USDA Data Rocks The Markets

Published on: 11:05AM Jan 20, 2009
The big slug of USDA reports on January 12 was well advertised, and everyone knew they had the potential to be market moving. That proved to be an understatement, as prices were limit down following the release of bearish ending stocks numbers in corn, soybeans and wheat. The sell off got a shove from concurrent weakness in other markets, and the ag markets spent the rest of the week trying to decide whether the big sell off was justified.
The big mover for the week was the live cattle market. February rallied $1.42 from the previous Friday, a gain of 1.71%. Index fund selling was a feature early in the week, but dried up by Thursday. They have been the only net long reporting category in the cattle market for several months. Their asset allocation models called for fewer cattle futures positions, and they were net sellers. The cash market environment was more bull friendly, with light packer offerings in the wholesale market boosting prices. That also gave the packers more spending money for cash cattle. They didn’t share it in the north, where most cash cattle were bought at $83-83.50 under frigid conditions. Southern trade was slow to develop.
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
Jan Feeder Cattle
Feb Lean Hogs
March Cotton
March Oats
March Rice
Corn futures were down 20 cents for the week, a 4.8% loss that was much worse before a Friday short covering rally tacked on 25 ¾ cents to the value. USDA shocked the market with larger production and ending stocks estimates than had been expected, with the latter nearly 300 million bushels above the average trade guess. Demand continues to be a problem, with prices still above year ago levels and financial stress on both livestock and industrial users. USDA trimmed another 100 million bushels from projected ethanol use for the year, as more plants are being forced to take down time due to poor processing margins and or lack of financing. Export sales continue to run well under year ago on a week to week basis, and feed use is being hampered by reductions in hog and poultry numbers.
Wheat prices were lower at all three exchanges, again with all of the net loss for the week occurring in the post-report meltdown on Monday. USDA raised projected ending stocks to 655 million bushels. The US continues to lose most competitive export tenders to lower priced wheat out of the EU, Russia, Ukraine, etc. Egypt did buy one cargo for L/H February, and Japan continues to be a regular customer. USDA’s one bullish number on Monday, the smaller than expected winter wheat acreage of 42.098 million, was for the most part ignored because of record large world production this year and because USDA was still revising the world ending stocks figures higher.
Soybeans also posted a lower weekly close, down 1.5%. Product value was an issue, with soy oil losing 5.8% for the week. NOPA issued a bearish soy oil stocks number of 2.17 billion pounds. Since that came on a smaller than expected crush number, it meant weak demand. Biodiesel margins turned negative in December, slowing use. USDA’s crop estimate also was larger than the November number, when the trade had been looking for a smaller figure. Ending stocks were bumped up to 225 million bushels for next fall. The most bullish feature was continued strong Chinese buying interest in soybeans. Their weekly purchases have been above the 9 year average for all but one week since the beginning of the marketing year. A big spread between domestic price guarantees to farmers and the cost of imported beans has fueled strong import interest.
Cotton futures were down a modest .32 cents per pound for the week. Prices nosed above 50 cents, but were unable to stay there. USDA trimmed the size of last year’s crop, and cut projected ending stocks to 6.9 million bales from 7.1 million. However, export bookings were also trimmed to 12 million bales from 12.25 million and world demand continues to be constrained by a weak retail sales environment.
Hogs dropped 4% for the week, or $2.50 per hundred. Pork cutout values dropped during the week, limiting what packers were willing to pay for the hogs.  The main feature was the premium of the Feb futures to the CME Lean Hog Index, and the need to converge those prices before expiration in February. The basis firmed significantly during the week, as futures dropped and cash rose. Index fund liquidation of hog positions was also noted.
Market Watch:  The futures markets will be closed on Monday for the ML King holiday, with trading resuming on Globex at 6 pm CST on Monday night. The weekly Export Inspections report will be delayed until Tuesday release, and weekly Export Sales will be deferred until Friday. The main monthly reports from USDA will be Cold Storage on Thursday and Cattle on Feed on Friday. Friday will also mark the expiration of the February serial options in the grains, which settle against March futures.
© 2009 Brugler Marketing & Management LLC
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