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June 2009 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.

Waiting for the End of the Train

Jun 26, 2009

           

Market Watch Summary with Alan Brugler

June 26, 2009

 

Waiting for the End of the Train

 

A common phrase in commodity trading is that you “Don’t step in front of a freight train”. The soybean market has been such a train, with old crop July soybeans rallying $4.46 cents per bushel from their March low to the June 11 high. Commercials have been short hedgers because they had to be, but the large speculator position has been net long and getting longer for most of the spring. That was tied to tight old crop ending stocks forecasts (USDA is at 110 million bushels) and the need to slow down export sales and domestic crush use. That work appears to have been accomplished, with China  routinely cancelling old crop purchases and whittling down their outstanding book of US old crop business to about the same level it was last year at this time. Crush may not have been as effectively choked off, due to strong soy meal export sales that have supported prices despite huge domestic meal inventories that suggest demand isn’t really all that good. Given poor livestock profitability that is probably a valid assumption. Now, the would-be bears are waiting for the end of the train (they don’t use cabooses anymore). Tuesday’s USDA reports will either show the last cars (i.e. larger than expected June 1 soybean stocks or perhaps projected 2009 acreage in excess of 79 million acres) or reveal that there are a few cattle cars (bulls, get it?) left in the train because of tight stocks and questions about 2009 production.

 

Corn prices were under pressure all week, with a little bounce on Friday. The net change for the week was -15 cents. Ethanol plant margins are still positive, but were under pressure for much of the week. Export sales were within the range of trade estimates. Crop condition ratings probably take as much blame as anything for the sell off, as they are still very good for late June and if they happen to improve in July a 2004 type yield is still possible. There are questions about these yield estimates because of various weather problems around the country, but we need to remember that actual yield potential in the US is probably close to 180 bpa if everything went right. It never does, and that’s how we end up with trendline yields of 160 bushels or less. The average trade guess for US acreage on Tuesday is 78.3 million acres, with June 1 corn stocks expected to be just a whisker under 4.2 billion bushels.

 

Wheat prices fell another 3.78 – 4.54% for the week. When we were in an uptrend, elevator hedge selling just provided liquidity for specs to buy into. In a downtrend like the one since June 1, the funds don’t want to buy, but the elevators still have to sell. That creates the historical seasonal tendency to drop into a harvest low, and this year is developing a classic pattern. The Congressional report on wheat speculation and the index funds was perceived as long term bearish if it forces the funds to reduce positions, but that is a long way from happening.

 

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

 

Market Watch

 

 

 

 

Weekly

Weekly

 

06/05/09

06/12/09

06/19/09

06/26/09

Change

% Change

July Corn

$4.44

$4.26

$3.99

$3.84

-0.15

-3.76%

July CBOT Wheat

$6.23

$5.85

$5.55

$5.34

-0.21

-3.78%

July KCBT Wheat

$6.75

$6.37

$6.15

$5.90

-0.25

-4.11%

July MGEX Wheat

$7.44

$7.33

$6.99

$6.67

-0.32

-4.54%

July Soybeans

$12.26

$12.46

$11.79

$12.01

0.22

1.87%

July Soy Meal

$396.00

$422.70

$390.00

$405.00

15.00

3.85%

July Soy Oil

$39.73

$37.16

$36.53

$36.08

-0.45

-1.23%

June Live Cattle

$80.15

$80.47

$80.92

$82.47

1.55

1.92%

Aug Feeder Cattle

$96.62

$97.57

$98.10

$98.97

0.87

0.89%

July Lean Hogs

$60.08

$59.80

$61.43

$56.70

-4.72

-7.69%

July Cotton

$55.11

$56.10

$51.56

$52.54

0.98

1.90%

July Oats

$2.56

$2.39

$2.12

$2.09

-0.03

-1.30%

July Rice

$12.62

$12.93

$12.30

$12.13

-0.17

-1.38%

 

July cotton futures ended the week higher. While stock market action wasn’t stellar, some of the economic reports contained revisions that were a little more positive for economic activity and potential consumer demand down the road. India’s monsoon has also been late, potentially hurting their crop. The Census consumption report on Thursday showed a modest improvement in US mill use during April, but the annualized rate is still more than a million bales below last year. The most positive indicator is the export market, where commitments are running high enough to equal or exceed USDA’s projection for the year.

