Jul 30, 2014
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October 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.

Spooktacular

Oct 31, 2008
Things certainly aren’t back to normal. USDA had an early Halloween bag of tricks and treats, announcing a surprise crop report on Monday to be released on Tuesday morning. One trick was the limited advance notice, which spooked the bears and fueled a big short covering rally. The treat was the downward revisions in harvested acres for corn and soybeans, with reduced 2008 production estimates. Other tricks were the cuts in projected exports and feed use, which meant fairly modest ending stocks revisions. As a treat, USDA raised projected national average cash prices for the year in both corn and soybeans. Other markets were also scary, with the Dow Jones posting the weakest October since 1998. The Dow was up for the last week of the month, however.
 
Below is a table showing the net weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
10-Oct
17-Oct
24-Oct
31-Oct
Change
% Change
Dec Corn
$4.08
$4.03
$3.72
$4.02
0.29
7.93%
Dec CHI Wht
$5.63
$5.66
$5.16
$5.36
0.20
3.92%
Dec KC Wht
$6.05
$5.98
$5.47
$5.73
0.26
4.75%
Dec MGE Wht
$6.39
$6.40
$6.01
$6.48
0.47
7.74%
Nov Soybeans
$9.10
$8.94
$8.63
$9.25
0.62
7.21%
Dec Soy Meal
$256.00
$258.20
$268.30
$273.00
4.70
1.75%
Dec Soy Oil
$37.29
$35.50
$31.47
$33.60
2.13
6.77%
Oct Lv Cattle
$89.13
$91.05
$87.85
$93.75
5.90
6.72%
Nov Fdr Cattle
$95.05
$98.65
$93.83
$98.62
4.80
5.11%
Dec Ln Hogs
$59.88
$56.30
$58.50
$54.80
3.70
-6.32%
Dec Cotton
$49.44
$52.57
$46.49
$44.58
1.91
-4.11%
Dec Oats
$2.78
$2.82
$2.50
$2.32
0.19
-7.40%
Nov Rice
$16.38
$15.23
$14.41
$15.45
1.04
7.22%
 
Corn prices are trying to put in a traditional October harvest low. Cash prices bottomed early in the month as per usual. Futures waited until later in the month, but gained 7.93% for the last week as bears took profits off the table after seeing USDA’s cut in projected ending stocks. Weekly export sales are still very sluggish, as is demand from the livestock sector. Poultry production in particular is being scaled back. Ethanol demand estimates are holding up, but reports of bankruptcy filings and broken loan covenants are a repeating part of the landscape.
 
Wheat futures were higher at all three exchanges, aided by a slow down in the liquidation selling by the hedge and index funds. Some of the economic fixes appear to be working, with LIBOR and other indicators of financial liquidity improving all week. Lagging indicators like unemployment of course will be getting worse for a while as the data comes in slowly. U.S. wheat export sales are running well below year ago. IGC hiked their estimate of world wheat production to 783 million bushels, matching USDA’s October increase and raising it. USDA’s first crop condition ratings of the year for the 2009 winter wheat crop were 65% good/excellent, about 10% better than in 2007.
 
Soybean futures were up a stout 7.2%, aided by increased prices for both soy oil and soy meal that allowed crushers to pay up for the beans. Big weekly export sales for the prior week were not the largest on record, but they were the largest to China in a single week during the month of October. That hinted that the combination of lower prices and cheaper ocean freight was beginning to be attractive to international buyers. On the bear side, China’s ramped up purchases may have been an attempt to get in under the wire as the government raises import tariffs to boost domestic prices.
 
Cotton Futures sank to the lowest level since August 2004 on the continuation charts. The loss for the week was another 4.1%. Weekly export sales were less than 20% of the trade expectations, and textile sales appear to be taking a hit courtesy of the developing recession. The government is now the buyer, with LDP’s of more than 11 cents per pound signaling producers to either put the cotton under loan or take the LDP and settle for net prices in the 55-58 cent range. Efforts to expand domestic mill use are underway, including a Step 2 type program that would presumably be WTO legal.
 
Cattle expired with a flourish. October went off the board on Friday with a 25 cent gain for the day, and a $5.90 pick up for the week. Wholesale demand continues to be suspect, but finished cattle numbers are tight into mid-November and the packers had to pay up to get enough cattle to run their lines at the most economical levels. South Korea continues to be a steady buyer of US beef since their border opening a few months back. Japan rejected some boxes from Swift that didn’t have the appropriate documentation, but otherwise continued to buy.
 
