Climbing The Wall of Worry

Published on: 21:48PM Dec 12, 2014


Market Watch with Alan Brugler

December 12, 2014

Climbing The Wall Of Worry, Seeing The Depths of Despair

There is an old trading axiom that “the market climbs a wall of worry”. This basically means that there is a seller for every buyer, and there are negative headlines in every rally. When the headlines turn almost universally bullish, the top is already forming. Grains have been proving the axiom all week. US and global ending stocks projections remain quite large, and end users keep asking “Why is this happening to me?”. The market in its collective wisdom is trying to get enough grain bought to fill the export pipeline for beans and corn, and is starting to get worried about availability of Russian wheat supplies in 2015. Compare that to the depths of despair in the crude oil market. That market is still in elevator mode, trying to get quickly from one level to the next. It is ignoring any bullish inputs and focused on the “too much” story just as the grains were back in August and September. As with the grains, we expect energies will go below economic value, followed by a recovery rally on that same wall of worry.

Corn ended the week 3.2% higher, a 12 1/2 cent per bushel gain and the highest close for March futures since July.  Net weekly export sales were solid at 962,800 MT. The cumulative commitments are 53%  of the full year USDA forecast. The average for this date would be 54%. USDA made only 1 change in the WASDE report, raising industrial use 10 million bushels and cutting ending stocks to 1.998 billion bushels. Weekly ethanol production set a new all time high. Ethanol stocks did build by 500,000 barrels. They could build further, due to the weakness in gasoline and rising corn prices. Census ethanol exports for October were released early in the week, jumping to 79.2 million.

Soybean futures were up 1.1% for the week. USDA cut projected US ending stocks to 410 million bushels from 450 million, raising expected annual exports by 40 million bushels to reflect the current 169 million bushel year over year gain in shipments. USDA weekly soybean export sales through Dec 4 were slower at 810,300 MT. Cumulative export commitments have reached 84% of the updated USDA forecast for the full year. They would typically be 77% by this date. Soybean meal export sales were a little softer because of the Thanksgiving holiday week, at 88,900 MT. Meal export commitments are 59% of the full year forecast, ahead of the 54% average for this date.  















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Wheat futures were up 2.1% in Chicago, rallying big on Thursday and Friday. KC was down 0.8% for the week, and MPLS was down 0.4%. US weekly export sales were improved from the prior week at 442,300 MT of old crop and another 84,200 MT of new crop.  Total commitments (shipped plus outstanding sales) are 69% of the USDA forecast for the year. The five year average for this date is 70%, so essentially we are on pace for the drop expected by the World Outlook Board in the monthly WASDE report. On Friday, the Russian Agriculture Minister (Fyodorv) reiterated that the strong pace of Russian exports was “worrisome”. The plunging ruble is making Russian wheat cheap in third party currency, while increasing inflationary pressures at home.  

Cotton futures were up 1% for the week. The lower cash cotton prices facilitated by the LDP are boosting cotton exports, with commitments already at 75% of the forecast for the year. They would typically be 73%. The weekly USDA export sales report showed net sales of Upland cotton were 199,200 RB.  The average world price (AWP) for this coming week is 46.45 cents, putting the national LDP/MLG at 5.55 cents per pound through December 18. 

Cattle futures lost 1.5% this week. Spec funds continue to unwind their net long position. A strong US dollar threatens to hurt beef export sales, and indirectly the wholesale beef market. USDA Choice 600-900 pound boxes were down 3.0% Friday/Friday, and Select product was down 1.1%. Cash cattle traded at $164 in Kansas on Friday, with northern carcass based sales at $257. Weekly estimated slaughter was 6.9% smaller than the same week in 2013, with beef production down 3.9% 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 13,300 MT, up slightly from the previous week.

Hog futures lost 2.8% this week, actually a slower rate of decline than the previous 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 2.9% vs. year ago. Pork production was only down 2.1% vs. year ago this week because of higher carcass weights. Pork production for the year is down 1.8% vs. Jan-Dec 2013.  Pork carcass cutout values were down 0.15% this week. Pork bellies were up 5.8% for the week. The picnic quote was up 11.9% but that is based on an unusual Friday number that may be backed off next week. Weekly pork export sales ballooned to 46,700 MT for combined 2014 and 2015 bookings.

 Market Watch

USDA will issue the regular Export Inspections and Export Sales reports on Monday and Thursday respectively. The NOPA monthly soybean crush report is expected at the beginning of the week. The Fed open market committee will meet on Tuesday and Wednesday. The main USDA report for the week is the Cattle on Feed report on Friday, December 19.

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