Equities Sucking Out All The Money?

Published on: 16:17PM Nov 15, 2013


Market Watch with Alan Brugler

November 15, 2013

Equities Sucking Out All the Money?

 The US stock market hit new record highs this week, and several other markets around the world are on a roll as well. That has been a negative for the ag commodities, as new speculative money has been diverted to the equity sector. We need to remember that commodities as an investment asset class became popular starting back in 2004/05 because they were shown to be negatively correlated to the equities. If you were afraid stocks were about to go down, you were to put more money into commodities. Right now, investment money is not afraid of going into stocks since the Fed is still pumping up the money supply every month and inflation is still tame. The result has been a shortage of oxygen for the commodities bulls (the bears must have been issued scuba tanks!). 

December corn futures were up on Monday, but that was all she wrote. We didn’t even get an MACD buy signal on the weekly chart because the market was unable to hold the early week gain. The net change for the week was -1.1%. Demand is a bright spot, with weekly ethanol production rising to the highest level since February 2012. And ethanol stocks only 100,000 barrels above the lowest reading since reporting began in 2010. USDA reported strong weekly export sales of 1.203 MMT on Friday morning. Export commitments are already 66% of the newly revised USDA forecast for the year, hinting at another upward revision in the future. The EPA did announce a cut in the targeted 2014 ethanol volume of 13 billion gallons for corn ethanol on Friday, about as expected and subject to a 60 day comment period after posting in the Federal Register. This would imply corn consumption of 4.75 billion bushels before adding additional bushels for export and voluntarily blended ethanol.

Soybean futures were down 1.2% this week. Weekly US export sales were expected to be 700,000 MT – 1.3 MMT. USDA put the total for last week on the low end at 848,500 MT.   Total Commitments as a % of total exports are now at 86%, which compares to 73% for last year and the 5 year average of 62%.   NOPA member soybean crush in October was 157.06 mbu, which was a new all time high for October.   Oil stocks were estimated at 1.491 bln bu, with the actual figure coming in at 1.356 bln bu. and revealing strong soy oil use.  EPA announced a target of 1.28 billion gallons for biodiesel use in 2014 on Friday afternoon.

Wheat futures were lower in all three markets this week again this week. MPLS was off the most at 2.11%. USDA sees HRS stockpiles growing, due to a record Canadian crop competing with the US stocks. Total US export commitments are still a larger % of the USDA forecast than usual for this date, but USDA chose to leave the forecast UNCH at 1.1 billion bushels due to the slower pace of sales in recent weeks. The net for the week ending November 7 (announced on Friday) was only 288,700 MT.

Cotton futures were actually up 0.29% for the week despite a nasty sell off on Thursday. Global ending stocks are still projected to be record large at 95.71 million bales. Put another way, the world will have 87% of the 2014/15 consumption already in the warehouse on July 31 (assuming no growth from 2014 in that consumption). Chinese stocks are thought to be a whopping 160% of their annual use. USDA weekly Upland cotton export sales data reported for the week ending November 7 came in at 472,700 RB, along with 32,500 RB of Pima cotton. Total Commitments as a % of total exports (for upland cotton) are now at 35%, which compares to 38% for last year and lagging the 5 year average of 40%.    

Cattle futures picked up $1.00 for the week. Beef production YTD is down 1.1% from 2012. Production this week was 1.2% smaller than the same week in 2012.  Our calculations show that ready numbers should be below year ago into December, based on the Cattle on Feed placement data.  Weekly slaughter dropped to 599,000 head from 607,000 head last week and 627,000 head a year ago. Wholesale beef prices were down 0.8% on a Fri/Fri basis in the Choice, and down 0.7% in the Select. Cash cattle trade began to develop at $132 in the south on Friday, up $1 from the previous week. USDA is anticipating that 4Q13 beef production will be down 4.2% from last year.

Hog futures were down 2.52% this week.  Pork production YTD is down 1.2% from year ago. Pork production this week was 3% larger than last week, but only 0.8% larger than year ago. The slaughter run was larger than last week but was down 1.1% from year ago. Thus, you might conclude that average carcass weights were a little higher. USDA estimates them up 4 pounds vs. year ago but we are hearing a lot of 210 dressed numbers and USDA is using 209. The pork carcass cutout value was down $2.88/cwt this week, a 3.04% drop due mostly to a 7% slide in hams.

 Market Watch

We will start the week with the regular Monday USDA Export Inspections and Crop Progress reports. Weekly Export Sales will be out on Thursday. Thursday will also mark the expiration of the November feeder cattle contract. Friday will be active, with expiration of December grain options. It is also first notice day for December cotton futures deliveries. On Friday afternoon, USDA is scheduled to deliver the monthly Cattle on Feed report and the monthly Cold Storage report at 2 pm CST.

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