Sunshine Returns

Published on: 16:45PM Feb 06, 2009

There’s nothing like a mid-winter thaw up to change attitudes. While there were heavy snows and ice in the east, much of the nation’s midsection saw a warm up from previous sub-zero temps. Big sections of the snow cover map became bare ground. The ag commodity markets had a similar thaw from their icy bearish attitude of the previous week (when all of the commodities we track were in the red). Rice was the largest gainer for this past week, with March up more than 8.6% despite modest weekly export sales. Traders in that electronic pit saw hints of smaller US long grain rice production in 2009 due to cash contracting changes. The other commodities saw smaller advances, and we still had some laggards in the feed grains and the feeder cattle.


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







March Soybeans







March Soy Meal







March Soy Oil







Feb Live Cattle







Mar Feeder Cattle







Feb Lean Hogs







March Cotton







March Oats







March Rice








Soybean futures were weak in the early part of the week and bounced sharply on Thursday and Friday despite disappointing weekly export sales numbers from USDA. The trade was taking some guidance from Argentina, both in terms of drier weather forecasts and because of a potential strike by farmers that could interfere with exports. Chinese traders were also back at work after their weeklong vacation, and were actively buying the Dalian soy futures. That suggested additional export sales, because Chinese prices are higher than current US offers plus freight. At least 4 cargoes were rumored to have been sold.


Feed grains were still a drag on bullish hopes. The market is clearly still trading old crop fundamentals rather than new crop acreage for both corn and beans. Corn was weighed down by ideas that USDA will show a buildup in carryover to 1.83 billion bushels or more. Demand destruction continues at this price level, in both livestock and the industrial sector. Weekly export sales were above 1.1 MMT, but commitments were still behind their normal levels for the end of January (as a % of projected exports for the year).


Wheat futures were held back by the weakness in corn and oats, and due to the same influences. Bulls can talk about smaller US and world crops for 2009/10, but the doubling of US carryover means that more than a third of next year’s crop needs is already in the bin. Dryness in parts of China’s winter wheat belt got attention, but the Chinese are irrigating the mostly dormant crop and arguing that while yield losses could be substantial they could still be less than 5% of the previously expected crop.


Cotton futures were up 9/10ths of a percent. The rising value of soybeans lent competition for acreage. A higher US stock market also fed notions that the very worst demand period has been seen or will soon be passed. You can get a lot of arguments on that subject. Weekly export sales were on the lower end of trade estimates, and limited gains. 


Cattle futures rallied 2% for the week, with nearly all of the gain on Monday as the market reacted to the smaller than expected cow and calf numbers in the Cattle Inventory report. After Monday, traders were forced to focus on the weakness in demand, with wholesale beef prices sliding in the face of sharp declines in restaurant traffic. Those drops were mostly in the fine dining and family dining categories where a lot of the prime and choice beef is sold. Hamburger demand is holding up well, but that won’t support cattle futures at current price levels.


Hogs were down 3.76% for the week.  Cash hogs had been maintaining a premium to the carcass value of the hog, and started to give some of that back.  February futures have a $2.73 discount to the CME Lean Hog index, anticipating cash hog weakness this week and heading into expiration of that contract. Consumer pork demand seems OK, aided by reductions in chicken supplies. However, export business has been hurt by the world economic slowdown, a stronger dollar, and seemingly protectionist measures by some of the US’s trading partners.


Market Watch:  We start the week with cattle and cotton reacting to the expiration of their nearby options, with some participants holding unexpected naked futures positions that will need to be adjusted. The Treasury is also expected to announce their banking bailout/repair plan on Monday. As if that wasn’t enough, USDA will release the monthly WASDE supply and demand estimates on Tuesday morning. February usually has modest changes in the US balance sheet, but there are lots of questions about what USDA will do with South American crop size and export forecasts. Friday will feature the expiration of the February hog futures and options. 


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