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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.


May 11, 2012


Market Watch with Alan Brugler

May 4, 2012


While the world is always an unstable place, where you can’t even measure the exact location of an electron, some periods in time seem to offer more instability than others. Ignoring the multiple unstable governments from Afghanistan to Libya to Greece and Syria, a lot of financial situations are unstable as well. JP Morgan announced that it had lost $2 billion on credit default swap derivatives trading, some by a trader who was so heavy handed he was nicknamed the "whale of London". A third commodity hedge fund in about 6 weeks called it quits after sustaining big losses for investors from January to the end of April. Unwinding of the positions of the $500 million Fortress fund created instability in cotton, fueling a limit down move on Thursday. Other markets saw big position shifts as well. And this is all happening on relatively benign growing season weather. Wait until Mother Nature causes problems big enough for the ag commodity traders to take notice!

Corn futures plunged 54 cents per bushel after gaining 9 cents the previous week. The May futures inverse collapsed as basis shifts made delivery a greater risk and the confident longs decided to get out instead. Weekly export sales were miserable at less than half a million metric tonnes. USDA threw out nothing but bearish news on Thursday, raising old crop ending stocks to 851 million bushels and putting likely 2013 leftovers at a cumbersome 1.88 billion bushels. That was accomplished by a projection for record 2012 US production of 14.7 billion bushels on a record average yield of 166 bushels per acre. It is still early, but the estimated cash average range for the 2012/13 marketing year is only $4.20-5.00. Futures are above that, so it takes crop problems (not currently seen) to prevent them from dropping.

Soybeans were down 71 cents for the week after losing 22 cents the week before. Two weeks equals a losing streak. Profit taking was a big factor after prices topped the $15 mark for the first time since 2008. Some new hedge selling was also seen. It would be hard to find a more bullish USDA report day for beans, with old crop ending stocks trimmed to 210 million bushels (OK, 150 million would be more bullish!), and new crop seen shrinking to pipeline levels of 145 million. USDA cut projected South American production again. The Brazil-Argentina-Paraguay crop is now 785 million bushels smaller than last year. It would take 18 million additional acres to replace that production at the US national average yield. Of course, some will come out of carryover stocks and some will come out of 2013 South American production, so the US doesn’t need to fill the entire shortfall.

The three wheat markets were lower. May futures in MPLS had an anomalous double digit rally on Friday that was not matched by the other contracts, accounting for the penny gain shown in the table. US crop condition ratings declined for winter wheat, with the Brugler500 Index at 362 vs. 365 the previous week. That didn’t stop USDA from showing a 2.245 billion bushel crop number on Thursday. HRW production is estimated at 1.032 billion bushels vs. only 780 million last year. Tightening global stocks were supportive to the oversold wheat market. USDA is now projecting ending stocks will shrink to 188 MMT in 2013 from 197 MMT this past year and a similar figure the year before.
















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Cotton futures had the worst showing for a very "red" week. They were down 10.25% for the week. Weekly export sales were positive, which hasn’t always been the case. That didn’t help overcome very bearish numbers from USDA on Thursday. USDA said that harvested acres should actually be larger than last year, despite a reduction in planting intentions. That is due to better weather conditions in the southern US and less likely abandonment. The global ending stocks forecast was also taken to a multi-decade high of 73.75 MMT, with a sharp drop of almost 8 million bales in 2012/13 consumption foreseen. A $500 million hedge fund also announced that it would be closing, and sold an estimated 15,000 contracts in very short period of time on Thursday to cement the decline.

Cattle futures slipped 22 cents for the week, a 0.20% loss that all occurred on Friday. Beef production YTD is down 3.1% from last year. Estimated production for the most recent week was up 0.5% from the same week in 2011 despite 11,000 fewer cattle. Wholesale prices were weaker, losing 0.6% for the week in the Choice boxes and down 1.6% in the Select product. They were reflecting increased slaughter as well, at an estimated 639,000 head vs. 623,000 the week before. The weakness Cash cattle trade was $192-194 in NE, with $119 in KS reported on Friday. Those were down $1-2 from the previous week.

Lean Hog futures for the most part held their ground. Expiring May was down 0.34% as it synced up with the CME Lean Hog Index ahead of expiration on the 14th. June futures were actually $1.70 higher for the week. The pork carcass cutout value rose back above $80 for the first time since March 28! The net gain for the week was $1.69 or 2.14%. March pork export data was finally released, and showed March shipments were down from March 2011, but much larger than February 2012. Year to date pork production is up 1.8% from last year. Production this past week was 6.7% larger than the same week in 2011.

Market Watch: The May grain and hog contracts will expire on Monday, none too soon for some. USDA will release the usual Export Inspections and Crop Progress reports on Monday afternoon, with corn planting progress expected to be in the 80’s. NOPA will also issue a monthly crush report on Monday morning.  USDA weekly Export Sales will be the feature on Thursday morning, while Friday afternoon will feature the monthly USDA Cattle on Feed report and Milk Production

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.

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