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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.

Easing Through Harvest

Sep 14, 2012

Brugler

Market Watch with Alan Brugler

September 14, 2012


Easing Through Harvest

 USDA’s crop estimates on Wednesday were the main fundamental news event, but in broad commodity market terms the Fed announcement of the implementation of the QE3 easing program became the price driver. The Fed indicated that it would buy $40 billion per month of MBS for as long as needed to lower long term interest rates and thus stimulate housing and improve unemployment. The open ended nature of the commitment triggered a sharp decline in the US dollar index and a jump in most commodities from gold and crude oil to cattle and rice.

Nearby corn futures ended the week 2.2% lower. Weekly export sales for the prior week were again very light, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. USDA also cut the old crop export estimate on Wednesday in the WASDE report, confirming the drop. Weekly ethanol production slowed down to only 816,000 bpd. This is primarily due to scheduled downtime by plants. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. The big fundamental news items for the week were USDA’s 122.8 bushel per acre national yield estimate and their cut in the projected national average price for the year from a mid-point of $8.20 to $7.90. The WASDE analysts had an extra 160 million bushels of old crop carryover to work with, and that eases the job that price rationing needs to do.

Soybeans were 0.66% higher this week, a 5 cent per bushel increase in price that happened entirely on crop report day. Soybean meal lost $7/ton as September expired at $524.60, keeping a little downward pressure on product value. Soy oil was up 0.66% despite a burdensome supply of palm oil. USDA did lower projected US average soybean yield to 35.3 bushels per acre, but their production estimate was within 4 million bushels of the average trade guess. The bullish reaction stemmed from the export sales. USDA trimmed that forecast to 1.055 billion bushels. As of Thursday’s weekly export sales report, the US has already obtained sales commitments for 762 million of those bushels. Average weekly sales need to be below 6 million bushels per week for the year to hit the USDA forecast. They will likely be larger early and tiny late in the marketing year, but the end users concluded that it will take higher prices to choke off those sales. After a 5 day break, they were buyers on Wednesday, along with some spec funds.

The three wheat markets were up by $.13 (CBT), $0.34 (KCBT) and $0.06 (MGEX) for the week, with double digit gains on Friday.  USDA trimmed projected Russian and FSU wheat production by 4 MMT in Wednesday’s report, but left exports UNCH at 8 MMT, drawing down projected ending stocks further but not to the levels seen a few years ago. Projected world ending stocks were trimmed less than expected, partly because USDA left their Aussie crop estimate at 26 MMT. ABARE in Australia is estimating only 22.5 MMT so that is a bit of a discrepancy. It is still early spring in the Southern Hemisphere, so there is still time for the moisture situation there to improve. It has a mixed track record of doing so, and there is little certainty about the development of the El Nino weather pattern.

Nearby cotton futures broke down after the crop report, although it was actually the supply/demand report that contained the bearish news. USDA trimmed projected US production to 17.11 million bales and trimmed 200,000 bales from anticipated 2013 ending stocks. That was the good news. The bad news is that projected world ending stocks have risen to all time or at least multi-decade highs of 76.52 million bales and US export sales potential is shrinking.  That ending stocks figure represents 259 days of use at the current consumption rate, or 71% of global annual production for 2012/13. USDA reported net weekly export sales were 317,500 RB for 2012/13. Prices did rebound nicely on Friday thanks to the Fed stimulus package and some "risk on" spec buying as the Fed basically said to forget making money on savings accounts and go invest it.

 

 

 

 

Commodity

 

 

 

 

 

 

 

 

 

Weekly

 

Weekly

 

Month

 

08/24/12

 

08/31/12

 

09/07/12

 

09/14/12

 

Change

 

% Change

 

Sep

 

Corn

$8.02

$8.03

$7.95

$7.78

($0.18)

-2.20%

 

Sep

 

CBOT Wheat

$8.68

$8.70

$8.85

$8.98

$0.13

1.44%

 

Sep

 

KCBT Wheat

$8.77

$8.81

$9.00

$9.33

$0.34

3.72%

 

Sep

 

MGEX Wheat

$9.20

$9.37

$9.40

$9.46

$0.06

0.66%

 

Sep

 

Soybeans

$17.38

$17.65

$17.32

$17.37

$0.05

0.27%

 

Sep

 

Soybean Meal

$533.40

$547.10

$531.60

$524.60

($7.00)

-1.32%

 

Sep

 

Soybean Oil

$56.24

$56.42

$56.27

$56.64

$0.37

0.66%

 

Oct

 

Live Cattle

$124.45

$126.02

$126.48

$127.05

$0.57

0.45%

 

Sep

 

Feeder Cattle

$142.95

$144.60

$144.30

$145.00

$0.70

0.49%

 

Oct

 

Lean Hogs

$72.38

$74.18

$71.35

$74.03

$2.68

3.75%

 

Oct

 

Cotton

$74.45

$76.48

$75.72

$75.39

($0.33)

-0.44%

 

Sep

 

Oats

$3.89

$3.89

$3.86

$3.89

$0.03

0.78%

 

Sep

 

Rice

$15.41

$15.01

$14.72

$15.10

$0.39

2.62%

 

Cattle futures were up $.57 per cwt for the week. Cash cattle prices jumped sharply this past week, as the declining fall ready numbers made themselves felt. Wholesale prices were mixed, with choice 600-900 pound carcasses up 0.4% for the week but the select product down 0.6%. Cash cattle traded at $125-127. Weekly slaughter was estimated at 647,000 head vs. 659,000 last year. Due to estimated weights 20 pounds above last year, production was up 0.8% vs. the same week in 2011. Weekly beef export sales for the prior week were 16,800 MT, a little slower than the previous week. Census reported official exports for July, which were the second largest July ever but continue to lag last year. We continue to see declining supplies of ready cattle coming out of the feedlots, with October being the bottom of the hole. The cattle market is very good at closing those holes, however, by backing cattle into them or pulling cattle ahead.

Hog futures were up 3.75% this past week.  Estimated pork production for the week was up a huge 5.98% from last year. Average weights are now believed to be 1 pound lower than last year, which offsets some of the larger marketings in the tonnage department. Year to date production is still up 2.3%. Fortunately, Census exports through July have also been confirmed to be larger than last year. Cash hogs were lower on Friday, with IA/MN down an average 95 cents, the WCB down 43 cents and the ECB down 55 cents.  The pork carcass cutout value was down $.25 for the week, bottoming on Wednesday.  

Market Watch:

With expiration of September futures contracts, the Fed meeting and the monthly USDA crop reports all in the rear view mirror, the market will shift gears toward harvest pressure and end of quarter asset allocation adjustments. Grain traders will also start to look forward to the September 28 quarterly Grain Stocks and Small Grains reports. The former has been associated with a number of limit moves, falling as it does on the end of quarter boundary for the investment firms. In the meantime, we have USDA weekly Export Inspections on Monday morning, and weekly Export Sales on Thursday.  USDA monthly Milk Production will be out on the 19th. The biggest livestock reports for the week will come on Friday afternoon, with the monthly USDA Cattle on Feed and Cold Storage reports. October grain options contracts also expire on Friday. Saturday is the official start of Autumn, although we’re already well into fall harvest and fall football games!

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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