Hogs lost a big 6.3% for the week. Pork cutout prices sank despite a smallish weekly slaughter the week before. Market ready numbers might have been influenced a little by harvest activity, but projected slaughter for this week was back above year ago and week ago levels. Packers were also planning a decent sized Saturday run in the 200,000 head range. Technically, the main support for hogs is just a bit above $50 on the weekly chart.
 
Market Watch: With Halloween and that scary end of month book squaring and window dressing out of the way, the market is on to other things. The federal and state elections on Tuesday (including the vote for President of the United States if you haven’t heard about that by now) will be first and foremost. Any correlations between a certain party winning and ag market price action are tenuous at best. November soybeans and rice contracts are in contract delivery. Beans could be interesting, with only a 7 ¾ cent carry to January. This will be a pretty light week for reports from USDA, with the main ones being the Export Inspections and Crop Progress reports on Monday, along with weekly Export Sales on Thursday morning. October cattle have expired, with December now taking the lead spot. December cotton options expire on Friday.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
 
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.
 

Lubricated Slide

Oct 24, 2008
You can’t escape the media coverage of the economy or the energy markets, which are inter-related in several ways and directly influence ag commodity prices. Nearby Crude oil was down $7.02 per barrel, off 9.7% for the WEEK. Heating oil and diesel were also down sharply. Biodiesel production from palm oil is up as palm oil prices have dropped enough to become competitive. One major Malaysian biodiesel firm reported that it is running at 95% of capacity. The combination of the above drove soy oil futures down 11.35% for the week. The loss of 4.03 cents/pound meant a drop of 46 cents per bushel in oil value of a bushel of soybeans. That was offset a little by a $10.10/ton gain in meal prices. Meal was surprisingly higher in the face of cheaper corn and feed wheat. One reason was the smaller than expected Census stocks number on Thursday, but unwinding of oil/meal spreads probably paid a bigger role.
 
Below is a table showing the net weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
3-Oct
10-Oct
17-Oct
24-Oct
Change
% Change
Dec Corn
$4.54
$4.08
$4.03
$3.72
0.31
-7.69%
Dec CHI Wht
$6.40
$5.63
$5.66
$5.16
0.50
-8.87%
Dec KC Wht
$6.70
$6.05
$5.98
$5.47
0.51
-8.45%
Dec MGE Wht
$7.03
$6.39
$6.40
$6.01
0.39
-6.13%
Nov Soybeans
$9.92
$9.10
$8.94
$8.63
0.31
-3.47%
Dec Soy Meal
$269.80
$256.00
$258.20
$268.30
10.10
3.91%
Dec Soy Oil
$42.50
$37.29
$35.50
$31.47
4.03
-11.35%
Oct Lv Cattle
$95.60
$89.13
$91.05
$87.85
3.20
-3.51%
Oct Fdr Cattle
$100.68
$95.45
$98.40
$96.15
2.25
-2.29%
Dec Ln Hogs
$60.88
$59.88
$56.30
$58.50
2.20
3.91%
Dec Cotton
$57.41
$49.44
$52.57
$46.49
6.08
-11.57%
Dec Oats
$3.14
$2.78
$2.82
$2.50
0.32
-11.35%
Nov Rice
$18.35
$16.38
$15.23
$14.41
0.82
-5.35%
 
Corn futures accelerated again to the downside after only losing 5 cents the week before. Demand destruction is a piece of the equation, with plunging ocean freight prices revealing the combined impact of tight credit and increased availability of world feed grains. Corn export commitments YTD are down 40% from year ago at this time. Then you have to throw in the selling from the index and hedge funds. Index funds liquidated 8,398 longs and added 3,482 shorts in the CFTC reporting week ending October 21.
 
Wheat futures in CHI and KC were down more sharply than corn in percentage and dollar terms. MPLS was a little bit firmer, but still fell 6.1%. French wheat was well below the US price in an Egyptian tender, despite cheap ocean freight. Record world production in 2008 is also taking a big bite out of export business. Unshipped wheat sales (the export “book”) are down 55% from year ago.
 
 Cotton Futures posted the worst % loss for the week, down 11.57%. People will always eat, but they can defer clothing purchases and in uncertain times they will. While we’re technically not in a recession yet, and unemployment is still low compared to places like the EU, the average American consumer is paying down debt and you do that by buying less. Textiles are one area that can be cut back, reflected in both the lower domestic mill use figure from Census released on Thursday and in reduced ginned cotton exports. China and Vietnam et al don’t buy as much of our cotton when they don’t have buyers here for the finished goods.
 
