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June 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.

Waiting for the Train

Jun 27, 2008
The grain markets have been nervous all year about 2008 US production. That’s because the S&D tables show very small projected ending stocks. Any threat of even smaller stocks creates a scramble for ownership, and higher prices. There is little trade consensus on field crop acreage. We know that there was a scramble to add corn acres after the bullish March Planting Intentions report, and that those acres likely came out of soybeans. However, persistent wet weather certainly reduced corn plantings from what producers would have preferred to plant. Soybeans likely regained some acres as replant on flooded or failed acres, particularly in more southern areas where you have a later frost date. Even there, questions abound because some corn field herbicides will kill or stunt soybeans, limiting ability to switch crops. USDA will shed some light on those shifting acres on Monday morning. In states with little or no flooding, we expect to see some pretty good June 1 data and measure the shift from March intentions. In the center of the Midwest, the trade will deduct estimated flooded acres from whatever USDA shows us. In any event, the reports are likely to hit the market like a freight train, particularly if the dollar or crude oil happens to be making a major move.
 
Below is a table showing the weekly change of selected agricultural futures products:
 
Market Watch
 
 
6-Jun
13-Jun
20-Jun
27-Jun
Change
% Change
July Corn
$6.51
$7.32
$7.21
$7.55
0.34
4.58%
July CHI Wht
$8.11
$8.82
$8.67
$8.96
0.29
3.29%
July KC Wht
$8.47
$9.24
$9.15
$9.25
0.10
1.08%
July MGE Wht
$10.27
$10.54
$10.93
$12.12
1.19
11.29%
July Soybeans
$14.59
$15.60
$15.33
$15.82
0.49
3.14%
July Soy Meal
$372.00
$409.25
$411.70
$427.90
16.20
3.96%
July Soy Oil
$64.35
$66.19
$63.88
$65.57
1.69
2.55%
Aug Lv Cattle
$100.20
$102.27
$104.85
$105.10
0.25
0.24%
Aug Fdr Cattle
$112.25
$109.15
$113.57
$111.72
1.85
-1.69%
July Ln Hogs
$74.00
$73.60
$77.17
$73.20
3.97
-5.39%
July Cotton
$66.51
$71.69
$71.67
$73.41
1.74
2.43%
July Oats
$3.99
$4.25
$4.16
$4.32
0.17
3.88%
July Rice
$19.93
$20.30
$20.03
$18.69
1.34
-6.60%
August Crude Oil
$138.70
$135.47
$135.36
$140.34
4.98
3.68%
 
Minneapolis wheat futures were the biggest bull market for the week, up 11.3%. July MPLS wheat is still an old crop contract, and there just isn’t much old crop spring wheat out there. That is driving a mini-squeeze in the July contract, with prices jumping more than 60 cents on Thursday and another 22 cents on Friday. World supply appears to be growing rapidly, and the basis for soft wheat is lousy. IGC raised projected world wheat production this week, but is still several million tonnes from the USDA projections.
 
Corn futures also had a stellar week, rising 4.6%. Ethanol futures were boosted by the rising energy prices and the consumer frankly needs the 15% price break that he/she is getting by having ethanol to stretch the US gasoline supply. Rising corn prices have caused bankruptcies among a couple firms that were planning to build ethanol plants, and forced Verasun to keep three completed plants ‘on ice’ rather than commencing operation immediately upon completion. Juicy T-storm type weather in the Midwest hampered application of side dress fertilizer and replanting of some flooded out fields. If production drops to 11 billion bushels, prices need to go higher to curb demand, while a final crop above 12 billion bushels would likely drive a significant correction into a harvest low. It will be a while before we know which outcome is the most likely.
 
Soybeans jumped 49 cents per bushel for the week. Inflation buying was popular, particularly after the Fed left interest rates UNCH and indicated that it wouldn’t interfere with surging commodity prices until it was more certain about the stability of the housing and credit markets. Besides the inflation/weak dollar buying, there was also little progress noted in Argentina. Producers are selling beans there, but could go back to the barricades at any time and halt shipments. The uncertainty about shipping dates from that important origin continues to drive old crop business to the US. Monthly crush also shows little sign of slowing down domestically, due to good export demand for the products.
 
