Grains In The Deep Freeze, Cattle Red Hot

Published on: 16:03PM Jan 03, 2014


Market Watch with Alan Brugler

January 3, 2014

Grains In The Deep Freeze, Cattle Red Hot


The grain markets started out 2014 the same way they ended 2013, with nary a bullish spark. The bears were growling about rapidly growing world production capability, and grain bulls could only rely on slowly growing consumption at these bargain prices (feed grains). Babe the Blue Ox from Paul Bunyan came to mind. The cattle futures weren’t blue, they were a deep shade of black on the balance sheets. Cash trade hit $139 as short bought packers hit reduced ready numbers and some movement restrictions because of extremely cold temps. The spec funds hold large net long positions in cattle and were happy to feed the flame. 

March corn futures were down 4 cents this week. US corn export commitments are 77% of the upwardly revised December USDA forecast for the year. The 5 year average commitment for this time would be 56%. Redirection of previous Chinese sales that were rejected upon arrival has slowed new bookings. Total Chinese purchases YTD (shipped and unshipped) are 14% of the projected US corn export program. With confirmed redirections of more than 616,000 MT, that exposure is shrinking. Some of the earlier shipments are already consumed. Outstanding Chinese unshipped sales of 2.154 MMT are 5.8% of projected US shipments for the year and along with in transit shipments represent the remaining risk. Ethanol stocks dropped 100,000 barrels last week, and production dropped by about 13,000 barrels per day due to holiday down time. Next week’s report will also be on the small side due to the New Year’s holiday. Feed use is strong, with average hog weights 5# above year ago and thus taking a lot more corn per hog. Chicken production is also still expanding. On the bear side, southern Brazilian corn areas are now getting decent rains heading into pollination, and deterioration in Argentina has been slowed.  

Soybean futures were down 3.17% this week. Better weather in South America and reports that soybean harvest had begun in remote interior areas of Brazil both weighed on the market. Weekly US export sales were much improved at 1.18 MMT. Total US export Commitments are now at 101% of the USDA forecast for the entire year, with 8 months remaining. Last year 85% of the sales for the year were booked at this time and that was a front loaded year like this one. Soybean meal export sales picked back up to 123,900 MT. USDA shows 65% of the projected sales for the year are already booked. The average pace would be 56%.

Wheat futures lost another 0.7 to 2.4% this week, but did manage a higher daily close on Friday in Chicago.  Total US export commitments are still a larger % of the USDA forecast than usual for this date, currently at 82% vs. the five year average of 76%.  Weekly wheat export sales through December 26 were much slower than the prior week because of the Christmas holiday, totaling only 248,500 MT. Egypt bought a huge 535,000 MT of wheat in a tender on Thursday, all for shipment Jan 21-Feb 10. They were behind on their import program.

Cotton futures were down 0.96% this week after a 1.17% increase the previous week. China is still seen holding more than half of the world surplus. US Economic indicators have picked up in several areas, encouraging speculative fund buying. Weekly cotton export sales for the week ending December 26 slowed to 115,200 RB vs upland bookings at 242,300 running bales the prior week. US Export commitments as a % of total exports (for upland cotton) are now at 73%, still lagging the 5 year average of 76%.
















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Cattle futures rallied another $1.25 this week, and are up 2.5% in three weeks. Cash cattle traded $2-3 higher on Thursday than they had the previous week, with some cash sales reported as high as $139. Those are record prices. Packers needed cattle and had to pay up to get the few that were available. Wholesale beef prices were up 2.8% on a Fri/Fri basis in the Choice, and up 3.2% in the Select. This is exactly what is needed to support the cash cattle prices being paid. Packer margins would appear to be negative if they can’t move those values even higher next week. Estimated carcass weights are running 1-2 pounds above last year’s actual of 805 pounds. USDA reported weekly beef export sales of 13,200 MT, up from both of the two previous weeks.  

Hog futures were up 1.2% this week.  Higher carcass weights (+5# per head vs. last year) are offsetting the smaller than expected head counts shown in the quarterly Hogs & Pigs report. Comparisons on year over year slaughter and production are invalid due to partial week values. USDA reported weekly pork export sales were much improved at 16,900 MT for combined 2013 and 2014 sales. The afternoon pork carcass cutout value was down 6 cents for the week, or 0.07%. Ham prices were down, but loins and bellies were firmer. The CME Lean Hog Index is at a $6.92 discount to February futures, which are anticipating firmer cash hogs going forward.

 Market Watch

We will finally get back to a normal trading week this week, with 5 full days. USDA will update Export Inspections on Monday. Weekly export sales will be released on Thursday morning. Weekly EIA ethanol production will be out on Wednesday. Livestock futures will see Goldman Roll movement out of the February contracts. Index funds will also begin their asset allocation adjustments to their 2014 recommended weights this week. They are expected to be buying the big losers from 2013, and selling the biggest winners (see our December 31 year end Special Research Report). The main USDA reports for the month, and probably for the first two months, will be released on Friday, January 10th. These include the monthly WASDE Supply/Demand report, plus updated US Crop Production, wheat acreage, and the often market moving quarterly Grain Stocks report. The latter report gives USDA the hard data to adjust feed & residual use figures for both corn and wheat.

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