Multiple Forks In the Road

Published on: 16:08PM Sep 06, 2013


Market Watch with Alan Brugler

September 6, 2013

Multiple Forks in the Road


Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Robert Frost, The Road Not Taken, 1916

Like Robert Frost in his poem, many futures and equity markets approached forks in the road after Labor Day. For some it was Syrian intervention vs. Fed tapering, or strong exports vs. rising production potential. For others it was high heat speeding maturity vs. erratic rainfall on still developing corn and soybean crops. Many paused and tried to look down both paths, but lacked technical or fundamental triggers to force the decision. USDA is likely to give the grain markets a nudge on Thursday with the mid-morning revisions to estimated yields and production for US crops.

September corn futures were 4 cents lower for the week, with zero deliveries against the contract. December futures were down 13 ¼, totally erasing the rally from the week before. The trade, particularly the spec funds, continues to be bearish but suspects that some yield has been lost to the drought conditions in the WCB. Offsetting that concern, the above normal heat in the Midwest and West is lessening the risk of an early freeze. The Commitment of Traders report on Friday showed the Managed Money category re-entering 7,078 shorts after a big exodus the previous week. They boosted their net short to 64,506 contracts as of September 3. US ethanol production was down 1,000 bpd from last week, and stocks were down 100,000 barrels. Imports jumped to 31,000 bpd but were absorbed by the market.  Weekly corn export sales were negative for old crop due to cancellations and rollovers totaling 113,200 MT. Cumulative new crop exports heading into the new marketing year are historically large, but were only 328,300 MT this past week.

Soybeans gained 13 cents per bushels this week in the September contract after a 59 cent pop the previous week. New crop November futures were up 29 ½ cents after gaining more than 60 cents on Monday. Hot and dry weather in the Corn Belt is thought to be taking away yield potential, with a parade of firms lowering their expected national average yields to 40.8-42.5 bushels per acre. Memphis based Informa projected a 42.4 bpa yield on Friday. A Bloomberg survey found an average estimate of 41.2 bushels per acre. US weekly export sales totaled 849,200 MT. Given the record production in Brazil, US new crop export sales commitments are impressive and back up USDA’s assumption of larger Chinese purchases in 2013/14. Brazil has shipped 1.16 billion bushels since February 1, nearly matching their 12 month total from last year. 2012/13 shipments using the USDA marketing year have been 34.74 MMT to date. The USDA projection for 2012/13 is 39.2 MMT and 41.5 MMT for 2013/14.

Wheat futures were mixed, with KC HRW up 1.1% while the other two classes were down 1.3%. Wheat export sales continue to be excellent, with 53% of the USDA forecast for the year already on the books or shipped out. The 5 year average for this date would be 46%. Weekly sales were 747,400 MT compared to 551,300 MT the previous week. Egypt bought Russian and Ukrainian wheat to extend coverage to November 1. The US was not competitive due to higher freight costs.

Cotton futures ground to multi-month lows and lost 0.55% for the week in nearby October futures. Weekly export sales improved to 173,300 running bales last week, of which 163,300 RB were upland cotton. The large spec funds liquidated 11,871 long positions in the reporting week ending September 3. They were still net long 46,847 contracts in cotton according to the Friday afternoon CFTC Disag report. December futures traded at their lowest price since June before rebounding on Friday.
















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Cattle futures fell back 0.89% this week after a small loss the previous week. Beef production this week was 3.7% larger than the same Labor Day week in 2012, and production year to date is down 0.8%. Weekly slaughter was 3.3% larger than in 2012 with carcass weights continuing to run about 4 pounds higher than last year. USDA reported weekly beef export sales slowed to 17,900 MT from a blistering 23,200 MT the week before. Census monthly beef exports for July were released at the end of the week, and were the largest since July 2011. Wholesale beef prices were lower this week despite the strong export sales and reduced slaughter, with Choice down 0.2 and Select down 0.8% on a Friday/Friday basis. Cash cattle trade on Friday was $122-123, down $1-2 from last week. Northern trade was at $194-195 vs. early week ideas/hopes of $198.  

Hog futures rallied 3.74% this week, extending the rally from the previous week. The estimated weekly slaughter dropped to 1.97 million head because of the Labor Day holiday. That was down 10.9% from the previous week and down 4.7% from the elevated year ago levels. Pork production YTD is down only 0.4% from 2012 due to higher average carcass weights thus far in 2013. Current weights are now running about even with 2012 at an estimated 203 pounds. The pork carcass cutout value was up 0.51% after two down weeks. The belly primal was up 0.6% this week, but is still down 24% from its summer peak. The USDA weekly export sales report slowed to 4,600 MT after hitting 12,600 MT and 7,100 MT in the two preceding weeks.  

Market Watch

This will be a big week for the grain trade, with the monthly USDA Crop Production and Supply/Demand reports coming out midsession on Thursday. The regular Monday USDA reports (Export Inspections and Crop Progress) will be of interest, particularly the rate at which the crops are maturing. Traders are expecting further small declines in the % of the corn and soybean crop rated good or excellent. Weekly ethanol production and stocks will be out on Wednesday. USDA weekly Export Sales will be released on Thursday. September grain futures contracts expire on Friday the 13th.

Visit our Brugler web site at or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

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