Beware of Falling Cats

Published on: 15:53PM Aug 15, 2014


Market Watch with Alan Brugler

August 15, 2014

Beware of Falling Cats 

There are falling cats in the news and falling cats in the market this weekend. According to the AP, a cat named Gizmo fell out of a Manhattan (NY, not Kansas) apartment penthouse and dropped 12 stories to hit a third floor landing. Amazingly, a visit to the vet showed only scratches and a broken tooth. In the markets, we have the "dead cat bounce", the notion that even a dead cat falling out of a penthouse will bounce when he hits the concrete. That is used as an analogy for rallies following a sharp market decline, with the added caution that if the cat was already dead the bounce won’t last. We had dead cat bounce talk this week in corn, wheat and cattle markets. For a couple hours on Friday, hogs were included in that conversation, but they quickly returned to earth. 

Corn rallied 14 cents per bushel this week, a nearly 4% gain that "snuck up" on a lot of traders. USDA weekly Export Sales were about as expected at 879,600 MT. Cumulative sales commitments are now 100% of the USDA revised forecast for full year shipments. They would typically be 108% by now, which caused some head scratching when USDA hiked the number on Tuesday. On Tuesday, USDA hiked the projected US average yield to 167.4 bpa, a conservative figure compared to trade expectations. The yield was based on record large ear counts and the third largest ear weight in the last decade, so it wasn’t exactly a conservative number. Projected ending stocks for 2015 were nudged to 1.808 billion bushels, with the midpoint cash average price forecast at $3.90. The weekly CFTC commitment of traders report showed managed money accounts decreased their net long position in corn by 4,023, taking them down to a net long position of 67,665 contracts as of the closing bell on Tuesday.
















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Soybean futures were down 11 cents per bushel in the nearby September contract for the week, and 33 cents lower for new crop November.  USDA hiked projected production a modest 16 mbu from their July forecast, and increased projected 2015 ending stocks to 430 million bushels. USDA put weekly export sales at 1,143,200 MT including 61,400 MT of old crop. That was within the range of trade estimates, and continued to have to report sales of 100,000 MT or more under the daily reporting system. New crop export commitments to all destinations are now above last year’s record level, although commitments to China still lag.  The NOPA crush report for July was 119.62 million bushels, about 3 million more than trade estimates. Soy oil stocks are still quite comfortable at 1.589 billion pounds for NOPA members (the US total is larger but not directly surveyed). The weekly CFTC Commitment of Traders report showed managed money accounts getting less-short by 2,909 contracts during the week ending Tuesday August 12.  The managed money net position is now short -11,704 contracts. 

Wheat futures saw another weekly gain in Chicago, up 2 cents. KC was down again, and MPLS also settled lower by 1.25% for the week. USDA weekly Export Sales totaled 338,700 MT.  The main buyers were Brazil, Mexico and Unknown destinations. Cumulative export commitments are now 42% of the USDA forecast for the full year, up from the 5 year average of 38%. On Tuesday, USDA bumped up projected HRW, SRW and spring wheat production, but also foresaw additional export sales and moved the ending stocks figure only 3 million bushels to 663 million.  The weekly CFTC Commitment of Traders report showed managed money accounts with a net short position of 61,124 contracts, with net buying for the week of 5,909 contracts. They were still net long KC wheat.

October Cotton futures lost 0.33% for the week. That was a modest loss considering the increase in projected US ending stocks to 5.6 million bales announced by USDA on Tuesday. USDA hiked projected exports, but raised expected production more. One reason for a cautious approach was the first cut in projected world ending stocks in a span of several monthly reports. They are still projected to grow to record levels this year. The weekly USDA export sales report put Upland sales at 184,500 running bales, including 8,100 RB booked for the 15/16 marketing year.  Pima sales were reported at 3,300 RB for 14/15. The CFTC COT disaggregated futures and options report shows managed money accounts are now net short -5,733 contracts, after they were net short just -1,753 contracts last week.

Cattle futures were down $1.95 or 1.28% this week after a 3% decline the previous week.  Feeders were up $1.90 or 0.88% despite action in both corn and cattle pointing toward lower feeder values. Nearby cattle futures are still trading at a discount to the cash market, which works well for hedgers.  Cash cattle traded on Thursday and Friday at $155-156, down $4 from last week. August futures went home at $150.60, however, still a plus $5 basis. Wholesale beef prices were weaker this week, being dragged down by the pork market. Choice boxes were 1.9% lower on the week. Select boxes dropped 1.8%. Weekly estimated slaughter was up 0.7% from last week, but down 7.5% from year ago. Beef production YTD is down 6.3%, with slaughter down 7%. Higher carcass weights make up the difference.

Hog futures were down a sharp 4.4%, continuing the collapse from the previous 2 weeks. Thus far in 2014, hog slaughter is off 4.9% from the same point in 2013.  Pork production is only down 1.2%, due to substantially higher carcass weights. Carcasses are currently running 9# above year ago, with live weights up about 12 pounds. Pork carcass cutout values continued to slip this week, with the average price reported at $111.80 on Friday, a weekly loss of 10.8%!  Hams were down 20.6% in a single week. Russia had reportedly been active in hams earlier in the spring, and the weakness may be related to that product needing to find a different home. The weekly CFTC commitment of traders report showed managed money accounts are now net long 48,369 contracts, slipping -3,967 contracts from the previous weekly report.

 Market Watch

We will get the usual USDA Export Inspections and Crop Progress reports on Monday and the weekly Export Sales report on Thursday morning. The main USDA reports for the week will be the Cattle on Feed and Cold Storage reports on Friday afternoon. September grain options will also expire on Friday, August 22.


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