Cotton futures rallied a respectable 2.4% for the week. The trade is generally expecting USDA to show planted acreage that is smaller than the March intentions. However, that talk is usually coupled with talk about failed acres in Texas. In this report, those acres would be shown as planted or intended to be planted. Export sales continue to be constrained, with global textile demand growth slipping and China trying to work off supplies in Xinjiang ahead of harvest. The weakness of the dollar gave cotton a boost because it is priced in dollars.
 
Live cattle futures were up 25 cents for the week in the August contract. The June contract, which expires on Monday, shot up $5.40 for the week as they reflected a surge in both wholesale beef and cash cattle prices. Progress in re-opening the South Korean market may have been a feature, and a pipeline drained by July 4 retailer featuring plans also supported prices. Cash cattle traded on Friday at $98-99, with some $99.50.
 
Hogs took a beating, down 5.4% for the week. The pork market was fairly orderly, with the cutout hovering around the $80 area on a mix of export and domestic demand. The selling pressure came from longs bailing out ahead of the Friday night USDA Hogs & Pigs report. Such selling proved to be well advised, as the report was pretty bearish on paper. All hog numbers were up 5.8% from year ago as of June 1. Hogs kept for breeding were 99.2% of year ago while the trade had been looking for a cutback to around 98.6%. The number of market hogs available on June 1 was 6.5% above year ago, with USDA making revisions in the March inventory numbers in addition to showing the second quarter data. Despite the tradition of smaller hog supplies over the summer, the over 180# group was the largest relative to year ago at 110.2%. Thus, we have a lot of near term pork to deal out. That wasn’t totally a surprise to those monitoring weekly slaughter numbers.
 
Market Watch: We’ll start the week with a bang, as USDA will issue not one but two of those infamous Monday morning reports. At 7:30 am CDT they will release the Planted Acreage and quarterly Grain Stocks reports. The latter will include the final estimate for old crop wheat stocks, and the level of soybean stocks as of June 1 will be closely scrutinized because there is little room in the year end S&D table for a low stocks number. We’re still in a weather market, so the Crop Progress and Conditions report on Monday evening will also be given some weight. Don’t forget that the markets will be closed on Friday for the 4th of July holiday in the U.S. Trading volume on Thursday is likely to be light, with some looking to extend the long weekend.
 
 
 
 
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

Guesses and Second Guesses

Jun 20, 2008
 
The flood waters are starting to recede, but the ripples will be spreading out in the grain and livestock markets for quite a while yet. For grains, there are still major questions about planted acreage. For livestock, plant operations have been disrupted as has transportation. That has tightened up meat supplies in the wholesale channel, and presumably backed up a few animals in the barns and feed lots. The acreage question will be partially addressed by the June 30 Planted Acreage report, but it will indicate the situation as of June 1, before the major flooding. We can hope that it shows how many acres shifted from beans to corn after the March Intentions report, and then deduct some for prevented or failed planting. USDA sources have already indicated that they will likely do a re-survey of selected states in order to measure changes since June 1.
 
Government steps are also expected to make it as easy as possible to keep right on planting. Different parties have different agendas, but some proposed steps have included liberalizing crop insurance planting and reporting dates to encourage late planting, opening the CRP (not clear how this would help 2008 production, but could mean more wheat in 2009), and reducing or suspending the ethanol protective tariff (in order to ruin plant profitability and force them to shut down for a while and quit using corn). We would note that corn and soybean prices were both lower this week, suggesting that the market thinks the huge rally from last week has accounted for most of the problem and that consumption has been or will be ratcheted down accordingly.
 
Below is a table showing the weekly change of selected agricultural futures products:
 
Market Watch
 
 
30-May
6-Jun
13-Jun
20-Jun
Change
% Change
July Corn
$5.99
$6.51
$7.32
$7.21
0.11
-1.61%
July CHI Wht
$7.62
$8.11
$8.82
$8.67
0.16
-1.91%
July KC Wht
$8.02
$8.47
$9.24
$9.15
0.09
-1.09%
July MGE Wht
$10.55
$10.27
$10.54
$10.93
0.39
3.77%
July Soybeans
$13.64
$14.59
$15.60
$15.33
0.28
-1.88%
July Soy Meal
$341.50
$372.00
$409.25
$411.70
2.45
0.66%
July Soy Oil
$61.31
$64.35
$66.19
$63.88
2.31
-3.59%
Aug Lv Cattle
$101.85
$100.20
$102.27
$104.85
2.58
2.57%
Aug Fdr Cattle
$116.02
$112.25
$109.15
$113.57
4.42
3.94%
July Ln Hogs
$78.10
$74.00
$73.60
$77.17
3.57
4.82%
July Cotton
$65.74
$66.51
$71.69
$71.67
0.02
-0.03%
July Oats
$3.82
$3.99
$4.25
$4.16
0.09
-2.38%
July Rice
$19.10
$19.93
$20.30
$20.03
0.27
-1.35%
July Crude Oil
$127.43
$136.28
$134.87
$134.87
0.00
0.00%
 
