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Market Watch

RSS By: Alan Brugler, AgWeb.com

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

Drought Area Expanding, Weather Models Disagree

Jun 22, 2012

Brugler

Market Watch with Alan Brugler

June 22, 2012

Drought Area Expanding, Weather Models Disagree

The weekly Drought Monitor map released on Thursday confirmed a big expansion in the area of the country under at least one level of drought rating.  Weather models are in agreement that temperatures for much of the US will be above normal this week and likely next week. Rainfall forecasts are more variable, and there is major disagreement between the US model and the European models on how hot and how dry. Be careful which forecaster you are listening to. If they are riding the wrong horse it could make you fall off!

 Corn rallied 1.9% this week after losing 3.1% the prior week. Weekly export sales were still poor, but the dropping crop condition ratings had most analysts pulling back from USDA’s 166 bushel per acre yield estimate, and thus tightening up projected ending stocks and raising price expectations. Old crop corn got a boost because a bird in the hand is worth two in the field. The trade attempted to pin futures at the $6.00 strike price for the July options expiration, because that is where the most people would have been caught (open interest). However, the 590 strike came into play on pre-weekend profit taking.  Ethanol production slowed to 900,000 barrels per day after hitting a 4 month high the previous week. Ethanol stocks built up despite the slower production, raising some demand concerns. Two ethanol plants announced down time between now and harvest due to inability to source old crop corn at workable prices.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

06/01/12

06/08/12

06/15/12

06/22/12

Change

% Change

July

Corn

$5.55

$5.98

$5.80

$5.91

$0.12

1.92%

July

CBOT Wheat

$6.15

$6.30

$6.10

$6.73

$0.64

10.12%

July

KCBT Wheat

$6.42

$6.56

$6.30

$6.86

$0.56

8.54%

July

MGEX Wheat

$7.40

$7.69

$7.88

$8.59

$0.72

9.29%

July

Soybeans

$13.43

$14.26

$13.76

$14.43

$0.67

4.66%

July

Soybean Meal

$395.80

$429.80

$410.10

$422.00

$11.90

2.77%

July

Soybean Oil

$48.71

$49.46

$48.44

$49.74

$1.30

2.63%

Jun

Live Cattle

$117.70

$119.88

$116.15

$116.90

$0.75

0.63%

Aug

Feeder Cattle

$157.38

$159.38

$156.03

$152.80

($3.22)

-2.02%

July

Lean Hogs

$91.59

$92.93

$93.03

$94.93

$1.90

2.04%

July

Cotton

$68.55

$72.90

$79.98

$74.17

($5.81)

-7.97%

July

Oats

$2.82

$3.03

$3.08

$3.29

$0.21

6.92%

July

Rice

$14.06

$14.05

$13.92

$14.47

$0.55

3.91%

 

Soybeans gained 4.7% this past week after losing 3.5% the prior week. Weekly soybean export sales were smaller than expected for the reporting week ending June 14. Chinese buying is still there. US export commitments (shipments plus open contracts) fully cover the USDA export estimate for the year. While it is difficult to hurt soybean yields in June, there are widespread complaints about poor stands. The Brugler500 index for soybean crop conditions dropped to 349 from 357. That was the lowest index reading for this week since 1993, although just a couple points below 2008.

The three wheat markets all posted phenomenal gains for the week, led by Chicago and MPLS. Options activity and just plain thin trading conditions in MPLS July accounted for the big moves. Of course much larger than expected USDA weekly export sales also gave prices a boost. European values rose after a major bank lowered its production estimates and increased the average price expectation. Russian wheat production estimates also continue to drift lower due to multiple stresses since the crop was planted last fall. The Brugler500 index for winter wheat dropped to 341 from 344. The most similar year for the index this week is 2005. The index would suggest a winter wheat average yield of 44.5 bpa, but the standard deviation of the estimate allows for a couple bushels either way.

Nearby cotton futures were up and then they were down. Limit up and limit down,  that is. The trade was trying desperately to get out of the July contract ahead of options expiration and the beginning of July contract deliveries. The big old crop purchase by China initially supported the market, but the bull must be fed daily. USDA reported weekly cotton export sales were 491,900 running bales last week, with 16,900 RB of old crop. Old crop purchases need to be shipped by July 31. Export Commitments YTD are now 117% of the USDA forecast for the year. They would typically be 109% at this point.

Cattle futures were up 0.6% after being lower the previous week. The gain in the June contract was not matched by the cash cattle market, which was lower in anticipation of a bearish USDA Cattle on Feed and/or Cold Storage report on Friday afternoon. Wholesale beef prices for the week were a little softer, with choice boxes down 0.7% and select product down 1.1%. Estimated beef production for the week was 507.7 million pounds, down 4.3% from the equivalent week in 2011. YTD production is down 2.8% on a 4.6% drop in the number of cattle slaughtered. In the COF report, USDA put the number of cattle on feed on June 1 at 101.4% of year ago. May placements were 115.3% and May marketings were 100.7%. The Cold Storage report showed beef inventory down 4% from last month but still 11% above year ago on May 31.

Lean Hog futures were up 2.04% for the week. Wholesale prices were firmer, particularly in the rib primal which was up 10.7% on a Thursday/Thursday basis for the week. Cutout value was up 7.5%, again on a Thursday/Thursday comparison. Estimated pork production this past week was down 0.4% from the prior week, typical for this time of year. Production was still up 1.6% from the same week in 2011, however, and pork tonnage YTD is still 2% larger than at the same point a year ago. The Cold Storage report showed frozen pork stocks down 4% from April, but up 16% from year ago.

Market Watch: The elephant in the room for this coming week is the USDA Grain Stocks report on Friday, June 29. USDA will also update Planted Acreage at the same time. Corn prices have seen limit moves after 7 of the past 8 Grain Stocks reports, falling as they do at month end and with the trade having difficulty anticipating what NASS finds in the bins. Contrary to what you may have read elsewhere, USDA will not issue any yield estimates on the 29th. The next opportunity for that is July 11. Weekly Crop Progress on Monday night will also be of interest, with crop ratings expected to drift lower despite rains that provided relief for some of the Belt.  Weekly export sales on Thursday morning will also be of interest. Livestock traders will begin the week adjusting to the Cattle on Feed and Cold Storage numbers released on the 22nd after the close. June cattle futures expire on Friday. Friday will also be First Notice Day for July futures contract deliveries.

 

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. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

 Copyright 2012 Brugler Marketing & Management, LLC

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