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Miracle Rally or Routine Business?

Published on: 21:01PM Oct 17, 2014

 Brugler

Market Watch with Alan Brugler

October 17, 2014

Miracle Rally or Routine Business?

 

A funny thing happened this week. With all the gloom and doom about record crop production, the grain markets went up! For corn, this was the third higher weekly close in a row. That constitutes an uptrend. Some would deem the rallies a miracle, or an artificial construct designed to suck you in on the long side. It could still prove to be the latter, but grain rallies do in fact happen with some regularity in late October and early November. Hedge pressure only happens if spec buying is insufficient to meet the commercial selling. When the funds want to take profits on short positions and get long (against that commercial hedge selling) for the post harvest rally, you tend to get a post harvest rally in price. We deem this bounce routine business, perhaps aided by the stock market meltdown and interest in putting money into undervalued assets like grains and oilseeds. Hot money is fickle, though, and a big stock market rally next week could suck the life right out of these uptrends.

Corn posted a third consecutive weekly gain, this time 4.1% to top the .33% for the previous week. Margin calls in other markets drove some fund short covering in corn, and there wasn’t a lot of harvest pressure due to weather weather and in a few cases immature corn. USDA reported export sales for the week totaled 2,433,300 MT, which was at the high end of trade estimates and also the highest weekly total reported so far this marketing year.  Mexico was the largest buyer for both 2014/15 and 2015/16. The weekly Commitment of Traders report from the CFTC showed managed money accounts getting longer than they were the previous week.  Their net long position had grown by a net 15,575 contracts as of the closing bell on Tuesday. 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

09/26/14

10/03/14

10/10/14

10/17/14

Change

% Change

Dec

Corn

$3.23

$3.23

$3.34

$3.48

$0.138

4.12%

Dec

CBOT Wheat

$4.74

$4.86

$4.99

$5.15

$0.168

3.36%

Dec

KCBT Wheat

$5.64

$5.68

$5.78

$6.05

$0.273

4.72%

Dec

MGEX Wheat

$5.33

$5.44

$5.53

$5.70

$0.165

2.98%

Nov

Soybeans

$9.10

$9.12

$9.23

$9.52

$0.298

3.22%

Dec

Soybean Meal

$301.10

$298.80

$311.00

$330.20

$19.200

6.17%

Dec

Soybean Oil

$31.99

$32.42

$32.44

$32.05

($0.390)

-1.20%

Oct

Live Cattle

$158.45

$162.40

$164.90

$165.05

$0.150

0.09%

Oct

Feeder Cattle

$233.10

$240.88

$240.50

$238.45

($2.050)

-0.85%

Dec

Lean Hogs

$94.48

$93.03

$94.40

$90.58

($3.825)

-4.05%

Dec

Cotton

$61.89

$62.47

$64.10

$63.08

($1.020)

-1.59%

Dec

Oats

$3.29

$3.42

$3.43

$3.47

$0.043

1.24%

Nov

Rice

$12.82

$12.59

$12.59

$12.51

($0.075)

-0.60%

Soybean futures were up another 3.2% this week. The Informa estimate for 2015 planted soybean acres came out at 88.5 million acres; if realized it would be a 4.5 million acre increase from the current USDA estimate for 2014.  Trade estimates for weekly USDA reported export sales were in the 600,000 MT to 1.3 MMT range. USDA put the actual figure in the middle at 939,900 MT, with more than 709.000 MT booked for China.  The weekly COT report from the CFTC showed managed money accounts getting 7,267 contracts less-short, bringing their net short position to -17,190 contracts as of the Tuesday close. 

Wheat futures were higher again this week on all three markets. Chicago was up 3.4%, with KC up a sharper 4.7% and MPLS lagging at 3%. USDA reported net weekly export sales of 494,000 MT for the week ending October 9, when trade estimates were for 350,000 to 600,000 MT range. Traders are talking about reduced SRW acres this fall, as the soybeans are slow to come off. Managed money funds were shown getting less short in CBT wheat, and longer in KC wheat.  They are currently net short -60,063 contracts in CBT wheat, and net long 9,416 contracts in KC wheat.

December Cotton futures were down 1.6% this week, erasing much of the 2.61% gain from the prior week. The weekly Commitment of Traders report on Friday showed that Managed money spec accounts changed back to an overall net long position with a shift of 6,575 contracts, bringing them to net long 5,430 contracts through October 14. USDA told us that net sales for last week were just 17,900 RB, including 600 RB of pima. The USDA AWP for this week (today through Thursday) is 49.83, resulting in an LDP of 2.17 cents.  

Cattle futures set new all time highs, but eked out only a 0.09% gain for the week. Feeder cattle futures were extremely volatile, with limit moves in 4 of the 5 sessions. Wholesale beef prices had a positive week, with Choice boxes up 0.6% for the week. The Select boxes were up less than a tenth of a percent. Weekly estimated slaughter was 8.9% smaller than the same week in 2013, with beef production down 6.9%. Beef production for the YTD is down 6.1%, with slaughter down 7.2%. Higher carcass weights make up the difference, with the weekly estimate 18# higher than the actual Oct 19 number from last year.

Hog futures were down a sharp 4.05%, erasing all of the gain from the prior week as prices dropped hard out of a Bollinger Band pinch formation. Thus far in 2014, hog slaughter is off 5.4% from the same point in 2013. Slaughter this past week was down 2.6% vs. year ago. Pork production is only down 1.7% YTD, due to higher carcass weights. Carcasses are currently running 4# above year ago.  Pork carcass cutout values lost a lot of ground this week, down 9.5%. Hams were down nearly 14%. Managed money accounts were shown increasing their net long position in lean hogs by 2,370 contracts in the weekly report from the CFTC.  Those new longs were sorely tested on Wednesday and Thursday but got some money back if they held on until Friday.

 Market Watch

 

The equity markets will begin the week reacting to the multiple options expirations and exercises on Friday. Grain traders will begin the week with the usual USDA Export Inspections and Crop Progress reports on Monday.  The USDA Cold Storage report is scheduled for Wednesday. USDA weekly Export Sales will be on Thursday morning. USDA will also issue the monthly Cattle on Feed report on Friday, October 24.  Friday will also mark the expiration of the November options for grains.

 

Visit our Brugler web site at http://www.bruglermarketing.com, find our iPad app "AgMarket" in the Apple app store, or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

 

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.

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