Market Watch with Alan Brugler
March 1, 2013
Spring is Coming, Change is in the Air
After weeks of snow or rain in the North East, the Southern Plains and the Midwest, accompanied by back to back weekly losses for much of the agricultural commodities, this week it seems like change is in the air, and not just the typical Spring warm up. Major spending cuts for the federal government as a result of the budget sequestration will require USDA meat inspectors to cut one day out of their work week. The packing plants can’t run without inspectors, so the packing plant volume will likely slip as plant managers grapple with a shorter work week. The US dollar is the strongest it has been since August of last year, and crude oil is the lowest it has been since the day after Christmas. Yesterday, the DJIA came very close to taking out the previous all-time-high set back in October of 2007. The Italian election produced no clear winner and some additional uncertainty in Europe, and for the first time in history the Pope resigned. The outside markets still weighed on commodities, but it was not all doom and gloom this week; a bit refreshing!
Corn was the biggest winner in the ag commodities basket, gaining 4.89% on the week, closing 34 cents higher than last Friday. The EIA reported increased ethanol production and decreased stocks, (which is friendly), but imports were also higher on the week. Decent export sales reported on Thursday morning, and a stronger cattle market brought support. A commodities analysis firm which typically produces estimates on the bearish end of the trade guesses, released updated estimates for the Argentine and Brazilian corn production that were lower than the most recent USDA estimates published in the February WASDE. The updated figures were for a 25 MMT corn crop in Argentina, and a 71.6 MMT corn crop in Brazil; compared to the USDA estimates of 27 MMT and 72.5 MMT respectively. The USDA will provide updated estimates this coming Friday in the March WASDE report. The CFTC commitment of traders report released this afternoon shows that as of last Tuesday managed money decreased their net long position by 13,228 contracts and is now net long 52,075 contracts (the lowest level reported since June 12, 2012)
Soybeans were also higher on the week, but only by three cents. That really doesn’t tell the story very well because there was a 51½ cent range in the front month. The March contract traded as high as $14.87¾ and as low as 14.36¼ before closing in the upper half of the range at $14.64½. The November contract had a much smaller trading range of 15 cents, and actually ended the week 1¾ cents lower, despite China buying more than 17.75 million bushels of new crop exports this week. The Chinese PMI for February came in at 50.1, which was below industry analyst’s expectations, but still above 50.0, the level that is considered to be expansive. Informa raised its estimate for Brazilian soybean production to 84.4 MMT, exceeding the USDA’s latest estimate by .9 MMT. The firm lowered its production estimate for Argentine soybean production to 51 MMT, which is 2 MMT lower than the February USDA estimate. Soybean meal was slightly higher on the week, gaining a mere 40 cents per contract. Soybean oil was off 88 cents, or 1.75%.
KC Wheat gained 7 cents and CBOT Wheat lost two cents on the week. Wheat on the Minneapolis Grain Exchange added 17 cents, or 2.15%. Smaller export inspections on Monday, and a bit more moisture in winter wheat country put pressure on the markets early in the week, as did some improvement in the statewide conditions ratings. Decent export sales reported Thursday morning brought some support to the wheat markets, and Brazil showed up as a buyer, which hints that US wheat is starting to look cheap.
Cattle futures rebounded from the lows that were put in the previous week, with the April live futures contract adding $1.72. March feeder cattle added 30 cents on the week. Cattle futures found support early in the week as the winter storm moved across the southwest, disrupting the movement of cattle to slaughterhouses and reducing the rate of gain for cattle in feedlots. Boxed beef had a weekly change of +2.8% or $5.21 on Select and $5.62 or +3.1% on Choice. The CFTC report, which runs Tues to Tues, shows Managed Money going net short in feeder cattle. Sales of cash cattle late in the week helped further support the run up in futures, with cattle in Kansas trading hands at $128 and $129 versus $123 last week. Weekly beef sales hit a marketing year low at 3,900 MT, although the YTD sales are still ahead of the pace set last year.
Hog futures wrapped up trade on Friday with a weekly loss of 53 cents on the April contract. The April was under fire all week as it pushed to new lows not touched since May. The federal spending cuts set to begin on Friday limited any significant gains, with the possibility that meat inspectors being furloughed for 15 days bringing uncertainty to the entire livestock complex. The CFTC report that runs Tues to Tues showed Managed Money pulling out of 56% of their net long positions (12,000+ contracts). Similar to cattle, the trade is concerned over retail demand for pork as consumers face uncertainty in the marketplace. On a Fri to Fri basis the pork cutout lost 52 cents or 0.64%. Slaughter continues to run behind the pace set last year, with the YTD slaughter down 2.2% from the same period in 2012. Packers have been reluctant to offer higher cash prices for hogs given a weaker carcass cutout value contributing to tight margins. A relentless rallying dollar all week brought further uncertainty to future pork export business.
Cotton was a big winner this week with the front month up 229 points, gaining 2.81% on the week. Crude oil sliding to its lowest level in more than two months helped support the cotton market. The acreage mix seems to be leaning toward less cotton and the trade talk is for something just over 9 million acres(ma). Compare that to the 12.315ma planted in 2012, and the 14.735ma planted in 2011. Cotton had similar planted acreage in 2008 and 2009 when they were 9.471 ma and 9.150 ma respectively. Other than those two years, you would have to go back to 1983 to find a year with less than 10 ma planted to cotton in the country. The US export sales report on Thursday morning posted the second largest weekly shipment of cotton so far this marketing year, with the largest reported just three weeks ago.
Market Watch: Cattle traders will start the week reacting to the expiration of the March serial options. USDA will release the usual Monday Export Inspections report and the Thursday Export Sales report to provide fundamental insight. Corn traders will continue to monitor the weekly EIA ethanol production and stocks report on Wednesday morning. The big USDA numbers for the week will be the updated Crop Production and WASDE Supply/Demand estimates to be released at 11 am CST on Friday. Not be be overlooked, Daylight Savings time begins at 2 am on Sunday morning (10th).
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