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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.

Greasing the Slide

May 13, 2011

Brugler

Market Watch with Alan Brugler

May 13, 2011

Greasing the Slide

 

Maybe we should have said "greecing" the slide. Greek debt issues came to the surface again this week, torpedoing a rally in the euro and strengthening the US dollar index (which is weighted heavily to the euro). GDP growth in the northern portion of the EU has been solid, but the southern countries lag. The stronger dollar was a headwind for commodities priced in dollars. Gasoline futures were the latest to have a flash crash, with a 32 cent per gallon plunge on Wednesday and Thursday. At the end of the week, energy futures were being supported by concerns about the flooding on the lower Mississippi River. The Morganza spillway was expected to be opened this weekend, which should help keep the multitude of refineries along the River operating, but is a threat to the main Colonial pipeline feeding the East Coast.

 

Corn ended the week down 0.55%, a mere 4 cents per bushel after sliding more than 9% the previous week. The market received several bearish inputs during the week, including more rapid than expected planting progress the prior week, very slow US export sales, and an upward revision in USDA projected ending stocks to 730 million bushels. It appears that much of this bearishness was priced in by the previous week decline. The dollar was also stronger all week. The bull story is still planting delays. Progress should be in the 55-60% range in Monday’s report, but sources are now suggesting that anywhere from 800,000 to 1.6 million acres of intended corn will not be planted because of flooding and/or delays that are severe enough to make soybeans a better alternative.

 

The soybeans gained 12 cents per bushel for the week, offsetting some of their 68 cent loss from the previous week. Soy oil posted a small gain for the week, while soybean meal was lower. USDA raised old crop ending stocks to 170 million bushels, cutting projected exports because of a slow down in Chinese imports. However, USDA also reinforced ideas of continued tightness in new crop supplies. At their projected 76.6 million planted acres and 43.4 bushel yield, ending stocks would actually shrink to 160 million bushels by August 2012. USDA does see expansion of Argentine production next fall, but does not see Brazil exceeding this year’s record crop. Chinese soybean acreage is expected to be smaller in 2011, due to competition from other crops with better margins.

 

Wheat was lower in Chicago and KC, but the MPLS market managed a higher weekly close. USDA reported a bearish 427 million bushels in expected SRW production, which under even the most ambitious feeding estimates would leave a buildup of SRW stocks in 2012. KC saw some precip in the northern portions of HRW country, helping to salvage some yield potential. On the other hand, triple digit temps did further harm to wheat in the southern Plains and there is little rain in sight. USDA left old crop ending stocks UNCH at 839 million bushels. They do see a drop to 702 million bushels by June 2012, despite a sharp decline in exports next year as the FSU-12 countries get back in the export business.

Cotton futures struggled all week, and all contracts except for the July were down on Friday. USDA put the 2011/12 cotton ending stocks at a more comfortable 2.5 million bales, and also raised old crop ending stocks to 1.8 million bales due to a slowdown in exports. World stocks are expected to expand by virtue of a sharp expansion in global production.  US production is expected to be 18 million bales, actually a touch smaller than last year due to a more conservative yield estimate.

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

04/21/11

04/29/11

05/06/11

05/13/11

Change

% Change

May

Corn

$7.37

7.54

6.8275

6.79

0.04

0.55%

May

CBOT Wheat

$8.00

7.6925

7.245

6.96

0.29

3.93%

May

KCBT Wheat

$9.33

8.93

8.68

8.5875

0.09

1.07%

May

MGEX Wheat

$9.52

9.4525

9.1075

9.1175

0.01

0.11%

May

Soybeans

$13.81

13.9275

13.25

13.37

0.12

0.91%

May

Soybean Meal

$358.80

358.1

344.9

343.1

1.80

0.52%

May

Soybean Oil

$58.27

58.13

55.37

55.75

0.38

0.69%

June

Live Cattle

$115.23

113.35

109.85

109

0.85

0.77%

May

Feeder Cattle

$132.98

131.9

129.125

128.7

0.43

0.33%

May

Lean Hogs

$102.05

95.275

93.35

92.85

0.50

0.54%

July

Cotton

$167.51

158.02

145.56

145.73

0.17

0.12%

May

Oats

$3.90

3.425

3.31

3.485

0.18

5.29%

May

Rice

$14.00

14.805

14.095

13.8

0.30

2.09%

 

 Cattle futures were down 85 cents for the week, exactly what they lost on Friday. Beef exports for March were up sharply from year ago, and are still running at 2003 or better levels. Supplies are expected to start to pick up seasonally, but there was no evidence of that in the weekly Red Meat production report. That report showed beef production for the week down 2.9% vs. the same week in 2010, and also down 0.8% from the previous week.

 

Hogs were down 50 cents for the week. Bulls got things to munch on, like the March export data. That report, released on Thursday, showed an all time record high for export shipments of pork in March. That explains the March surge in the pork cutout values, but gives little guidance to prices in May. Japan and South Korea were known large buyers at the time. Mexico is a wild card, particularly with respect to ham prices. The US dollar is weaker than it was in March, but has been firming. Pork production YTD is up 1% from 2010.

 Market Watch: We’re past the May WASDE report, but there are still plenty of data points to accumulate. NOPA will release a monthly Crush report on Monday morning. USDA will release the closely watched Crop Progress report on Monday evening. This will show how far behind US corn and soybean plantings are vs. their average pace.  The weekly USDA Export Sales report is due on Thursday morning.  On Friday, livestock traders get some fresh government data via the monthly Cattle on Feed and Cold Storage reports.  Friday will also mark the expiration of the June grain options.

 

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, or see our Web site at www.bruglermarketing.com.

 

 Copyright 2011 Brugler Marketing & Management, LLC

 

 

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