 

The Cattle complex was up for the week. June live cattle futures expire on the 30th, and need to remain close to the cash market. That prevented them from selling off much, and some “get me out” activity boosted the board sporadically throughout the week. Wholesale prices continue to struggle, as beef output is large enough (and demand soft enough) that packers have been unable to ask higher prices and make them stick. For the week, the choice cutout lost 0.29 cents and select cutout lost 0.53 cents.  Cash fed cattle trade was steady compared to the previous week at $82, while cash feeders this week traded steady to $3 higher.  Good demand for feeder cattle as reflected by last weeks USDA report (which indicated low feedlot populations) lent supportive tone.  Good conditions of grass pastures also were supportive to feeder futures this week.

 

Hogs were the worst performing commodity on the list this week, dropping more than 7%. Wholesale pork prices dropped and stayed down, pressuring cash hog values, where the afternoon average wholesale pork cutout value was $54.33. This was a 6-year low, since April 21, 2003. Technically, futures remained above the long term trendline support on the weekly and monthly charts, but July was dropping toward that support and toward the cash hog values indicated by the cutout. Going home on Friday, the lean pork cutout was at $55.28 per cwt.  After trading the USDA released its quarterly Hogs and Pigs report.  The All Hogs number on June 1 was 98% of year ago, right at the trade average guess. The breeding herd was 97.3% of year ago, a little lighter than the 97.6% average guess. Market hogs were at 98.1% of last year, again very close to the 98% guess. Pigs per litter offset the light Mar-May farrowings to a degree, at 102.5% of year ago.

 

Market Watch:  Grain traders will start this week dealing with any unexpected positions inherited because of July options expiration on Friday. On Monday night they’ll glance at the Crop Progress and Condition reports for insight into remaining soybean planting and for ideas on whether yield prospects are improving or backing off a little. That will be less of a factor than usual, due to the big show for the week. That would be the USDA Grain Stocks and Planted Acreage reports to be issued on Tuesday morning. Tuesday will also be first notice day for July futures deliveries. Weekly export sales will get a little attention on Thursday morning, and then everyone will start heading out for the holiday weekend. The US futures exchanges are closed on Friday for the July 4th holiday weekend.

 

There is a risk of loss in futures and options trading.  Past performance is not necessarily indicative of future results.  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 content, or visit the web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

This Week Was All About Weather

Jun 19, 2009

 

           

 

Market Watch Summary with Alan Brugler

June 19, 2009

 

This Week Was All About Weather

 

July corn futures were 26 cents lower for the week.  By this Friday’s pit trading close NYMEX July crude oil futures were $2.49 lower per barrel compared to its previous Friday close.  Likewise, the US dollar index by the close of pit trading this Friday was a few points shy from the same time last Friday.  These two outside market factors for the week contributed to July corn futures to trade on both sides, but ended lower at Friday close.  Another contributing factor to corn future’s trading this week was weather and export sales.  Forecasts this week and the next called for periods of rain and warmer temperatures for the Corn Belt which are beneficial for crop development, but pressured corn futures.  Better than expected corn export sales reported this week was attributed to a weakening US dollar and higher-priced Indian supplies due to tightening stocks.

 

July soybean futures were 67 cents lower for the week.  July soymeal were $32.70 lower, and soy oil was 63 cents lower.  Like corn, lower crude oil futures and a weakening US dollar by week’s end led the soy complex to trade on both sides, but ended the week lower.  Unlike corn, weather forecasted for the Midwest this week and next was seen as helpful/bearish for the western half for crop development, but harmful/bullish for the eastern half due to further delaying plantings.  Lower cash market price changes in high protein soybean meal feed for the week weighed on soymeal futures.  Export sales this week for soybeans reflected trade sentiment that China’s demand for US soy exports have come to an end.

 

Wheat futures in Chicago, Kansas City and Minneapolis all ended the week lower compared to last week by 30, 22, and 34 cents, respectively.  This week the underlying pressure of US wheat futures was ample world wheat supply and slow US export demand, though a weakening US dollar was seen as supportive.  Weekly export sales reported came within trade expectations.  Weather forecasted this week was seen as bearish to wheat futures.  Warmer and drier conditions with some scattered showers didn’t hinder winter wheat harvest in the southern Plains.  Warmer temperatures with periods of rains in the northern Plains were seen as beneficial to spring wheat development.