Cattle had a tough week, losing 3.5% of their value. Wholesale prices are dropping as retailers are uncertain about consumer demand. Export sales were better this past week, but drop off seasonally in the 4th quarter. The two year highs in the value of the dollar work against meat export sales from the US. Losses were limited by comparatively small slaughter cattle numbers vs. year ago. In other words, supply has tightened but demand apparently has tightened more. Paper demand (index funds) is also shrinking with every downswing and margin call from the Dow or the S&P.
 
Hogs were the bullish exception to the rule, gaining nearly 4% for the week. Pork cutout values were down 42 cents on Friday to $65.97, but still supporting cash hog prices at levels above the current location of December futures. Oversold futures bounced, with large spec funds shifting back to a net long position over the past 10 days. Index funds are still the largest longs in the market. According to Friday’s CFTC report, the index funds still held 84,585 longs in hogs as of October 21.
 
Market Watch: As if we didn’t have enough volatility already, now we’re coming into the end of the month, where the winners take profits and the losers hide their positions from their shareholders and investors at the funds. Friday will be first notice day for deliveries against November soy beans and rough rice, and the last trading day for October cattle and Fed Funds futures. There is also an FOMC (Fed) meeting scheduled for Tuesday, and the interest rate markets are pricing in another interest rate cut. In terms of USDA reports, this is a pretty bland week. We just have the routine Export Inspections, Crop Progress and Export Sales reports.
 
Thoughts for the week:
 
“A national political campaign is better than the best circus ever heard of, with a mass baptism and a couple of hangings thrown in”
 
“A politician is an animal which can sit on a fence and yet keep both ears to the ground.”
 
H.L. Mencken
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.
 
Tech Talk: November Soybeans
 
 
November soybeans saw liquidation during the Goldman Roll, and it just kept on coming as stale longs are motivated to get out before deliveries. The contract found some buying interest on Thursday at the 78.6% retracement of the rally from October 2006 to the 2008 high. That support is at $8.39 ¼. If it fails, the lower Bollinger Band would be our next potential support at $7.85. Because the trend following systems (BCI, MACD, moving averages, parabolics) are all bearish, all supports have to be seen as potential rather than “for sure”. Stochastics are showing a mild bullish divergence but are still in oversold territory and thus not trustworthy. See late July and early September for the reason we say that.
 
Overhead resistance is the 18-day moving average at $9.94. We would note that trading above $9.11 on Monday would trigger a parabolic buy signal. A close above it would be even better. If the equity and financial markets are acting friendlier at the same time, we’ll be motivated to tighten up stops on short futures, sell OTM puts, roll down profitable long puts and otherwise take a more conservative but still hedged position. The equity market action is still important because it dictates the amount of selling pressure coming from the long only and hedge funds.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.                    
 

Rays of Hope

Oct 17, 2008
Is that a ray of sunlight or the headlight of an oncoming train? Unlike last week, we had 7 of the tracked commodities gaining on the week, vs. 6 that declined. And, the declines were smaller. Corn continued to slide, and broke the $4 barrier for a while before rallying back into the weekend. Export sales were a little stronger than expected on Friday morning, but a better stock market technical picture was still the main theme. It offered hope of a slowdown in the relentless liquidation of index fund long positions by presumably reducing the number of margin calls.
 
Below is a table showing the net weekly change of selected agricultural futures products:
 
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26-Sep
3-Oct
10-Oct
17-Oct
Change
% Change
Dec Corn
$5.44
$4.54
$4.08
$4.03
0.05
-1.27%
Dec CHI Wht
$7.16
$6.40
$5.63
$5.66
0.03
0.51%
Dec KC Wht
$7.46
$6.70
$6.05
$5.98
0.08
-1.24%
Dec MGE Wht
$7.90
$7.03
$6.39
$6.40
0.01
0.16%
Nov Soybeans
$11.67
$9.92
$9.10
$8.94
0.16
-1.76%
Dec Soy Meal
$320.70
$269.80
$256.00
$258.20
2.20
0.86%
Dec Soy Oil
$47.93
$42.50
$37.29
$35.50
1.79
-4.80%
Oct Lv Cattle
$100.95
$95.60
$89.13
$91.05
1.93
2.16%
Oct Fdr Cattle
$105.80
$100.68
$95.45
$98.40
2.95
3.09%
Dec Ln Hogs
$66.05
$60.88
$59.88
$56.30
3.58
-5.97%
Dec Cotton
$60.38
$57.41
$49.44
$52.57
3.13
6.33%
Dec Oats
$3.31
$3.14
$2.78
$2.82
0.04
1.29%
Nov Rice
$21.10
$18.35
$16.38
$15.23
1.15
-7.02%
 
