Beware the Ides of May

Published on: 15:03PM May 16, 2014


Market Watch with Alan Brugler

May 16, 2014

The Ides of May


You may be familiar with the Ides of March, from Shakespeare, but it appears grain bulls should have been warned about the ides of May. Futures took a pretty good hit on Thursday and Friday, extending more routine losses seen earlier in the week and going considerable chart damage.  The cash was leaving for a weekend parking spot, with equities also seeing major selling on Wednesday and Thursday before a little short covering bounce on Friday afternoon.

Corn was down a sharp 4.6% this week. Ethanol stocks grew 200,000 barrels last week due to the largest imports of the year and a rise in domestic production driven by excellent plant margins. Weekly export sales were disappointing at only 390,300 MT for combined old and new crop bookings. Planting progress got ahead of the 5 year average pace at 59% and is expected to be close to 70% this week despite some rain interruptions. The Commitment of Traders report on Friday night showed that the large speculator funds cut 11,435 contracts from their net long position in the week ending May 13.  

Soybean futures were 22 cents lower for the week after gaining 20 cents the prior week.  Meal was down 1.5% to apply some pressure to product value. Soy oil was also lower after NOPA showed larger than expected soy oil stocks on Thursday. USDA reported weekly exports sales of 398,300 MT, with a stronger than expected 73,600 MT of old crop. Old crop export commitments are 103% of the USDA full year forecast, ahead of the typical 98% pace for this date. Outstanding sales are only 2.3 MMT. The Commitment of Traders report on Friday afternoon showed the spec funds exiting another 6,281 soybean longs during the week, dropping their net long to 131,763 contracts as of May 13.  















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Wheat futures were down sharply this week. KC was off 7.3%, while MPLS lost 6.9% and Chicago was down 6.6%. Weekly export bookings dropped sharply, to only 252,000 MT. Old crop sales were only 54,900 MT, which you might expect since they need to be shipped by May 31.  Drought conditions intensified in the Panhandle area, but parts of Kansas and Nebraska got some rain relief and SRW condition ratings continued to improve. Remember that a falling market doesn’t necessarily mean bigger production; it can just mean an opinion that the rationing job has been accomplished and consumption will fit the reduced supply. The Commitment of Traders report showed the large spec funds trimming their HC HRW long by 2,353 contracts in the week ending May 13.

Cotton futures were down 2.75% this week. Speculative longs have been exiting, cutting 7,334 contracts from their net long this week, bringing the CFTC total to 57,044 as of May 13.  Export sales commitments are running 99% of the USDA forecast for the year. They would typically be 102% by now, due to business typically carried over to the following marketing year. China continues to make efforts to use up more of its burgeoning stockpile, at the expense of imports.

Cattle futures were down 0.11% this week. Cash cattle trade was slow to develop, with a few cattle trading $1lower on Friday at $145 but most trade waiting for the Cattle on Feed report. Futures were supported all week by their discount to the cash cattle market. We are not in a delivery period, which limited any need for convergence.  Estimated weekly slaughter of 591,000 head was down from 600,000 last week and 654,000 a year ago. Beef production YTD is 5.6% below last year. Production this week was 8.5% smaller than the same week in 2013. Average carcass weight is about 10# above last year, helping to offset a 9.6% drop in the slaughter run. Wholesale prices lost 0.25% in the Choice and were up 1.39% in the Select on a Thursday/Thursday basis. The average retail beef price for April set a new record high at $5.87/pound. On Friday afternoon, USDA reported that the number of cattle on Feed on May 1 was 99% of year ago. April placements were a little light at 95.1% and April marketings were about as expected at 98% of April 2013.

June Hog futures were up 4.2% this week following a drop last week. May futures expired weakly at $114.67. Weekly FI slaughter was projected at 1.999 million head vs. 2.016 last week and 2.037 million a year ago. That meant weekly slaughter was down 1.9% from last year, but due to higher carcass weights the pork production was actually up 3.0%!  Carcass weights are up an average of 9 pounds per hog.  Weekly pork export sales were down 17% from the prior week at only 8,000 MT.

Market Watch

Cattle traders will begin the week reacting to the COF report results from Friday night. USDA will give us the usual updated Export Inspections and Crop Progress reports on Monday, with traders expecting US corn planting to be over 70% complete by Sunday, and up to 90% done in some Corn Belt states.  USDA weekly Export Sales will be out on Thursday morning, with the monthly Cold Storage report scheduled for Thursday afternoon.  Thursday is also the last trading day for May Feeder Cattle. Friday will market the expiration of June serial options for grain futures.  Friday will also be the beginning of a 3-day holiday weekend, with markets closed for Memorial Day on May 26.

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