Market Watch with Alan Brugler
January 23, 2015
A Deflationary Feeling
Last week was the first in a long time where all of the ag commodities were showing red at the same time. The action this week nearly made that true for two weeks in a row. Soybean meal snuck in a small gain from Friday to Friday, and oats were slightly higher. Otherwise most US commodities finished the week with losses as the US Dollar Index surged sharply higher on Thursday and Friday. Crude oil posted a new low closing price for the move, and finished the week there. King Abdullah from Saudi Arabia passed away on Thursday, something long anticipated.
The Swiss decision to remove the cap on how many Euros one could trade for a Swiss Franc was a result of knowing further losses were ahead if they continued to defend the euro in a period of easing by the EU central bank. The jump in the Swissy left some FX firms broke. The European Central Bank then unveiled its own version of quantitative easing. The moves were basically an attempt to remedy the concerns about deflation that were creeping into economic discussions, and create a “healthy” amount of inflation. It will likely take some time for the markets to adjust to the fallout, but for the US Dollar bulls, this week was in line with what their doctor ordered.
Corn settled just a quarter cent lower for the week. It would have been lower except for the 3 cent gain on Friday. USDA reported the largest weekly export sales of the year, at 2.158 MMT (85 million bushels). That included large sales to Japan and to “unknown”. Ethanol production continues to be stout, but margins are by some calculations beginning to slip into negative territory. Ethanol stocks have built to the highest level since January 2013 due to spot ethanol prices currently being above gasoline and thus not attractive for voluntary blending.
Soybean futures were down another 1.8%, hit by the 5.3% drop in soybean meal and slowing weekly export sales. We are at that time of year when soybean exports typically fall seasonally, and a sharp drop off is anticipated based on the rapid pace thus far. The Weekly USDA Export Sales report on Friday showed net sales of only 14,100 MT of old crop due to cancellations, with a modest 101,200 MT sold for 2015/16. US bean export commitments already total 92% of the full year forecast. That compares to 95% last year, but the 5 year average is 87%.
Wheat futures were 0.5 to 2.2% this week, with KC the weakest. The USDA weekly Export Sales report was an improvement, with net sales of 564,400 MT for combined 2014/15 and 2015/16 business. Wheat export commitments are still slipping compared to the 5 year average. They are now 77% of the full year USDA number and would typically be 80% by now. Outstanding sales (not shipped) are 5% above year ago.
Cotton futures were down 3.2% for the week. The US dollar index again surged to a new multi-year high this week. However, cotton export sales hit a marketing year high of 470,300 running bales for upland, and another 15,000 RB of pima. Cotton export sales commitments are now at 92% of the full year forecast, well ahead oft the 84% average pace. The index funds added more than 1,500 contracts to their longs in the CFTC report, bringing them to 39,824, while managed money went short on 10,889 to leave a net negative 7,331 contracts as of Tuesday . USDA put the AWP for this week at 45.59 cents, and LDP was increased to 6.41 cents.
Cattle futures fell 2.6 this week, with nearby feeder futures down only 0.18% as they have to respect what the cash market is doing. January futures expire on Thursday and have to converge with the cash index. Weekly beef production was down 1.5% from the same week in 2014, with slaughter down 4%. Wholesale beef prices were higher early in the week, but faded. The Choice boxes were down 2.6% for the full week, and Select was down 1.4%. The Cattle on Feed report on Friday night showed January 1 inventory at 100.94% of year ago, slightly less than expected. Marketings were 95.33% of year ago, with placements at 92%. The Commitment of Traders report showed both the index funds and managed money specs unwinding long positions during the week ending January 20. They were still selling on Friday.
Hog futures were down 6.6% this week after falling 5.6% the previous week. Weekly hog slaughter was 4.6% LARGER than the same week in 2014, and due to higher carcass weights the production was 5.8% larger. This slug of supply has the futures market nervous, since increased farrowings and intentions suggest larger numbers in the spring. The wholesale market is more sanguine, with a net gain of 0.01% for the week. The average cutout was $84.38 on Friday night. The Cold Storage report on Thursday showed a buildup of 2.3% in pork inventories vs. November, but 10.3% less pork in storage than a year ago.
The coming week brings the usual weekly USDA export inspections on Monday and net export sales report on Thursday. The weekly EIA ethanol stocks will be on Wednesday. The Fed will meet on Tuesday and Wednesday. No interest rate hike is expected from this meeting, but the language on future hikes will be watched closely due to the weakness in other countries right now. Thursday will mark the expiration of the January feeder cattle futures. The semi-annual USDA Cattle Inventory report is scheduled for release on Friday, January 30.
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