 

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

 

Market Watch

 

 

 

 

Weekly

Weekly

 

05/29/09

06/05/09

06/12/09

06/19/09

Change

% Change

July Corn

$4.36

$4.44

$4.26

$3.99

-0.26

-6.17%

July CBOT Wheat

$6.37

$6.23

$5.85

$5.55

-0.30

-5.04%

July KCBT Wheat

$6.87

$6.75

$6.37

$6.15

-0.22

-3.49%

July MGEX Wheat

$7.72

$7.44

$7.33

$6.99

-0.34

-4.57%

July Soybeans

$11.84

$12.26

$12.46

$11.79

-0.67

-5.34%

July Soy Meal

$382.50

$396.00

$422.70

$390.00

-32.70

-7.74%

July Soy Oil

$39.05

$39.73

$37.16

$36.53

-0.63

-1.70%

June Live Cattle

$81.32

$80.15

$80.47

$80.92

0.45

0.56%

Aug Feeder Cattle

$101.75

$96.62

$97.57

$98.10

0.53

0.54%

July Lean Hogs

$65.63

$60.08

$59.80

$61.43

1.63

2.72%

July Cotton

$56.97

$55.11

$56.10

$51.56

-4.54

-8.09%

July Oats

$2.51

$2.56

$2.39

$2.12

-0.27

-11.11%

July Rice

$12.35

$12.62

$12.93

$12.30

-0.63

-4.84%

 

July cotton futures ended lower for the week.  Though a weakening US dollar index was seen as supportive, lower crude oil futures and lower US stock markets for the week weighed on cotton.  Outside markets this week again led the direction of cotton.  Weekly export sales reported came within trade estimates.  This week, the Cotlook/Far Eastern A Cotton Index  for June 17 and 18 was 60.35 cents which indicated Texas cotton was the cheapest in the world.  This week temperatures forecasted to exceed 100°F in the High Plains of Texas, which is where the majority of US cotton is grown, remains a concern due to potentially damage to cotton bolling.

 

The livestock complex settled on the positive side this week.  Live cattle futures closed up 45 cents for the week, feeder cattle contracts finished up 53 cents and lean hogs ended $1.63 higher.  Lower priced high protein soymeal and corn feed for the week lent support to feeder cattle and lean hogs.  Additional support to feeders came from steady to higher cash feeder markets for the week.  June live cattle contracts trading at a discount to the previous week’s cash cattle prices provided underlying support.  Recent strength during this week in Choice boxed beef cutout values was also seen as supportive to live cattle futures.  A steadier tone in the cash hog markets this week was supportive to futures.  Sharp price swings in pork cutout values this week on top of continuing concerns over the impact on pork demand due to the H1N1 “swine” flu situation overshadowed hog futures.  After the close of livestock trading the USDA reported cattle on feed by June 1 at 10.407 thousand head which was 96.23% compared to the previous year and fell below average trade estimates.  Cattle placements in May came in at 86.21% of the previous year which also fell below average trade estimates.  Cattle marketing during May came in at 91.21% which pretty much fell inline with trade estimates ranging 90 to 92.4 percent.

 

Market Watch:  On tap for the coming week is the weekly Crop Progress report and the monthly Cold Storage report on Monday.  Also next week the FOMC will hold its 2-day meeting on Tuesday & Wednesday.  On Thursday, the Census will release its monthly Oilseeds Crushing and Cotton Consumption reports.  On Friday, the USDA will release its quarterly Hogs & Pigs report.  Economic reports such as Jobless Claims, Personal Income, and GDP will be released throughout the week.

 

There is a risk of loss in futures and options trading.  Past performance is not necessarily indicative of future results.  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 content, or visit the web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

The US Dollar Index Asserted Its Influence in Commodities…Again

Jun 12, 2009

           

 

Market Watch Summary with Alan Brugler

June 12, 2009

 

The US Dollar Index Asserted Its Influence in Commodities…Again

 

Corn was down 19 cents for the week.  Corn futures continued to show their energy and dollar dependence this week.  On Thursday, crude oil futures settled at $72.68 a barrel, the highest since October 20, after a 3-day rally.  That 3-day rally was supportive to corn, but the US dollar index this week determined whether corn was to settle in negative or positive territory.  Though the US dollar index is still moderately lower than its last Friday value, its recovery since pressured corn.  Concerns over yield prospects of corn, especially from weather-related planting delays in the eastern Corn Belt, provided additional underlying support to futures this week.  As noted in this past Wednesday’s USDA Supply and Demand report, continuous planting delays through late May attributed to the USDA to cut 2009/10 corn yield per harvested acres projection by 2 bushels.  This translates to a 155 million bushels reduction in 2009/10 corn production.

