Erratic Gains

Published on: 16:24PM Dec 20, 2013


Market Watch with Alan Brugler

December 20, 2013

Erratic Gains


As we approach year end, producers are making or not making sales based on their tax situation and local bid strength. Spec funds are making or not making sales depending on whether they need to take profits in order to pay marked-to-market taxes on December 31, and are also involved in asset allocation adjustments where they are selling their winners and buying this year’s losers in anticipation of markets that "revert to the mean". This activity has meant erratic moves in commodity prices, depending on what that market has done over the past several months. Strong markets like hogs are seeing some selling, and weak markets like corn are seeing some buying. One would expect the shorts to cash out some wheat positions as well, but with such a strong trend they may want to wait until the last minute.


March corn futures were up 8 cents this week, continuing in a narrow 15 cent trading band. Demand is a bright spot as low prices continue to work to cure low prices. Ethanol stocks did rise again, but imports have been zero for the past 11 weeks and elevated domestic production is being absorbed. USDA reported larger than expected weekly corn export sales of 872,300 MT. Those included fresh sales of 124,000 MT to China. China has rejected 545,000 metric tons (21 million bushels) of U.S. corn so far this year in cargoes that contained corn with the MIR162 trait. That 21 million bushels represents 1.4% of projected US exports for the year. That corn is being re-directed to other countries which have already approved the variety. US corn export commitments are 75% of the upwardly revised December USDA forecast for the year. The 5 year average commitment for this time would be 53%. Chicken production continues to expand, with egg sets up 3% and placements up 1% this week. Hog producers are also feeding hogs to historically high weights, requiring more corn.


Soybean futures were up 0.87% this week. Weekly US export sales were poor at 495,700 MT, the slowest of the marketing year. This was due to a 576,300 MT cancellation of sales to "unknown destinations". Futures closed higher on Thursday. It is not a bear market when bad news fails to make it move lower. Total US export Commitments are now at 97% of the USDA forecast for the entire year, with more than 8 months remaining. Last year 70% of the sales for the year were booked at this time. Soybean meal export sales slowed, but 62% of the projected sales for the year are already booked. The average pace would be 53%.


Wheat futures lost another 1.4 to 2.4% this week, but did finally manage a higher daily close on Friday.  Total US export commitments are still a larger % of the USDA forecast than usual for this date, currently at 79% vs. the five year average of 73%.  Weekly wheat export sales through December 12 were much better than the prior week at 659,100 MT. Low prices cure low prices, as those sales were 47% larger than the 4 week average. The EU has been aggressively approving exports of wheat, with licenses issued YTD at 13.4 MMT vs. 9.1 MMT last year.


Cotton futures slipped 0.08% this week, almost a typographical error. March lost 16 points on Friday to flip the week from positive to negative. Projected US ending stocks are still an adequate 3 million bales. China is still seen holding more than half of the world surplus. The US outlook has improved, with the Fed cutting the QE3 program by $10 billion beginning in January. Economic indicators have picked up in several areas. Weekly cotton export sales for the week ending December 12 increased 36% from the previous week, with upland bookings at 236,000 running bales. Turkey was the largest buyer. US Export commitments as a % of total exports (for upland cotton) are now at 70%, lagging the 5 year average of 73%.
















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Cattle futures rallied 65 cents this week to add to the 45 cents from the prior week.  Feeders were down 0.06% due to the rise in feed costs. Cash cattle did fall back about a dollar from the previous week, with reports of $129-130 the south. Wholesale beef prices were down 1.1% on a Fri/Fri basis in the Choice, and up 0.8% in the Select. Weekly slaughter was down 2.1 % from the same week in 2012. Year to date beef production is down 1.2%.  Estimated carcass weights are running 6-7 pounds above last year’s actual of 800 pounds. USDA reported weekly beef export sales of 6,600 MT, a slow down from 11,500 MT the previous week.


Hog futures were down 1.06%, continuing a month long slide. Pork production YTD is down 0.8% from year ago. Pork production this week was 2.9% larger than the same week in 2012. Estimated slaughter totaled 2.353 million head, down 0.2% from last year but up 1.5% from the previous week.  Higher carcass weights (+6# per head vs. last year) are offsetting the lost head count. The pork carcass cutout value was down 1.83% this week, with pork bellies the weakest component for the second week in a row. USDA reported weekly pork export sales were much improved at 9,700 MT.


 Market Watch


Winter officially begins on December 21. The cattle market will begin the next week reacting to Friday’s USDA Cattle on Feed report, although the surprise factor was pretty limited. USDA will update Export Inspections on Monday, as well as the monthly Cold Storage report. Weekly export sales will be delayed until Friday because of the Christmas holiday on Wednesday. The markets will halt trading early on Christmas Eve and closed on Wednesday, and many traders will be absent all week. Don’t overlook Friday, which will feature the USDA Hogs & Pigs report, and also the expiration of the January grain options.


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