Getting Comfortable

Published on: 16:16PM Aug 02, 2013


Market Watch with Alan Brugler

  August 2, 2013

Getting Comfortable

The grain markets are apparently getting comfortable with the idea of a 14 billion bushel corn crop and a 3.3 billion bushel soybean crop. That is the best way to view this week’s price action. Corn is past the silking stage on a big % of the crop, and did so without excessive heat. Some areas are still in drought, and in fact the drought area expanded in this week’s Drought Monitor. Without the heat to go with it, traders were willing to assume that the national impact would be minimal. Maturity of corn and soybeans is still behind the normal pace and well behind year ago. The funds have a record large short position in corn and appear willing to press the market until frost or freeze damage is seen in multiple states while it is still early enough to make a difference.

Corn futures dropped sharply this week, despite the delayed development that raises the threat of yield losses due to an early freeze. Since that is unlikely before Labor Day, the market is focused on the record production potential if we don’t get it. Nearby September futures lost 3.25% for the week. Pollination has clearly gone well for the majority of the US crop. New crop export sales bookings are running at a 5 year high, but there is still great skepticism about the degree of export recovery USDA is projecting for the 2013/14 marketing year. Old crop corn exports are laboring to make the USDA projection of 700 million bushels. New crop sales (for shipment after September 1) are the largest for this date in at least 5 years.

Soybean futures were hurt by unwinding of spec fund long positions and a collapse of the old crop soy meal demand. Nearby August only showed a net loss for the week of 19 cents per bushel or 1.4%. At times it seemed like the sell pressure was more severe than that. Open interest has come down sharply in the August, with the only longs remaining having very deep pockets and an obvious interest in obtaining physical bushels via delivery. Some of the longs have held the position since August 2012. Weekly export sales were still net positive for old crop, and excellent for new crop at 1.031 MMT. Old crop export commitments are 102% of the USDA forecast for the year. They would typically be 104% by the end of July. The unshipped portion (commitments) is at a multi-year low for this date due to completion from South American supplies.

Wheat futures were stronger, with KC up 2.2% on the week, Chicago up 1.6% and MPLS up 0.6%. There were a combination of factors at work including seasonal spread trades against corn, tighter world stocks projections and the winding down of winter wheat harvest pressure. Wheat again saw weekly US export sales at a solid 596,900 MT. Cumulative commitments for this marketing year are already 44% of the USDA projection for the entire year. The US would typically have sold only 34% by this date. Both US and world ending stocks are projected to be at a 5 year low by next spring, lending some urgency for those who need quality wheat to get it bought. USDA is expected to increase projected EU and Indian production in the August 12 crop report, but there are also reports about quality issues with the new crop French wheat.

Cotton futures were down 0.06%, so just call them UNCH for the week. The marketing year ended July 31, and the USDA weekly sales report covered business through July 25. Net export sales of old crop were slow as you would expect, at 33,600 MT. Cumulative export sales commitments are 106% of the USDA forecast for the year. The 5 year average would be 111%. That doesn’t necessarily mean USDA is too high on its forecast. It may just mean a smaller quantity of unshipped sales get rolled over to new crop delivery. The US dollar index retreated on Friday following the drop in US unemployment to 7.4% (the specs had been looking for a lower number).  Cotton was lower anyway.















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Cattle futures were off $1.15 this week as traders went for the August 120 strike price ahead of options expiration. They did not succeed in getting that "pin". Wholesale beef prices were mixed this past week, with Choice up a minuscule $0.06 and Select down $1.81 on a Friday/Friday basis. Estimated weekly beef production was down 1.7% from last week and down 2.0% from the same week in 2012. Weekly slaughter was 629,000 head, down from 644,000 head for the same period last year.  Net weekly export sales for 2013 were reported by USDA at 11,400 MT.

Hog futures were $1.47 higher after a gain of $1.30 the prior week.   The USDA weekly export sales report showed net sales of 9,600 MT of pork for 2013. Estimated weekly slaughter was 2.022 million head. That was down 18,000 head from the same week last year.  Pork production for the week was 0.4% larger than year ago due to heavier average weights. The pork carcass cutout value jumped 4.5% for the week, greatly improving what packers could afford to pay for hogs. The pork belly primal price hit the highest value since early June. The background story for hogs is the expected loss of production from the PED virus outbreak. Various estimates have production down 2-3% from what otherwise would have been expanded production. Pork production YTD is down 0.3% from 2012.

Market Watch

This will be an "in between" week, with the monthly USDA Crop Production and WASDE reports coming out on Monday, August 12. We’re starting to get the private guesses, and will see most by mid-week. Cattle traders will begin the week adjusting to any unexpected positions resulting from August options exercises on August 2. USDA will release the usual Monday Export Inspections and Crop Progress reports. Traders are expecting weekly crop condition ratings to rise contra-seasonally due to cooler and wetter weather.  Weekly Export Sales will be on Thursday morning. The CFTC commitment of traders report will be released on Friday afternoon.

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