 

Soybeans were up 20 cents for the week.  Soybean meal was the main story, as July meal surged to life of contract highs on Thursday, hitting $433.40.  The meal rally was particularly unwelcome news to unhedged livestock producers, who were already facing negative closeouts from the drop in cattle and hog prices, and getting squeezed by higher corn.  Tight supplies of 48% protein meal that meet delivery specifications appear to be part of the picture.  The slow down in US crushing activity this year may also play a role, creating some spot shortages.  However, the big rally on Thursday was pure short-covering.  Open interest in the July meal contract dropped 4,280 contracts as previous sellers threw in the towel and bought their way out of positions that had been steadily losing them money.  Soy oil was unable to follow heating oil higher on biodiesel terms, mainly because meal/oil spreaders were selling bean oil against long meal positions.  A pull back in palm oil and soy oil prices in China also put a more bearish spin on the market, as did a collapse in basis premiums for soybeans at Brazilian ports.

 

Wheat futures in Chicago, Kansas City and Minneapolis all ended the week lower compared to last week.  Though this week’s USDA export sales report showed a better than expected net sales of 2009/10 (new crop) at 353,910 metric tons, a cancellation of 2008/09 (old crop) wheat export sales at 27,387 metric tons was reported to end the 2008/09 marketing year.  Declining US wheat export demand and sentiment over abundant world wheat supply gave underlying pressure to futures this week.  In this week’s USDA Supply and Demand report, the June projection of 2009/10 world wheat supply at 824.46 million MT was reduced by 22,000 metric tons from the May projection at 824.68 million.  This updated figure is still a 2.78% increase from the 2008/09 world wheat supply of 802.15 million MT.  The USDA did lower 2009/10 US wheat production by 10 million bushels due to a forecasted reduction in winter wheat production.  On top of these two conditions, the US dollar index this week provided addition pressure to wheat futures.

 

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

 

Market Watch

 

 

 

 

Weekly

Weekly

 

05/22/09

05/29/09

06/05/09

06/12/09

Change

% Change

July Corn

$4.30

$4.36

$4.44

$4.26

0.19

-4.17%

July CBOT Wheat

$6.13

$6.37

$6.23

$5.85

0.38

-6.14%

July KCBT Wheat

$6.61

$6.87

$6.75

$6.37

0.38

-5.63%

July MGEX Wheat

$7.45

$7.72

$7.44

$7.33

0.11

-1.48%

July Soybeans

$11.66

$11.84

$12.26

$12.46

0.20

1.63%

July Soy Meal

$375.00

$382.50

$396.00

$422.70

26.70

6.74%

July Soy Oil

$38.10

$39.05

$39.73

$37.16

2.57

-6.47%

June Live Cattle

$82.53

$81.32

$80.15

$80.47

0.32

0.40%

Aug Feeder Cattle

$101.93

$101.75

$96.62

$97.57

0.95

0.98%

June Lean Hogs

$65.98

$63.92

$57.17

$57.02

0.15

-0.26%

July Cotton

$57.11

$56.97

$55.11

$56.10

0.99

1.80%

July Oats

$2.50

$2.51

$2.56

$2.39

0.18

-6.84%

July Rice

$12.06

$12.35

$12.62

$12.93

0.31

2.46%

 

Cotton in the Friday session hit a 1-week high at $56.82, but followed the broad-based weakness in commodities due to strength in the US dollar index.  For the week cotton contracts were 99 cents higher than a week ago.  This was partly attributed to higher crude oil futures for the week, compared to last week.  Lately, cotton has been taking its cues from not only from commodities against the US dollar, but from crude oil and the US stock markets as well.  The Dow Jones Industrial Average, NASDAQ Composite, and the S&P 500 indices have a positive weekly percentage gain which lent support to cotton.

 

Cattle complex settled on the positive side this week.  Live cattle futures ended up 32 cents for the week, and feeder cattle contracts finished up 95 cents.  Support this week to live cattle came mainly from front month futures contracts trading at a discount to last week’s cash cattle prices, and cattle observed the US stock markets for direction as well.  Lower boxed beef cutout values for the week and expected lower cash cattle prices this week limited any gains.  Feeders received support this week from front month futures contracts trading at a discount to the CME Feeder Cattle Index, and lower corn futures.  Talk of improved grass pastures which will increase demand also lent support, though this week cash feeders saw lower prices compared to the previous week.

