European Mis-Adventures

Published on: 17:40PM May 14, 2010

Market Watch with Alan Brugler
May 14, 2010
European Mis-Adventures
The country and really the world had another wild week in the financial and commodity markets. The DJIA finished at 10,620.16, up 239.73 for the week and down 162.79 for the day. Crude oil has dropped over $16/barrel in the past two weeks from the May 3rd high with crude oil stocks continuing to build despite the near 210,000 gallons of oil pouring into the Gulf daily since the April 20th explosion.  The dollar index finished at 86.080 after making a new six week high, gaining significantly against the euro and the euro finishing at 1.2391, with a low of 1.2355 almost touching the 2008 banking crisis low of 1.2326. Gold finished the week at $1,227.80 after new all time highs at $1,249.20.
Corn had a net change of -2.42%, down 9 cents for the week. Rumors of China corn purchases ran corn prices up earlier in the week but then the old buy the rumor sell the fact adage took over with the official announcement of 369,000 MT of corn sold to China. The largest portion of that sale, 239,000 MT, is for 2009/10 delivery. The crop progress report showed corn planting at 81% as of last Sunday, that’s 19 points ahead of the five year average with emergence 18 points ahead of the five year average. Planting progress was slowed dramatically this week by wet weather, and replanting will have to be done in several areas due to either flooding or freeze damage. The USDA crop report was also out this week and the government is looking for record corn production of 13.370 billion bushels with an increase of 2010/11 carryout to 1.818 billion bushels.
Wheat futures dropped 7.64% closing 39 cents lower on the CBOT. The bear story in wheat is no secret, with the global stocks/use ratio at decade highs. The drop in the euro has made European wheat more attractive to the world buyers but the U.S. made some sales before the drop occurred this week selling a net 244,400 MT for 2009/10 delivery and 241,000 MT for 2010/11 delivery as of May 6th sales.  USDA’s WASDE report is projecting another increase in world wheat ending stocks to 198.09 MMT for 2010/11. U.S ending stocks are projected at 997 million bushels, 47 million bushels over 2009 estimates.
Soybeans made an effort early in the week to rally but met with technical resistance at the 40 day moving average and ended the week - .068% or down 6 cents for the week. The stronger dollar definitely played a significant part in the lower money but also the fact that planting is 11 points ahead of the five year average with 30% of the crop planted. USDA is projecting a significant increase in U.S. carryout for 2010/11 at 365 million bushels with the beginning stocks carried over from 2009/10 giving the soybeans a good start for the marketing year. Bean oil ending stocks are expected to decline to 2,747 million pounds and soybean meal stocks stay the same at 300,000 short tons. World soybean ending stocks are projected to increase to 66.09 MMT from 63.76 MMT in 2009/10 and 43.04 MMT in 2008/09 on increased production from the U.S. and South America. NOPA’s crush report on Friday was also bearish, showing a sharp reduction in monthly crush but also a buildup in soy oil stocks.    
Cotton futures were flat by weeks end. Weekly export sales were healthy coming in, 58% higher than the previous week. Crude oil was sharply lower for the week, continuing the multi-week slide which lowers the input cost for synthetic fibers that compete with cotton. Planting progress in the U.S. was on par with the 5 year average pace at 34% planted. Cert stocks continued their build earlier in the week but slowed later in the week ending at 1,062,135. Tuesday’s crop report was mildly bearish for old crop and mildly bullish for new crop. The USDA report added .1 million bales to ending stocks leaving ending stocks at a still small 3.1 million bales, which leaves beginning stocks very low for next year and balances out the surge in production to 16.7 million bales projected in 2010/11 from 12.2 million in 2009/10. In addition to the short beginning stocks, export estimates for 2010/11 were raised to 13.5 million bales for the 2010/11 marketing year from 12 the previous year. China’s consumption is projected to increase 3% to 49 million bales.
Hog futures lost $1.97 or 2.3% for the week. Pork production for the week ending May 15th is expected to hit 397.9 million pounds with the year to date total at 8,205.2 million pounds, 4.5% below last year for this week. Slaughter is down 4.3% from a year ago. Cash prices remained firm this week with packers cutting kill hours in order to maintain their margin. Market ready hogs may also be a factor. Sow slaughter at 2.7% is down .2% from a year ago, which could mean some Sow retention or it might just be a reflection of decreased slaughter. On the WASDE report this week, USDA showed a decrease in pork production for 2010 of 762 million pounds from 2009 at 22,237 million pounds and pork production projected to increase in 2011 to 22,705 million pounds. The largest quarter decline is in the April through June time frame at 5,310 million pounds with third quarter numbers increasing 110 million pounds to 5,420 and fourth quarter numbers at 5,900 million pounds.
Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:
Market Watch
% Change
CBOT Wheat
KCBT Wheat
MGEX Wheat
Soybean Meal
Soybean Oil
Live Cattle
Feeder Cattle
Lean Hogs
Cattle futures closed 2.76% lower for the week, down $2.65 and finished Friday below the 40 day moving average on all the 2010 contracts. Beef exports for the week were good at 12,700 MT. Boxed beef prices did slip below the $170.00 mark on the Choice and ended the week at $169.26, down $0.53 and at $164.32, down $1.84 for the Select. Cash cattle prices were active Monday through Wednesday.  Most of the cattle sold between $100.00 and $101.00 in the live and $161 to $163 in the dressed. Late week trade was $98-99. Beef production was down .6% from last week and down 1% from a year ago. Year to date cattle slaughter is ahead of last year by 1.3% but weights are running about 10 pounds per critter below a year ago.  
Market Watch: The main concern coming into the week of May 17 will still be the status of the euro currency and the EU economy. The October of 2008 low on the euro is a critical level of support that would be a good area to get a short covering bounce from, but if asset holders feel there is too much at risk, they will be taking a risk aversion stance. That has implications for the value of the dollar, and thus for US exports and for commodity prices in dollar terms. We’re a world economy and changes in one country can impact all of us. The significant economic reports coming up next week are the monthly Housing Starts and Permits Report and Producer Price Index, the weekly Energy Stocks and Jobless Claims and the USDA Monthly Cattle on Feed and Cold Storage reports.
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