A Whole New World

Published on: 16:56PM May 09, 2014


Market Watch with Alan Brugler

May 9, 2014

A Whole New World


On Friday morning, USDA took its first official (World Outlook Board) shot at 2014/15 world grain and oilseed estimates. With literally a whole new world of numbers to consider, there were plenty of questions about assumptions. Our research shows that it takes roughly 3 full years for USDA world numbers to "settle" from their first release here in May. The broad picture is for rising global stocks of corn, soybeans and cotton over the next year, while wheat production losses roughly counter production gains and global ending stocks are seen growing less than 1 MMT.

Corn was up 2.2% this week despite the Friday sell off. That offset most of the 2.56% loss from the prior week. Ethanol stocks dropped 100,000 barrels last week, thanks to zero imports and slightly lower production. The Commitment of Traders report on Friday night showed that the large speculator funds added 2,088 contracts to their net long position in the week ending May 6.  The main news for the week came from the USDA reports on Friday. USDA projected 2014 productoinn of 13.935 billion bushels, keeping their "weather adjusted trend yield" forecast at a record 165.3 bpa. World stocks numbers were increased sharply for both old and new crop, with the former up about 10 MMT (Brazilian production was hiked 3 MMT) and the latter @ 181.73 MMT vs. trade estimates of only 161.2 MMT.

Soybean futures were up 20 cents for the week, thanks to a 26 3/4 cent gain in the thin and soon to expire May contract on Friday. Meal was up 1.37%, but soy oil was down another 0.75%. Trade guesses for USDA weekly export sales were in the zero to 100,000 MT range for old crop, and net sales of 40,800 MT were regarded as bullish on Thursday. USDA hiked the old crop export estimate to 1.6 billion bushels on Friday, reflecting this strong old crop demand. To make room in the balance sheet, they bumped up likely imports to 90 million bushels. The Commitment of Traders report on Friday afternoon showed the spec funds exiting 30,832 soybean longs during the week, dropping their net long to 138.044 contracts as of June 6.  

Wheat futures were up more than 4% in Minneapolis, gained 0.9% in Chicago, but lost 1.5% in ostensible bull leader KC.  The worsening of drought conditions in TX and KS this week was a supportive factor. USDA agree with the Wheat Quality Tour, putting likely Kansas production at 260.4 million bushels. On Friday, USDA estimated US winter wheat production would drop to 1.403 billion bushels, with all wheat production at 1.963 billion bushels.

Cotton futures were down 2.08% this week. Speculative longs added 2,477 contracts to their net position in the last reporting week, bringing the CFTC total to 64,378 as of May 6.  The National Cotton Council (NCC) earlier this month lowered its projection for US cotton production to 15.25 million bales, citing dry weather in Texas. USDA agreed on Friday, cutting its own figure to 14.5 million bales. USDA also cut projected old crop exports by 300,000 bales, bumping ending stocks back up to 2.8 million bales. New crop ending stocks are seen hitting 3.9 million bales.















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Cattle futures were down 0.25% this week. Cash cattle trade was slow to develop, with a few cattle trading $1-2 lower on Friday. Some $236-238 trades were reported in Nebraska. Estimated weekly slaughter of 597,000 head was down from 608,000 last week and 629,000 a year ago. Beef production YTD is 6.0% below last year. Production this week was 3.7% smaller than the same week in 2013. Average carcass weight is about 12# above last year. Wholesale prices lost 2.2% this week in the Choice and were down 3.8% in the Select.

June Hog futures were down 1.68% this week following a 1.8% drop last week. The pork carcass cutout lost 1.97% this week after being down 1.86% the prior week. Weekly FI slaughter was projected at 2.016 million head vs. 2.019 last week and 2.084 million a year ago. That meant weekly slaughter was down 3.3% from last year, but due to higher carcass weights the pork production was actually up 1.1%!  With USDA projecting pork exports for the year will be 3.8% higher producers have to pick up their pace or US consumers have to buy less. Average carcass weights are up 9 pounds from year ago.

Market Watch

USDA will give us the usual updated Export Inspections and Crop Progress reports on Monday, with traders expecting US corn planting to be over 50% complete by Sunday, and up to 80% done in some Corn Belt states.  May hog futures will expire on Wednesday, as will May grain and oilseed contracts. USDA will issue updated weekly Export Sales numbers on Thursday morning.  NOPA is also expected to release its monthly NOPA crush report on Thursday. USDA is schedule to publish the monthly Cattle on Feed report on Friday afternoon at 2 pm CDT.

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