Cattle futures were up 2.16% for the week despite slow export sales and all of the negative news about consumer sentiment. The gain was somewhat artificial; thanks to a limit down plunge the previous Friday and some short covering ahead of this past Friday’s Cattle on Feed report. Wholesale prices were lower, and cash cattle traded about $2 lower at $90 in the south. The COF report showed a market that is current, with slaughter at 106.2% of year ago and above our projected ready cattle number for September. That doesn’t mean you can get the consumers to pay up for the product, however.
 
Hogs were down a sharp 6% for the week. The lean hog index was under pressure all week, and December futures chose to expect further weakness rather than rallying to close the gap when October futures went off the board. There was some justification for that attitude, with the lean pork cutout retreating and cash hog prices along with it. On the weekly continuation chart, there is little support until we reach the $50-51 level.
 
Soybeans were down another 16 cents per bushel for the week despite a higher trade in the meal. Crude oil’s drop below $70 and larger than expected EIA motor fuel inventories didn’t help soy oil prices any. BO was down another 4.8%. Palm oil continued to slide as we approach winter and northern biodiesel users cut back on use. China is active in the market, but some Chinese plants were devastated by the high world prices last summer and are still apparently out of the mark.
 
Wheat futures were mixed, with CHI and MPLS higher on the week but KC lower. Export sales commitments for 2008/09 are running 30% below year ago for this date, while USDA is projecting only a 20% decline for the year. Record world production is a big reason for this, with a number of last year’s importers working off of local supply at the present time.
 
Cotton futures were limit up on Friday, and take the price for largest gain of the week due to that one day effort. USDA showed surprisingly large weekly export sales of 398,200 RB. The trade had been looking for only about 250,000 running bales. Higher energy futures offered less competition synthetic fiber, and USDA announced a weekly LDP of more than 7 cents per pound.
 
Market Watch: Cattle traders will begin the week by reacting to Friday afternoon’s Cattle on Feed report. We’re back to a full week of trading with all of the government offices open. USDA will give us Export Inspections and Crop Progress reports on Monday. November crude oil futures are scheduled to quit trading on Tuesday. The main meat report for the week will be USDA Cold Storage, on Wednesday afternoon. Census will release the monthly Oilseed Crush report on Thursday morning, along with Cotton Consumption. USDA will be back to the Thursday morning schedule for Weekly Export Sales. On Friday, a whole bunch of November options expire, including soybeans, interest rates and the serial (settled against December) November options for corn, wheat, meal and bean oil.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.                    
 
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.

Crunch Time

Oct 10, 2008
The good news is that this week’s losses in corn and soybeans were smaller than last week’s. The bad news is that nearby corn still lost another 10% of its value and Nov beans were down another 9%. While USDA gave us some bearish numbers for soybeans on Friday, the cash crunch continued to be the main influence on prices. Our current level of prices is still very dependent on the index funds who bought and held several billion bushels of these commodities over the last two years. Those account owners diversified out of stocks and bonds, and are now facing big losses in all of the asset classes. That’s fueling liquidation of positions, and there appear to be few buyers who are yet in need of inventory. Corn futures ended the day trading synthetically about 12 cents below limit down.
 
As mentioned above, USDA found 2.2 million more acres of soybeans when they added FSA administrative data to their survey information. They lowered the projected US average yield due to lower pod weights, but total production still increased. Projected crush use was reduced, so the combination resulted in a rise in projected ending stocks to a comfortable 220 million bushels from the tight 135 million a month ago.
 