 

Friday, June 12, 2009 marked the expiration day for June lean hog futures.  Continuing impact in world pork demand due to the H1N1 “swine” flu situation still overhang on hogs.  Talk of herd liquidation which will increase pork supply also weighed this week on futures.  Pork cutout values for the week were mainly lower due to decrease demand.  Additionally, for a time lean hog futures traded at a bearish premium to the CME Lean Hog Index which weighed on futures prior to June’s contract expiration.

 

Market Watch:  We’re past June hog expiration, and past the USDA supply/demand reports. That shifts focus back to wrapping up planting progress, and the condition ratings of the crops that we have planted. Corn and spring wheat condition ratings have been surprisingly good given the challenging weather this spring. NOPA is scheduled to issue their May crush report on Monday morning. On Monday night we’ll see the weekly USDA Crop Progress report at 3:00 pm CDT.  USDA will issue weekly Export Sales numbers on Thursday morning, with traders looking to see if there are additional Chinese cancellations. On Friday, USDA will issue the monthly Cattle on Feed report after the close of futures trading for the week.

 

There is a risk of loss in futures and options trading.  Past performance is not necessarily indicative of future results.  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 content, or visit the web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

Red Ink in Red Meats

Jun 08, 2009




Market Watch Summary with Alan Brugler

June 5, 2009

 Red Ink in Red Meats

The grain markets chopped around this past week in some violent swings as they tried to determine if they had “bought” enough acres and rationed enough old crop demand. The livestock markets were operating under no such uncertainty. They were flat out lower, with nearby June Lean Hogs losing 10.56% of their value in a single week. Cattle were also down by 1.44%. Both meats suffered from slumping wholesale prices that in turn influenced cash hog and cattle bids. The weakness in the wholesale sector is tied to much weaker exports and some recession related losses in domestic consumption. The number of cattle ready for slaughter is also inconveniently rising into July, and higher pork carcass weights are cancelling out smaller slaughter numbers by adding to total tonnage. 

June hogs had an additional problem, since they are cash settled against an index and expire this coming Friday. At the beginning of the week they were at a premium to the CME Lean Hog Index, but the index was going down instead of rising to meet the futures. That triggered a limit down day on June 2. By the end of the week, futures were actually below cash and anticipating further weakness in the Index prior to expiration. June cattle options expiration forced some selling during the week, but June futures trade until the end of the month and they are physically settled via deliveries so it is a different dynamic.

Feeder cattle futures were pinched between the lower cattle prices and higher corn prices, resulting in a loss of $5.13 for the week per hundred pounds. That sell off was aggravated by lower cash feeder auction results and by violation of chart support points that encouraged speculative longs to exit.

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

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Weekly

Weekly

 

05/15/09

05/22/09

05/29/09

06/05/09

Change

% Change

July Corn

$4.17

$4.30

$4.36

$4.44

0.08

1.78%

July CBOT Wheat

$5.78

$6.13

$6.37

$6.23

0.14

-2.24%

July KCBT Wheat

$6.31

$6.61

$6.87

$6.75

0.12

-1.75%

July MGEX Wheat

$7.05

$7.45

$7.72

$7.44

0.29

-3.69%

July Soybeans

$11.31

$11.66

$11.84

$12.26

0.42

3.51%

July Soy Meal

$358.20

$375.00

$382.50

$396.00

13.50

3.53%

July Soy Oil

$37.90

$38.10

$39.05

$39.73

0.68

1.74%

June Live Cattle

$82.37

$82.53

$81.32

$80.15

1.17

-1.44%

Aug Feeder Cattle

$101.65

$101.93

$101.75

$96.62

5.13

-5.04%

June Lean Hogs

$66.52

$65.98

$63.92

$57.17

6.75

-10.56%

July Cotton

$56.30

$57.11

$56.97

$55.11

1.86

-3.26%

July Oats

$2.28

$2.50

$2.51

$2.56

0.05

1.99%

July Rice

$11.94

$12.06

$12.35

$12.62

0.27

2.19%

 

 

Corn futures were up 1.8% for the week despite smaller than expected export sales for the prior week.  Ethanol was the bright spot, gaining 2 ¼ cents per gallon in the July futures for the week. While some plants are still mortally wounded and filing for bankruptcy, operating margins have improved with the summer rally in motor fuel prices. Feed use, on the other hand, is threatened by the negative closeouts for un-hedged cattle, hog, dairy and poultry producers.

