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RSS By: Alan Brugler, AgWeb.com

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

Commodities Take a Breather

Jan 07, 2011

 brulogomed

Market Watch with Alan Brugler
January 7
Commodities Take a Breather
 
 The main thing that jumps out at you from the table below is that the numbers are all red! Everything went down this week, the first week of the New Year. Not so coincidentally, the US dollar index rose all 5 days this week, and traded at the highest level since November 30. That means it takes less dollars to buy commodities priced in dollars, assuming the other fundamentals are unchanged. Oats and corn took the biggest hits for the week.
 
The soybean complex was down this week, with soy oil losing 2.4%, beans down 2.6% and soybean meal dragging down the bean value with a 3% loss. Meal was hurt by competition from cheaper feed grains. Weekly soybean export sales were small, due mostly to the holidays. Argentine production estimates from Informa were UNCH at 52.8 MMT. Other private estimates were much smaller and thus more bullish, but in our view premature. Chinese soybean purchase commitments from the United States now total 831 million bushels vs. 726 million bushels a year ago. The national basis has weakened since January 1, due to the slowdown in export sales and some fresh producer pricing after the first of the year.
 
Corn prices were down 5.4% for the week. Export sales were slow over the holidays, the dollar was stronger all week, and Argentina got some rain and a spell of cooler temps. Another dry spell is developing for the next week or so in that country. Index fund liquidation of anywhere from 30,000 to 80,000 contracts has been predicted, with most of it expected to occur between January 7 and 14. That caused some front running type selling by other market participants trying to get out of the way. The corn basis has been flat since mid-December nationally, failing to earn the carry and letting futures do the work of trying to buy bushels.
 
Wheat futures were lower by 5 to 20 cents per bushel for the week, but avoided the heavy selling in the corn. In part, this is because index funds were not expected to be big sellers of wheat and were in fact expected to add positions in KC over the next few days. The KC high on Monday morning was the highest price seen since August on the front month continuation charts, at $8.78.
 
Cattle futures set new all time highs on January 3 at $108.50 on the weekly continuation chart. However, cash cattle trade for the week failed to top the prices seen the previous week, and the first of year liquidation selling became pressure the market could not offset. The Thursday/Thursday net change in boxed beef was stout, with choice boxes up 1.96% and select up 2.22%.
 
Hog prices dropped a modest 0.4% for the week. Hogs didn’t have the same scale of price advance during 2010 that other index commodities had, making them perhaps less vulnerable to asset allocation selling as the New Year gets underway.  Pork cutout was up 0.66% for the week, measured Thursday to Thursday. Hams and bellies were lower this week, while the other primals were higher.  
 
 Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:
 

 
Commodity
 
 
 
 
Weekly
Weekly
Month
12/17/10
12/23/10
12/31/10
01/07/11
Change
% Change
Mar
Corn
$5.97
$6.14
$6.29
$5.95
0.34
5.41%
Mar
CBOT Wheat
$7.57
$7.83
$7.94
$7.74
0.20
2.55%
Mar
KCBT Wheat
$8.12
$8.45
$8.51
$8.46
0.05
0.56%
Mar
MGEX Wheat
$8.12
$8.68
$8.82
$8.71
0.11
1.22%
Jan
Soybeans
$12.99
$13.50
$13.94
$13.58
0.36
2.58%
Jan
Soybean Meal
$347.80
$360.00
$370.30
$359.10
11.20
3.02%
Jan
Soybean Oil
$54.13
$56.59
$57.74
$56.35
1.39
2.41%
Feb
Live Cattle
$102.18
$104.00
$107.90
$106.38
1.53
1.41%
Jan
Feeder Cattle
$119.03
$121.45
$121.88
$121.60
0.28
0.23%
Feb
Lean Hogs
$75.95
$78.73
$79.75
$79.43
0.33
0.41%
Mar
Cotton
$150.12
$148.12
$144.81
$140.60
4.21
2.91%
Mar
Oats
$3.87
$3.94
$3.94
$3.71
0.23
5.90%
Jan
Rice
$13.70
$13.40
$14.00
$13.39
0.60
4.32%

 
Cotton futures were down 2.9% for the week. Weekly USDA reported export sales through December 30 were larger than trade expectations published ahead of the report. However, China cancelled 38,000 RB in that report, with merchants indicating that there had been some double buying and that some further destination changes or cancellations could be seen in coming weeks. Trade sentiment is gravitating toward US acreage increases of 12 to 15% in 2011, with the highest estimates around 13 million acres. Index funds were also expected to be big sellers of cotton as they re-allocate assets for 2011, due to the sharp price gains in cotton during 2010.
 
Market Watch:  This will be Super Bowl week for the ag commodities, with USDA issuing a full spectrum of reports on Wednesday morning. Those reports include Annual Crop Production, quarterly Grain Stocks, Winter Wheat Seedings and the monthly WASDE supply/demand balance sheets. The January reports have stimulated fairly large scale price reactions in the last few years, so it will be important to go into the reports with hedging strategies and Plan A/Plan B already set in your head. The usual weekly USDA export inspections and export sales reports will be out on Monday and Thursday respectively. The monthly NOPA crush report is expected on Friday morning. Friday will also be the last trading day for January futures in soybeans, meal and soy oil.
 
There is a risk of loss in futures and options trading. Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results. Comments made in this article are in no way to be seen as an endorsement of futures and options trading. 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 individualized subscription and consulting services for farmers and agribusiness.
 
 Copyright 2011 Brugler Marketing & Management, LLC Copyright 2011 Brugler Marketing & Management, LLC
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