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A Strong Dollar But Who Cares?

Published on: 21:55PM Dec 05, 2014

 Brugler

Market Watch with Alan Brugler

December 5, 2014

Strong Dollar, Who Cares?

The US dollar index hit a 5 year high this week. Crude oil, which trades like a currency, hit a 5 year low. While there is an impact of a strong currency on affordability to third party buyers, the effect is muted when you are at multi-year lows in the grain markets. Cheap crude, and its proxies cheap gasoline and diesel fuel, should be negatively impacting the portion of the grain and oilseed markets going to fuel. That was not the case this week, although the impact may just be delayed via hedging. Our main takeaway this week is that strong soybean exports and crush demand require a LOT of soybeans to move in the pipeline, and prices won’t break if such is not the case. Corn export sales have risen steadily over the past month, also requiring the grain to get moving. The dollar is a background factor.

Corn ended the week 1.5% higher, a 5 3/4 cent per bushel gain.  Net weekly export sales were improved for a fourth week in a row, to 1.170 MMT. The biggest buyer this past week was Mexico. The cumulative commitments are 51%  of the full year USDA forecast. It is worth noting that grain sorghum export sales continue to be large, including big sales to China. China continues to allow sorghum in as a non-GMO feed alternative. Weekly ethanol production slowed for Thanksgiving after hitting a record high daily average the week before. Corn consumption for ethanol use (before DDG netback) is still running about 101 million bushels per week.

Soybean futures were up 2% for the week, will all of the 20 cent gain for the week occurring on Friday. Weekly soybean export sales were larger than expected at 1.179 MMT. Cumulative export commitments have already reached 85% of the current USDA forecast for the full year. They would typically be 75%, strongly suggesting an upward revision of 25 million bushels or more in the export number for the December WASDE report. Soybean meal export sales were stronger than expected at 226,800 MT.  Meal export commitments are 58% of the full year forecast, ahead of the 51% average for this date.  Private estimates for Brazilian production are running 1 MMT below the November WASDE estimate.

 

Commodity

 

 

 

 

Weekly

Weekly

Month

11/14/14

11/21/14

11/28/14

12/05/14

Change

% Change

Dec

Corn

$3.82

$3.73

$3.76

$3.82

$0.058

1.53%

Dec

CBOT Wheat

$5.54

$5.47

$5.77

$6.09

$0.318

5.50%

Dec

KCBT Wheat

$6.05

$6.04

$6.37

$6.33

($0.045)

-0.71%

Dec

MGEX Wheat

$5.91

$5.83

$6.21

$6.20

($0.015)

-0.24%

Jan

Soybeans

$10.21

$10.39

$10.16

$10.36

$0.200

1.97%

Dec

Soybean Meal

$380.10

$378.40

$391.10

$394.20

$3.100

0.79%

Dec

Soybean Oil

$32.21

$32.69

$32.18

$32.01

($0.170)

-0.53%

Dec

Live Cattle

$170.20

$170.90

$168.88

$164.45

($4.425)

-2.62%

Jan

Feeder Cattle

$236.13

$236.35

$231.08

$234.88

$3.800

1.64%

Dec

Lean Hogs

$92.68

$90.65

$90.33

$86.60

($3.725)

-4.12%

Dec

Cotton

$59.80

$59.76

$60.96

$60.54

($0.420)

-0.69%

Dec

Oats

$3.39

$3.27

$2.95

$3.00

$0.050

1.70%

Jan

Rice

$11.97

$12.60

$12.34

$12.07

($0.270)

-2.19%

Wheat futures were up 5.5% in Chicago, rallying big on Monday and then holding the gains in the December contract. KC was down 4 1/2 cents for the week, and MPLS was down 1 1/2 cents or 0.24%. Larger than expected Canadian wheat production weighed on the hard wheat futures contracts, with Stats Canada showing total wheat production at 29.3 MMT, while the average pre-report trade guess was 27.54 MMT. US weekly export sales were down from the prior week at 319,200 MT.  Total commitments (shipped plus outstanding sales) are 68% of the USDA forecast for the year. The five year average for this date is 69%, so essentially we are on pace for the drop expected by the World Outlook Board in the monthly WASDE report. The EU continues to aggressively export wheat, with export licenses appoved for the year to date at 13.6 MMT vs. 12.5 MMT  a year ago at this time.

Dec Cotton futures were down 0.7% this week after a corrective bounce the previous week. The 5 year high in the US dollar is a headwind for the bulls. December contract expires on Monday. The lower cash cotton prices facilitated by the LDP are boosting cotton exports, with commitments already at 73% of the forecast for the year. They would typically be 71%. The average world price (AWP) for this coming week is 46.36 cents, putting the national LDP/MLG at 5.64 cents per pound through December 11.  The weekly USDA export sales report showed net sales of Upland cotton were 167,000 RB.  

Cattle futures lost 2.6% this this week. Spec funds were taking profits ahead of the beginning of December deliveries.  A strong US dollar threatens to hurt beef export sales, and indirectly the wholesale beef market. Wholesale beef is also often weak in early December due to an increased presence of ham and turkey in the Christmas period. Wholesale beef prices were lower this week. USDA Choice 600-900 pound boxes were down 1.9% Friday/Friday, and Select product was down 3.7%. Cash cattle traded at $168 in Kansas on Friday, down from $172 the week before as packers relied on contract cattle and did not chance the negotiated market. Weekly estimated slaughter was 10.7% smaller than the same week in 2013, with beef production down 7.9% due to sharply higher carcass weights. Beef production for the YTD is down 6.0%, with slaughter down 7.4%.  Weekly beef export sales totaled 11,800 MT, up slightly from the previous week.

Hog futures lost 4.12% this week.  For 2014 YTD (year to date), hog slaughter is off 5.1% from the same point in 2013. Slaughter this past week was down 3.5% vs. year ago. Pork production was only down 2.7% vs. year ago this week because of higher carcass weights. Pork production for the year is down 1.8% vs. Jan-Nov 2013.  Pork carcass cutout values were down 0.48% this week. Pork loins were fairly strong due to pipeline stocking for Christmas and New Year’s, but the pork butt primal was down 4.6%. Weekly pork export sales sank to only 4,900 MT as 2014 sales are drying up due to a limited shipping window and new year bookings were stalled by declining prices (buyers inclined to wait) and a stronger dollar.   

 Market Watch

USDA will issue the regular Export Inspections and Export Sales reports on Monday and Thursday respectively. With crops out of the field, these assume additional importance. December cotton futures expire on Monday, and December live cattle deliveries become possible. They are unlikely, given the discount of futures to cash. The main USDA reports of the week will be Crop Production and WASDE Supply/Demand, both to be released on Wednesday morning. December grain futures will expire on Friday, December 12, as will Lean Hogs.

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There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.

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