 

The soybean complex was the bullish leader. Friday’s Commitment of Traders report confirmed substantial spec fund and index fund buying in the reporting week ending June 2. Some of those longs were washed out on Wednesday, but they or others bought back in on Thursday. Meal futures supported the rally by gaining 3.5% on the week despite competition from DDGs and horrendous losses being experienced by un-hedged cattle and hog producers. Soy oil wasn’t up as much, but the run at $70 by crude oil boosted heating oil/diesel prices and made biodiesel made from soybean oil more feasible. The Census Fats & Oils report also showed surprisingly strong soy oil use for biodiesel in March.

 

Wheat futures were lower at all three exchanges. Chicago futures gapped higher on Monday morning, and closed that exhaustion gap on Wednesday with a 50 cent per bushel spasm of profit taking type selling. A dead cat bounce on Thursday only recovered about 40% of the damage, and index funds selling on Friday took values lower. Fundamentally, there was fretting about head scab outbreaks due to the wet weather, and of course poor yield reports out of TX and OK. Spring wheat crop condition ratings issued on Monday by USDA were better than many expected and contributed to the selling pressure in the MPLS market.

 

Cotton futures fell 3.3% for the week. The rally in the US dollar appeared to be the main reason for selling, threatening export sales to some degree. Crop weather also improved a notch and the southern US has more normal predicted temps and precipitation next week, as opposed to the cooler and wetter calls in the northern half of the country. Weekly export sales were slightly above the range of very pessimistic trade estimates ahead of the report.

 

Market Watch:  The cattle market will begin the week by adjusting to new futures positions acquired or lost in Friday night’s June options expiration. Grain traders will start out the week with the usual Monday USDA Export Inspections and Crop Progress reports. Analysts will be keenly interested in how corn and spring wheat are wrapping up, and how many of the 26 million acres of corn that were yet to be planted as of last week’s report are now in the ground. The major USDA reports for the week will be issued on Wednesday morning. USDA will release the US Crop Production and WASDE reports. Traders in general are looking for smaller Argentine production figures and tighter world ending stocks for soybeans for the 2008/09 year. USDA is typically reluctant to change acreage or feed use estimates in this report, since they get better data on June 30 (Planted Acreage and Quarterly Grain Stocks reports). June hog futures and options are due to expire on Friday, June 12.


 

There is a risk of loss in futures and options trading.  Past performance is not necessarily indicative of future results.  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 consulting content, or visit our web site @ www.bruglermktg.com.

 

© 2009 Brugler Marketing & Management, LLC

An Even Weaker Dollar and the Biofuels Get a Boost Too

Jun 04, 2009




Market Watch with Alan Brugler

May 29, 2009

 

An Even Weaker Dollar, and the Biofuels Get a Boost Too

The U.S. dollar index continued its monthlong slide this past week, dropping to the lowest readings since December. Despite losing its AAA rating for government credit, the British pound rose to the highest level since November. The BP has a nice double bottom on the charts, too. The CRB Index also rose to the highest reading since November, with commodities priced in dollars tending to be a mirror image of the dollar. That is, it takes more devalued dollars to buy the same store of commodity value.

As we pointed out last week, the soybean market’s job is to slow down use and make stocks last until new crop beans are available. That can be done by dissuading further export purchases, delaying existing contracts into the new crop time slot, encouraging soy processors to take more down time due to poor margins, or by shrinking residual use. Another factor might be importers realizing that they have bought more beans than they can sell the products from. China sold surplus soybean meal to Thailand, and almost all of the old crop beans shown in Friday’s Export Sales report that were destined for China had been booked earlier under the “unknown destinations” category. Chinese markets were closed for the Dragon Boat holiday on Thursday and Friday, so it will be interesting to see if they think they need more soybeans when they get back to work or want to live off of current commitments. The weaker U.S. dollar doesn’t affect Chinese buying directly, since the yuan is closely pegged to the dollar. From a central bank perspective, the Chinese might be interested in spending some of the U.S. dollar reserves they are holding in low interest bearing securities and a weak dollar environment. Or they may want to talk to Geithner about taking steps to firm up the buck.