Below is a table showing the net weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19-Sep
26-Sep
3-Oct
11-Oct
Change
% Change
Dec Corn
$5.42
$5.44
$4.54
$4.08
0.46
-10.09%
Dec CHI Wht
$7.18
$7.16
$6.40
$5.63
0.77
-12.00%
Dec KC Wht
$7.57
$7.46
$6.70
$6.05
0.65
-9.76%
Dec MGE Wht
$7.85
$7.90
$7.03
$6.39
0.64
-9.04%
Nov Soybeans
$11.44
$11.67
$9.92
$9.10
0.82
-8.27%
Oct Soy Meal
$312.50
$315.00
$264.90
$251.20
13.70
-5.17%
Oct Soy Oil
$46.92
$47.32
$42.00
$36.50
5.50
-13.10%
Oct Lv Cattle
$101.55
$100.95
$95.60
$89.13
6.47
-6.77%
Oct Fdr Cattle
$105.85
$105.80
$100.68
$95.45
5.22
-5.19%
Oct Ln Hogs
$68.20
$69.62
$66.43
$66.00
0.42
-0.64%
Oct Cotton
$60.01
$58.20
$55.61
$49.44
6.17
-11.10%
Dec Oats
$3.32
$3.31
$3.14
$2.78
0.36
-11.34%
Nov Rice
$19.21
$21.10
$18.35
$16.38
1.97
-10.74%
 
Wheat futures were down at all three exchanges, with CHI the weakest. The USDA wheat production estimate of 2.5 billion bushels was not a surprise, as it had been issued on September 30 in the Small Grains report. The ending stocks estimate of 601 million bushels was larger than the trade had expected, as the September 1 stocks number had suggested to some a larger use rate than USDA indicated on Friday morning. USDA also hiked projected world ending stocks.
 
Cotton futures were sharply lower, down 11% for the week. USDA boosted the projected ending stocks to 6.2 million bales after cutting exports to reflect the weaker world demand situation. As expected, production in hurricane affected areas was reduced. World ending stocks rose on increased production and decreased projected consumption due to the global slow down in consumer goods. Slumping crude oil prices helped cut freight costs, but also cheapened competing synthetic fibers. Cotton futures posted their 6th consecutive lower weekly close.
 
Cattle futures lost 6.77% for the week, as everything went wrong for the bulls. Wholesale prices sank under the weight of weak consumer demand and cash cattle were sharply lower due to tighter packer margins and feedlots that wanted the cash in hand that was tied up in the cattle. Index fund liquidation also hits cattle and hogs harder than some other commodities because it represents (or represented) a higher % of the long open interest.
 
Hogs were the least worst of the commodities we track, down 0.6% for the week. October futures were at a substantial discount to the CME Lean Hog Index. They are settled against that index after they expire on Tuesday, so they were marking time while the cash hogs drifted lower. Fund selling was also a factor.
 
Market Watch: After the craziness of the past week, the markets face a traditionally pivotal time for the grains. Back in the LDP days, the Columbus Day weekend was on several occasions a prime opportunity to lock in the lowest spot price and maximize payments. Futures will be trading on Monday, but some banks and government agencies will be closed. Monday is also Thanksgiving in Canada. Tuesday brings not only a full moon, but the monthly NOPA crush report, and USDA’s weekly crop condition and export inspections reports. It will be the last day of trading for October hogs, soybean meal and soybean oil. Friday will bring the USDA Cattle on Feed report and Milk Production, as well as the delayed weekly Export Sales report.
 
 
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.                         
 
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.

Demise of the Index Fund Rally

Oct 03, 2008
If you had any doubts about what was really driving futures trading last week, just look at the table. Everything was down, not just two or three commodities with bearish fundamental developments. This broad based decline is symptomatic of macro or outside market factors. One would be the US dollar, which was sharply higher for the week. Commodities priced in dollars go down in price if the value of the dollar goes up, all else being equal. The second factor is related. Index funds with their buy and hold mentality were a big piece of the 2006-2008 commodities rally. One of their reasons for buying was a bet on a weak dollar and on rising inflation. Both premises were looking flimsy, and those investors were also having trouble borrowing money to meet margins calls, because of the credit crunch. The bottom line is that they are liquidating positions.
 
Since each index fund contains between 6 and 36 commodities, liquidation results in broad based selling of the kind we saw this week. The Commitment of Traders report on Friday night only carried data through Tuesday, but it showed the index funds liquidating 11,042 long contracts in corn during 5 market days from the previous report. That’s 55 million bushels of selling. Net index fund selling was also seen in wheat, soybeans, cattle, hogs and cotton.
 
