A Real Turkey

Published on: 17:47PM Nov 21, 2008
The markets didn’t wait until the 27th to turn in a turkey of a performance. Actually, a lot of the time lately it feels like the bullish market addicts have quit cold turkey. They are having withdrawal symptoms, but haven’t quite cleared all of that index fund bullishness out of their system yet. Those funds continue to unwind about 10-15,000 contracts per week in order to meet year end redemption requests of hedge fund clients, etc. For corn, options expiration also was a bummer, as nobody wanted to own long futures after expiration. The final “pin” was $3.38 1/2, leaving long Dec 340 calls worthless, along with the 350’s many had expected would be in the money. Needless to say, some who had sold Dec 340 puts to finance other options positions suddenly found themselves in danger of being exercised and had to buy their way out of the options at a loss.
Below is a table showing the net weekly change of selected agricultural futures contracts:
Market Watch
% Change
Dec Corn
Dec CHI Wht
Dec KC Wht
Dec MGE Wht
Jan Soybeans
Dec Soy Meal
Dec Soy Oil
Dec Lv Cattle
Jan Fdr Cattle
Dec Ln Hogs
Dec Cotton
Dec Oats
Jan Rice
Soybeans futures lost 56 cents on the week. The November soybean contract expired one week ago, leaving January as the front month. But soybeans were not alone in the complex with meal and bean oil losing nearly 6% for the week. Pressure from Wall Street and energies kept market bulls aside, giving bears all the momentum. Export sales were reasonable YTD but were 65% higher than the previous week, lending support to a weak market. Harvest should be near complete Monday when USDA releases their weekly crop progress report, due to better harvesting conditions and weather.
Wheat futures stumbled lower at all three exchanges, falling close to 10% for the week in nearby December futures contracts. US wheat bulls were unable to shrug off bearish fundamentals of world wide economic woes and a global record wheat crop, latest estimates surpass 680 MMT. Foreign wheat importers are passing on the more expensive US wheat and purchasing from other countries like Russia, which is flooding the market with their bumper production this year. The US Dollar continues to improve in value, creating homeland goods more expensive. 
Cotton futures finished marginally lower, thanks to an impressive rally at the close on Friday. Outside markets were major influences in cotton futures this week. Cotton lost less than ½ % for the week, December moved into delivery period Thursday and had a surprising 1720 notices issued on first notice day. Volatile equities, falling crude oil, and renewed strength in the US Dollar pressured prices for much of the week and limited any gains.
Cattle futures lost $5.15/cwt in nearby December for week. Rumors of a potential mad cow case in Texas sent traders into a frenzy, liquidating positions adding stress to an already vulnerable market. Current economic conditions create nervousness and uncertainty in wholesale beef prices and overall demand. Choice/Select spread is starting to widen suggesting improvement in demand. USDA indicated cattle on feed in November were only 93% of year ago, 89% October placements versus last year, and 97% marketings vs. October 2007. The trend remains in placing feeder cattle, feed lots are still placing heavier cattle rather than lighter weights. 
Hogs were the lone commodity from the above that posted weekly gains. Seasonal demand for hams has boosted pork carcass cutout values. Improvement in carcass value, better cash bids, and declining slaughter weights combined to helped Lean Hogs gain $1.30/cwt, jumping 2.34% for the week. Pork exports continue to underpin the market but declines in export sales since summer may turn trouble some for prices.
Market Watch: This will be another screwy week. Options expiration on Friday left a lot of people with “surprise” futures positions or a lack thereof. The corn “pin” in particular was at a different strike price than most had expected. After that, you have a short trading week due to Thanksgiving holiday on Thursday, and futures trade only until noon CST on Friday (yes they are trading on Friday). Friday will also be month end, which has caused some adjustments from spec fund types and asset allocation plays. Friday will also be first notice day for December contract deliveries on grains.
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
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