Corn futures were up 6 cents for the week. That was a modest advance, compared to wheat. Weekly Export Sales were over 1 MMT and stronger than expected. Crop planting progress continued to lag at 82% complete, but should be getting into the high 80s or low 90s by Sunday night. Attention will tend to shift toward crop condition ratings and speculation about what USDA’s June 1 Planted Acreage survey will find. That data won’t be released until month end. Biofuels got a lift from crude oil, which rallied to the highest prices since, you guessed it, mid-November. Rising gasoline prices boosted ethanol prices and plant margins. Higher DDG prices also helped out the plants, some of which now see gross margins in the 40-cent range.  


Wheat futures were the biggest gainers for the week, with CHI and KC July contracts both up more than 4%. New crop September MPLS wheat got as high as $7.93 on Thursday before pulling back a bit. Drier weather allowed producers to finally make some headway on spring wheat planting, although the consensus is that some of the unplanted acreage will have to be switched to soybeans given the yield drag after May 15 in the wheat and the historically high prices being offered for the soybeans. Wheat harvest is expanding for KC HRW in TX and OK, with the expected poor yield and quality reports. The much larger Kansas crop is still mostly two to three weeks away from harvest. CHI futures didn’t seem to have the fundamental oomph other than some fusarium and vomitoxin talk tied to the wet weather. That’s where the liquidity is, however, and the inflation buyers see a rising tide floating all of the boats.


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

 

Market Watch

 

 

 

 

 

 

 

 

 

 

 

Weekly

Weekly

 

05/08/09

05/15/09

05/22/09

05/29/09

Change

% Change

July Corn

$4.21

$4.17

$4.30

$4.36

0.06

1.39%

July CBOT Wheat

$5.91

$5.78

$6.13

$6.37

0.25

4.04%

July KCBT Wheat

$6.33

$6.31

$6.61

$6.87

0.27

4.01%

July MGEX Wheat

$7.00

$7.05

$7.45

$7.72

0.27

3.62%

July Soybeans

$11.12

$11.31

$11.66

$11.84

0.18

1.54%

July Soy Meal

$341.50

$358.20

$375.00

$382.50

7.50

2.00%

July Soy Oil

$39.61

$37.90

$38.10

$39.05

0.95

2.49%

June Live Cattle

$82.97

$82.37

$82.53

$81.32

1.21

-1.46%

Aug Feeder Cattle

$100.70

$101.65

$101.93

$101.75

0.17

-0.17%

June Lean Hogs

$61.12

$66.52

$65.98

$63.92

2.05

-3.11%

July Cotton

$59.85

$56.30

$57.11

$56.97

0.14

-0.25%

July Oats

$2.26

$2.28

$2.50

$2.51

0.01

0.60%

July Rice

$12.65

$11.94

$12.06

$12.35

0.29

2.41%

 

Cotton futures were down all week, but a near limit up move on Friday kept their net loss for the week to a quarter of a percent. Most of the buying interest on Friday appeared to be speculative, both profit taking on prior shorts and possible new money. The move to new lows for the month in the U.S. dollar fueled buying in a number of commodities, including cotton. Planting delays continue, but rain in Texas this week will allow some of the dry areas to get seed in the ground and expect it to come up.


Cattle futures had a tough week, dropping to the lowest weekly close of the month and losing 1.46% for the week. Boxed beef prices are struggling despite good weekly export sales totals. Fine dining establishments continue to report fewer patrons and lower average tickets, which illustrates losses in choice and prime beef sales. Cash cattle were down $1 or more from the prior week on the sagging product prices, which got no help from the pork sector on Friday.


Hogs posted the largest losses in the ag commodities we track this week. June was down 3.1%, or more than $2 per hundred for the carcass. End of month position squaring drove June futures into new life of contract lows. Prices need to converge with cash (as measured by the CME Lean Hog Index) by June 12. The futures are at a premium to cash, and product pricing didn’t offer a lot of hope for cash to rise to the $64 mark being traded on the Board.


Market Watch
:  The calendar is turning to June, with USDA’s Crop Progress and Condition reports on Monday night still of interest. Traders will also be looking for evidence of fresh investment fund money coming into the market for the new month. On Thursday, we’ll see USDA weekly Export Sales and any indications of further declines in soybean bookings. Friday will mark the expiration of the June Live Cattle options.


There is a risk of loss in futures and options trading.  Past performance is not necessarily indicative of future results.  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 content, or visit the web site @ www.bruglermktg.com.


 
© 2009 Brugler Marketing & Management, LLC

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