Melt Down

Published on: 22:39PM Jan 15, 2010


Market Watch with Alan Brugler

January 15, 2010


Melt Down


The snow in the Midwest wasn’t the only thing melting this week. Bullish confidence in grain and oil seed prices also eroded following USDA’s reports on Tuesday, and prices were also doing a good imitation of an ice sculpture that had been left out too long. On the other hand, livestock prices were rising while those producers were simultaneously benefitting from the reduced feed costs.


Nearby March corn futures dropped 52 cents for the week, a whopping 12% of its value. USDA surprised the trade by hiking projected 2009 production to 13.151 billion bushels on a record national average yield of 165.2 bushels per acre. First quarter use was large enough to require an upward revision in feed use projections, while ethanol and export use were left UNCH. Corn export commitments (shipments plus outstanding sales) are 19.4% larger than on this date a year ago, while USDA is conservatively looking for a 10% year over year increase. The larger production and limited change in consumption meant that USDA raised projected ending stocks to 1.764 billion bushels from 1.673 billion last year. Futures traders sold the market off hard on the news, with one NY based bank/spec house abruptly flipping from bullish to bearish following the report, and liquidating longs.


USDA trimmed projected soybean ending stocks to 245 million bushels from 255 million bushels, raising both projected crush and projected exports. The demand revisions more than offset an increase in projected US soybean yield (to a record 44.0 bushels) and production. The world market situation was more bearish, with USDA bumping up Brazilian production 2 MMT to 65 MMT and raising projected 2010 world ending stocks at more than 59 MMT. That would be the second largest world surplus on record. The biggest problem in terms of supporting prices is that production is seen rising more than 20% for the year, while world crush demand is up less than 6% and almost never expands more than 9% in a year. Soybean prices held up better than the feed grains, with March losing 4.7% for the week.


Wheat futures have also been under pressure, losing 8-10% of their value in a single week. USDA raised projected US ending stocks to 976 million bushels from 900 million. Most of the cut in use came in exports, which were lowered to 825 million bushels. Projected feed use was also reduced. World ending stocks continue to creep higher, as farmers all over the world have said “I can grow wheat for that”. The world stocks/use ratio is now seen at an 8 year high.


Below is a table showing the net weekly changes and 4 week history of selected agricultural futures:

Market Watch












% Change

March Corn







March CBOT Wheat







March KCBT Wheat







March MGEX Wheat







March Soybeans







March Soybean Meal







March Soybean Oil







February Live Cattle







January Feeder Cattle







February Lean Hogs







March Cotton







March Oats







March Rice









Cotton futures had lost ground the prior week, and were also the beneficiaries of fundamentals that were friendlier. They still closed 36 points lower for the week. USDA trimmed projected US cotton ending stocks to 4.3 million bales while also reducing the crop size estimate to 12.4 million bales. Thursday’s weekly export sales report was also bull friendly at more than 400 thousand running bales.  Cotton prices were still dragged down by the weakness in the other field crops, with the market collectively assuming that the needed expansion in 2010 acreage can now be accomplished without any serious price increase needed to pull those acres away from the other crops.


Cattle feeders saw the best of both worlds this week. Cash cattle prices were higher because packers were able to receive more for the beef. The choice cutout price rose $3.34 for the week. That allowed futures to rise. At the same time, feedlots are able to lock in sharply lower feed ingredient prices than they were a week ago. Thus, operating margins are much more attractive than they were at the beginning of the year.


Hogs were also sharply higher, gaining 4.04% for the week. The pork cutout advanced $4.44/cwt., suggesting that the lean hog index could rise to $70 or more as long as those values are maintained. Futures were under that at mid-week, and rallied in anticipation of higher cash hog prices. Those cash hog prices appeared to suffer little from the improved road conditions and air temps. That is to say, any backlog of hogs from the holiday storms in the WCB appeared to be readily absorbed.


Market Watch:  The market will continue to work through the hangover from the January 12 crop reports. Monday will be a market holiday (ML King). The main USDA reports for the week will be on Friday, with Livestock Slaughter, Cattle on Feed, and the monthly Cold Storage report all due to be released. Grain traders will have the usual Export Inspections report and Export Sales reports. Those will be delayed until Tuesday and Friday respectively, due to the federal holiday on Monday.


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