Below is a table showing the net weekly change of selected agricultural futures products:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12-Sep
19-Sep
26-Sep
3-Oct
Change
% Change
Dec Corn
$5.63
$5.42
$5.44
$4.54
0.90
-16.54%
Dec CHI Wht
$7.19
$7.18
$7.16
$6.40
0.76
-10.59%
Dec KC Wht
$7.60
$7.57
$7.46
$6.70
0.76
-10.13%
Dec MGE Wht
$7.88
$7.85
$7.90
$7.03
0.87
-11.02%
Nov Soybeans
$12.01
$11.44
$11.67
$9.92
1.75
-15.00%
Oct Soy Meal
$336.30
$312.50
$315.00
$264.90
50.10
-15.90%
Oct Soy Oil
$47.51
$46.92
$47.32
$42.00
5.32
-11.24%
Oct Lv Cattle
$102.15
$101.55
$100.95
$95.60
5.35
-5.30%
Oct Fdr Cattle
$108.93
$105.85
$105.80
$100.68
5.13
-4.84%
Oct Ln Hogs
$66.10
$68.20
$69.62
$66.43
3.20
-4.59%
Oct Cotton
$62.17
$60.01
$58.20
$55.61
2.59
-4.45%
Dec Oats
$3.35
$3.32
$3.31
$3.14
0.17
-5.21%
Nov Rice
$19.04
$19.21
$21.10
$18.35
2.76
-13.06%
 
Corn futures plunged 90 cents for the week. As mentioned above, index funds were cutting their net long position. The large reportable speculators were also both cutting longs and adding fresh short positions. This selling pressure was mostly due to financial pressures, but reinforced by a slow down in corn export sales and another week of minimal frost damage that allowed more of the late planted crop to go to full maturity.
 
Soybean futures were down 15% for the week, a whopping $1.75 per bushel. Product values were a big problem. Soybean meal competes with both corn and DDGs, and prices of both were down hard. Basis got sloppy. Soy oil saw good news in terms of increased biodiesel consumption and lower Census stocks. However, bean oil’s value as a fuel dropped with the value of diesel. Field reports continue to reinforce USDA’s projection for below trendline national average yield, but the final ending stocks of 205 million bushels for last year (Tuesday’s Grain Stocks report) was like finding another 70 million bushels of production already in the bin.
 
Wheat was down 10 to 11% at all three exchanges. In addition to the broad index fund type selling, Stats Canada threw in a bearish variable with a larger than expected Canadian wheat production number on Thursday morning. Weekly export sales for the US were on the high side of expectations, but cumulative sales for the year to date still lag year ago in all wheat classes.
 
Cotton prices were down a more modest 4.45%. For a couple days the market was too oversold to follow grains lower, but in the end the liquidation selling by the old bulls and the poor weekly export sales were too much to result in a gain for the week. Heavy deliveries against October futures also weighed on the market.
 
Cattle futures finally gave up the bullish fight, breaking weekly chart trendline support to get the technicians bearish and losing cutout value to draw in the fundamental sellers. Wholesale beef prices are being hurt by sagging consumer/export demand that isn’t yet being improved by cheaper gasoline prices. Ready numbers are still low on a year/year basis until we get into November, but without the demand side it is tough to be bullish on supply alone. The drop in corn prices also screwed up those who had been assuming forced herd liquidation would result in tighter cattle numbers for 2009.
 
Hogs were down 4.6% for the week. Futures are well below cash prices, suggesting that it is the Board that has the problem. That problem is longs who no longer want to be there. The Hogs & Pigs report confirmed record or near record weekly slaughter is likely into at least Thanksgiving. Export demand is thought to be slowing with the rapid rise in the value of the dollar. More pork and less exports means US consumers have to eat more. They only do that if you put the stuff on sale! Packers weren’t inclined to pay up for hogs until they had evidence that the product was moving, and wouldn’t in any case if they saw bigger numbers coming to market.
 
Market Watch: Cattle futures will begin the week working off positions acquired as a result of Friday’s options expiration in the October contract. USDA will give us the regular Monday reports on Export Inspections and Crop Progress. Maturity is expected to move up sharply due to warmer and drier weather for corn and beans this past week. Thursday is the last trading day for October cotton. The main USDA reports for the week will be released on Friday morning, when both Crop Production and WASDE Supply/Demand will be issued. Some of the changes are known, such as the need for USDA to cut last year’s corn use and the increase in 2007 soybean production which was announced on the 30th but needs to be incorporated into the balance sheet. The wild cards will be the crop production estimates, since USDA is also likely to adopt FSA acreage numbers in this report, instead of using the survey based numbers from the prior two reports. Yield forecasts could also be adjusted.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.                         
 
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.
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