Creeping Boredom

Published on: 12:36PM Dec 01, 2008
After the huge price moves in October, most of the markets have calmed down into trading range behavior. It remains to be seen whether this is the calm before the storm, but to exhausted speculator types it is a relief. To others it is boring, which is a problem in terms of market liquidity and getting some sort of year end rally. Ag producers clearly have a Santa Claus rally on their Christmas lists, as our calls over the past two weeks have been mostly on the order of “Can I lift my short hedges yet?” We at least got the Turkey Day rally, with all of the ag commodities except oats showing a net gain for the week.
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
The much beleaguered cotton market was our bull leader this week, with December futures surging 11%. Weekly export sales weren’t all that exciting, at 167,400 MT. However, JP Morgan continues to show up as a stopper for nearly all of the December cotton delivery notices, and that is causing shorts to buy back their positions and exit the contract.
Corn futures posted a gain of 11 cents for the week, or 3.3%. This is pretty remarkable given the problems with Verasun forward contracts, weekly export sales of only 465,400 MT, and ongoing cuts in poultry numbers. One might conclude the market is bullish because bearish news failed to make it move lower. On the other hand, a quick look at the December corn chart shows that prices remained in the lower half of their Bollinger Bands, and spent the entire holiday week trading within the range set on the previous Friday.
Soybeans posted a fancier gain of 5%, aided by a 6% advance in soy oil. Energy futures traded sideways to higher for the week, continuing to find good buying around the $49 area in crude oil. Census soy oil stocks were smaller than expected, fueling (pardon the pun) ideas of larger biodiesel consumption. USDA weekly export sales of soy oil were also 8 times larger than the previous week, which was admittedly a low number.
Wheat prices were higher at all three exchanges. The $5 “round number” proved to be good support for December futures in Chicago, with a few buyers coming out of the woodwork. USDA showed weekly Export Sales for the previous week at 438,600 MT. On Thursday, Egypt bought 55,000 MT of US SRW, showing that the price decline has been sufficient to make us competitive in those GASC tenders.
Cattle futures were up nearly 3% as they recovered from their technical meltdown of the previous week. Wholesale prices were still under pressure for most of the week, as turkey and ham get most of the features at the meat counter. Beef production for the week was down 10.2% from the previous week, due to the holiday, and packers were gearing up for a bigger run next week. Cash traded at $90 in the south and $142-144 in the north.
Hogs continued to rally this week, up another 4.6%. There are perceptions that we were now past the peak seasonal numbers, and that consumer demand either is or will be propped up by reduced supplies of poultry. Pork production YTD is now up only 6.4%, after running as much as 10% above year ago earlier in the year. What that tells you is that the fall slaughter pace has been lighter. Average carcass weights are also running 2-3 pounds below year ago.
Market Watch: Now we’ve turned the calendar to December, and instead of month end liquidation and turkey, the focus will shift to year end position squaring and asset allocation adjustments. December 1 last year was the start of a major money injection INTO the commodity markets as those allocations were made. Because of changes in the overall economic environment any such campaign in 2008 is likely to be on a much smaller scale if it happens at all. Deliveries against December futures contracts will be an issue in the grains, with heavy notices against wheat and corn on first notice day. Friday will mark the expiration of the December cattle options. Routine USDA reports for the week will include Crop Progress and Grain Inspections on Monday, followed by Export Sales on Thursday. The Census Fats & Oils report is also tentatively scheduled for December 4. This is the one with the monthly biodiesel production numbers.
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
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