in the soybeans that had everyone shaking their heads. USDA’s crop report is now past history, and the focus will shift to harvest weather and the outside markets. We’ll still care about the NOPA monthly Crush report on Monday, as it helps measure the August slow down in crush activity. The Fed (FOMC) is due to meet on Tuesday. The main USDA reports for the week will be Milk Production on Thursday and the monthly Cattle on Feed report on Friday afternoon.
 
There is a substantial risk of loss in futures & options trading. Past results are not necessarily indicative of future results.                         
 
Copyright 2008 Brugler Marketing & Management LLC
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