Hotter Than a Firecracker

Published on: 16:30PM Jul 06, 2012


Market Watch with Alan Brugler

July 6, 2012

Hotter Than A Firecracker


Thousands of new high temperature records have been set across the US this week. While not as hot as a firecracker (up to 2000 deg Celsius in some of the big shells), the weather was plenty hot. Due to damage to the growing crop, the corn market was even hotter. Soybeans and wheat came along for the ride in their role as feed substitutes.

Corn rallied another 10.5% after the 13.8% gain of the prior week. Some were buying it due to the heat wave, some were buying it due to drought conditions. The 100 degree temps were not conducive to pollination, particularly in dry conditions. USDA showed 25% of the crop pollinating as of last Sunday, but it should be close to 45% this week. Foreign importers are definitely not buying at these prices. Weekly export sales were still poor at only 153,500 MT.  The Brugler500 index, computed from USDA’s crop condition ratings, fell to 327 from 349 the week prior. That is above 1988, but the lowest reading for this date since 1988. Ethanol production slowed as rising corn prices squeezed margins and forced some plants to take extended down time. Ethanol stocks also dropped to the lowest level of 2012, as gasoline use rose and thus the blender demand for ethanol.

Soybeans gained 7.07% this week, propelled by an 8.2% jump in July soybean meal. Weekly soybean export sales were larger than expected for the reporting week ending June 28, including a 1.3 MMT sale to "unknown destinations". Total sales were 1.76 MMT for the week. Chinese buying is still ongoing. They make up nearly 60% of the global export trade in soybeans, and need to buy more than 40 million bushels per week from all sources. US export commitments (shipments plus open contracts) are now larger than the USDA export estimate for the year. While it is difficult to hurt soybean yields in June, there are widespread complaints about poor stands and a lot of "cupping" of moisture stressed plants during the day. The Brugler500 index for soybean crop conditions dropped to 322 from 342. That was the lowest index reading for this week since 1988 (281).















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All three wheat markets posted nice gains for the week, led by Chicago at 7.07%. Winter wheat crop condition ratings are done for the year, with the Brugler500 Index at 346. That is most similar to 2005. USDA put June 1 ending stocks at 743 million bushels and USDA is expected to change their ending stocks figure for 2011/12 to this figure. A Bloomberg survey released on Friday shows the trade anticipating a 2 MMT cut in old crop wheat stocks on Wednesday, and a 3 MMT drop in new crop due to reduced global production.

Nearby cotton futures closed the week 1.9% lower after dropping 2.7% the previous week. Export Commitments YTD had been 117% of the USDA forecast for the year before the late June cancellations. They are now at 112% of the projection, with a month of shipping to do. There were 83,800 running bales of old crop upland cotton sold last week. Those need to be shipped before July 31 to be counted as old crop business in the balance sheets. Crop condition ratings dropped a little in the week ending July 1, due to heat and dryness.

Cattle futures fell a little over 1% for the week. Wholesale beef prices for the week were 1% lower in the choice boxes, and down 1.9% in the select. Estimated beef production for the week was 448.7 million pounds, down 1.6% from the equivalent week in 2011. YTD production is down 2.5% on a 4.5% drop in the number of cattle slaughtered. Limited cash cattle trade was reported Friday at $117 in KS, NE and TX on light volume. Dressed quotes were $186-188 in NE. Most of the key areas were still limited on Friday afternoon as high temps interfered with operations. Temps are supposed to moderate in cattle country this week. Weekly beef export sales rose another 8%, to 19,900 MT.

Lean Hog futures lost 40 cents per hundredweight for the week. Wholesale prices dropped a sharp 5.55% this week after falling 5.34% last week. Pork loin prices were down nearly 14% for the week. Estimated pork production this past week was down 12.3% from the prior week, typical for this holiday week. Production was still up 2.7% from the same week in 2011, however, and pork tonnage YTD is still 2% larger than at the same point a year ago. July futures are still at more than a $4 discount to the CME Index. The two need to converge by expiration on the 16th.

Market Watch: USDA will issue updated Crop Production and WASDE Supply/Demand estimates on Wednesday morning. These will incorporate the changes from the June 29 Acreage and Grain Stocks reports. USDA will also have to do something about their average yield estimates, although they will not have actual survey data until August. The Crop Condition ratings are expected to drop in the Monday afternoon report. There is also interest in the weekly Export Sales on Thursday morning. Friday the 13th will be the last trading day for July grain futures.

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