Corn futures lost 11 cents per bushel for the week, all of it on Thursday. After a substantial run up in prices, traders started to look at drier weather forecasts that might at least halt the shrinkage of the crop. They also started looking ahead to the June 30 Acreage and Grain Stocks reports and took a little money off of the table.
 
July Soybeans were down 28 cents/bushel for the week. The Argentine farmer’s strike was still not settled, and that has allowed US old crop export inspections to run much stronger than previously anticipated. Soybean meal was also higher for the week, as export demand to replace missing Argentine supplies has been significant, and meal is also still historically cheap compared to corn on a per pound basis. Soy oil dropped 3.6% for the week, however. The energy markets were chopping around in a violent sideways pattern, but Chinese domestic demand for soy and palm oil appears to have cooled off seasonally, and in the face of significant imports. The drop in soy oil hurt crush margins and limited what end users would pay for futures. Of course, soybeans are also the leading candidate to plant on flooded out corn or wheat ground, and can be planted as late as July if you are willing to accept lower yields and an increased risk of frost damage.
 
Wheat was moving in different directions based on class. SRW in CHI was down nearly 2%, while KC HRW was down about half of that and July MPLS wheat (an old crop contract) was up almost 4% for the week. Weekly export sales were solid, but the northern hemisphere harvest is getting underway in earnest, and buyers are also getting pickier as availability improves. Egypt passed on a tender at prices they would have accepted two months ago.
 
Cotton held close to UNCH for the week. A stout rally early in the week appeared to be fueled by put options exercises, and traders subsequently buying back those short futures positions. USDA showed very poor weekly Export Sales and shipments on Thursday morning. Sliding prices for the other field crops also perhaps weighed on cotton. A Memphis based firm projected only 8.93 million planted acres in the US for 2008, which is below the USDA Intentions from March. The market response was limited, perhaps because we’re sitting on such large supplies of old crop cotton that are deliverable against July futures.
 
Live cattle futures jumped 2.5% for the week in the nearby June contract, which was constrained by the risk of cash cattle deliveries. Cash traded at $94 around mid-week, and we saw some $95 after the report came out on Friday. Speaking of the report, USDA said that Cattle on Feed June 1 had dropped to only 96% of year ago. This is a smaller number than either 2006 or 2007, but still above June inventories for 2003-2005. Marketings during May were a little larger than expected, with new placements on feed a little smaller. On paper the report is bullish, but the big rally on Friday may have done a lot of the price work to the upside already.
 
Hogs were the biggest gainer for the week, up 4.8%. Pork cutout values rebounded sharply, thought to be due to a strong export program. Export data lags the market by about 6 weeks, so it is difficult to verify. However, Friday’s Cold Storage report showed a substantial draw down in pork in Cold Storage. After the previous month’s report, the high level of stocks had been attributed to difficulty in obtaining refrigerated containers for export shipments. It looks like somebody found them. Pork values were also complicated by flood related plant closures and road closures.
 
Market Watch: We’ll start the week by sorting out the COF report and the Grain Options exercises. There are a number of new long futures positions stemming from Friday’s expiration of July options. The market has been known on occasion to want to see how deep their pockets are (look at how cotton went after those who exercised puts a week ago). The main USDA reports for the week will be the weekly Crop Condition ratings on Monday evening and the quarterly Hogs & Pigs report on Friday afternoon. We’ll also have the monthly Census Crush and Cotton Consumption reports released on Thursday morning. Not to be overlooked, the USDA Planted Acreage and Grain Stocks reports will be released on Monday June 30, so there could be a lot of position adjustments being made this week prior to those reports. It is also the end of the second quarter for some of the funds, and profit taking can mean bonuses for some of the fund managers.
 
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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