Sep 16, 2014
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Market Watch

RSS By: Alan Brugler,

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

The Commodity Cliff

Nov 16, 2012



Market Watch with Alan Brugler

November 16, 2012

The Commodity Cliff


Much of the discussion for the week centered on the so called fiscal cliff negotiations in Washington, and the various ripple effects depending on the outcome. Traders concluded that an increase in capital gains taxes and/or dividend taxes was likely to be part of any solution. That spurred some selling of stocks, and also of commodities (where capital gains taxes are based on mark to market value on December 31). The money appeared to be parked in low yielding cash instruments, and won’t stay there long. A few corn traders had seen the EPA ruling on the requested RFS2 waiver as another potential cliff. However, EPA found that in the overwhelming majority of cases run, the mandate itself does not cause severe harm to the economy. By law, that is the only standard they can apply, not the Clean Air Act as one anti-ethanol group suggested. Consistent with our own research, reducing the blend requirement was found likely to result in little or no drop in corn prices, because the market is not currently ‘bound’ by the requirement. If it were, RIN prices would be a lot higher than they are.

Corn futures lost 12 cents for the week, a 1.6% loss. World ending stocks increased to 118 MMT. Export interest continues to be weak, but with a pick up in interest for 2013/14. Ethanol production is on pace to meet the USDA forecast, despite an estimated 10 plants that are either shut down or have announced that they will be closing due to poor margins. Ethanol stocks dropped to a multi-month low in the weekly report EIA report, despite rising US production and imports that averaged 53 thousand barrels per day. Downsizing is still occurring in the livestock sector, as shown by the Cattle on Feed report (see below) and reduced egg sets and chick placements.

The soy complex posted the largest losses for the week. Soybeans plunged 9.4%. Meal was down again, losing 5.6% after losing 5.5% the prior week. NOPA showed very strong US crush of 153 million bushels in October, with plenty of meal available for the domestic and export market. The USDA weekly export sales report on Friday morning was bullish for all three legs of the complex, on paper, but liquidation of summer drought longs continued to provide pressure to the market. South American weather conditions improved, letting bears presume that combined Brazilian, Argentine and Paraguayan production will be over 140 MMT or 5.14 billion bushels. For comparison, US production is seen at 2.97 billion bushels. Argentine planting is thought to be 22% completed (BAX).

Wheat futures were down at all three exchanges. The highest priced wheat in the world, MPLS spring wheat, showed the smallest loss for the week at 4.3%. KC was down 5%, and Chicago lost nearly 5.5%. EU futures set new contract highs on the MATIF. The USDA net weekly export sales were 50 percent higher than the previous week at 314,600 MT for the 2012/13 marketing year. Exports were 298,500 MT with the primary destinations being Nigeria and Mexico. The US Drought Monitor update on Thursday showed extensive dryness in the Plain States including Kansas and Oklahoma, where crop conditions have been in decline for the winter wheat crop. Winter wheat crop condition ratings saw a loss of 3% out of the good/ex categories. The market failed to sustain a reaction, however, because there is only a weak correlation between fall conditions and final yields next summer.

Cotton futures rallied 4.5% for the week. It wasn’t due to a sudden lack of world supplies. USDA raised projected world cotton ending stocks for next summer once again, to 80.27 million bales. That’s 75.5% of projected annual use, more than a 9 month supply of extra cotton.  However, it is possible for prices to get too cheap, resulting in a corrective rally. December options expired last week with a large number of in-the-money put options being exercised. Those newly minted short futures were being bought back this week ahead of December futures delivery notices.















% Change










CBOT Wheat








KCBT Wheat








MGEX Wheat
















Soybean Meal








Soybean Oil








Live Cattle








Feeder Cattle








Lean Hogs
































Cattle futures dropped more than a dollar for the week. Estimated beef production for the week was up 1.8% from the same week in 2011, and tonnage for 2012 YTD is 1.7% below last year. Those numbers are actually a little firmer. Wholesale beef prices were mixed. Choice boxed beef was up 1.15% for the week, while Select boxes dropped .48%. US weekly beef export sales for last week were the poorest in some time, at 11,300 MT. The USDA Cattle on Feed report on Friday afternoon confirmed an expected contraction, with marketings at 102.3% of year ago and placements 87.3% of last year. The combination resulted in a 5.5% drop in November 1 cattle on feed and is supportive from the supply side.  The demand side has to deal with the export slowdown, and seasonal competition from turkey and ham.

Hog futures were $1.15 lower for the week. Estimated pork production for the week was up 0.4% from the previous week, and down 1.9% from the same week in 2011. Pork production YTD is up 2.1%. The pork carcass cutout value still plunged 5.1% this past week. The ham primal fell more than 10% and pork bellies were down more than 9%. Estimated carcass weights are rising seasonally, but still down 4 pounds from last year. Cash hog prices on Friday were mixed, with the Western Corn Belt (WCB) quoted higher while the ECB was lower.

 Market Watch:

Last week was a short week in the government and banking industry, due to the Veterans Day holiday. Just about everyone else was still working. That will not be the case this week, as Thanksgiving Day on Thursday is a broad based holiday for just about everyone except retail workers. Several retailers are attempting to open on Thanksgiving night to pull dollars away from retailers not opening until 5 or 6 am! There are also reports that employees may strike in protest. In our view the best solution would be for the public to boycott the stores opening on the holiday. That would put a stop to it.  Regardless, the ag markets will be closed, and then have a "why bother" trading session from 9:30 am to 12 pm CST on Friday. That does allow elevators and end users to get needed hedge orders in, and perhaps some international traders to have a normal business morning. We expect volume to be thin, which can mean no price move or a big price move.

USDA will release their normal Export Inspections and Crop Progress reports on Monday.  The monthly Cold Storage report is scheduled for Wednesday.  Weekly export sales will be delayed until Friday. Friday will also mark the expiration of December grain options, a potential source of market volatility.

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 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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