Delivering on the Promise

Published on: 16:21PM Jan 09, 2009
The theme of last week’s column was “A Promising Beginning” for the New Year.  We did in fact get some follow through to that initial buying surge.  Cotton, soybeans and wheat all rallied to new highs for the move, and multi-month highs in most cases.  Other commodities struggled due to index fund and hedge fund portfolio balancing activity that required selling those commodities because they had become too large a part of the holdings of the fund.
Below is a table showing the net weekly change of selected agricultural futures contracts:
Market Watch
% Change
March Corn
March CHI Wht
March KC Wht
March MGE Wht
Jan Soybeans
Jan Soy Meal
Jan Soy Oil
Feb Live Cattle
Jan Feeder Cattle
Feb Lean Hogs
March Cotton
March Oats
Jan Rice
Soybeans were a bull leader for the week, aided by a sharp rally up near 5% in the soybean meal market.  The market certainly acts like it has worked off the record cash meal inventories reported by Census in December, with limited delivery interest against January futures despite the big rally.  The bottom line is that increased product value allows crushers to pay more for the beans. Chinese firms have been active buyers, as they usually are at this time of the year.  That’s firmed up the basis after some initial weakness around the first of the year.
Corn futures were slightly lower for the week.  Lower fertilizer prices eased concerns about 2009 acreage, as breakeven calculations tipped back into the black for many producers.  Demand destruction is still a concern, with three more ethanol plants shutting down due to mechanical and financial problems.  Corn export sales are still very weak compared to last year.  In addition to the fundamental concerns, index funds were selling some corn futures from mid-week on to re-balance their portfolios.
Wheat futures got a little boost from bullish spillover from soybeans due to South American weather’s eminent harm to crops there which led wheat into positive gains. On Friday, South Korea bought 22,000 tonnes of US wheat while Taiwan and the Philippines intend to buy US wheat later this month. These provide some turnaround to the recent slowing of US wheat exports, thus added a bullish push to wheat futures. Weather forecasted for next week shows greater probability of damaging colder conditions in the Plains which spurred bullish news to wheat, since inadequate snow protection will not be present.
Cotton futures posted the highest trade on the March futures chart since October 22.  They have seen steady buying interest since the low on November 12th, leaving a nice clean uptrend line on the chart.  That support is near 48.37, and any break below that would likely signal the end of the current rally phase.  Export sales were much improved for the week ending January 1, usually a quiet period. China became more active, but buying from there is still limited by the struggles of the clothing retailers to sell goods to consumers who are cutting back on credit card debt.
Lower cash cattle sales around $2 less compared to last week reflected on live cattle futures and this week’s recent sell off in cattle futures provided the bearish pressure to have live cattle end lower for the week. Friday morning’s December 2008 Unemployment report by the Labor Department provided another bearish sentiment to cattle futures. Strong cash feeder sales during the second half of this week added bullish support to feeder cattle futures in spite of close to steady values of corn futures this week, though not enough for feeder cattle futures to end on the positive side for the week.
Friday’s settlement price for February lean hogs futures were lower compared to the previous week, but end higher for the day. Colder weather in the Midwest forecasted for next week will inhibit hog marketings, and the recent strength in pork product values provided bullish support to swine for the week. Steady to higher cash hog markets this week added further support. This morning’s unemployment report and steady feed grain futures values limited swine’s gains.
Market Watch:  We’ll start off the week with the USDA Super Bowl of reports on Monday morning. USDA will release Crop Production, Winter Wheat acreage, quarterly Grain Stocks and the monthly WASDE Supply/Demand estimates.  These will all be out at 7:30 am CDT on Monday morning.  That will drive Monday morning trade, and a key question will be whether there is enough bullish data to sustain the massive grain rally over the past 30 days or if we’ll see a “buy the rumor, sell the fact” reaction.  Index funds, hedge funds and CTA’s continue to move money around to address the opportunities they see for 2009.  That will continue for the first part of the week, as will the normal Goldman Roll adjustments to February contracts like cattle and hogs.
© 2009 Brugler Marketing & Management LLC
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