Pain Within Limits

Published on: 21:31PM Dec 19, 2014


Market Watch with Alan Brugler

December 19, 2014

Pain Within Limits


While we have seen some fairly large extended moves in the grains and the stock market this year, big limit move type days have been scarce. That has not been the case here in December for the cattle and feeder cattle markets. Feeders posted 5 limit down days in a row ($15.00) before the Merc finally got around to increasing the daily limit to $4.50. That move broke the psychology, and feeders zoomed back $10.12 in two days in the March contract. That is a 4.8% move in two days. The decline caused a lot of margin call pain in both feeders and fat cattle (down $7.07 in Feb futures from the Friday close to the Thursday morning low). The $15 drop in feeders was $7,500 per contract, and subsequent rally gave those who stuck it out $5,060 of their dollars back. 

Some lessons were learned, because daily volume of 82 contracts doesn’t allow you to get out of the losing position and stop the margin calls. Many were trapped for the duration. Options traders were in slightly better shape, but the bid/ask spreads were enormous because of the inability to lay off the risk in futures. In some cases, there was just no bid or ask at all. My point? This CAN happen in just about any market. Make sure that you have adequate liquidity to sustain those hedges. Cash only folks shouldn’t feel too smug. If the Index had gone south at the same time as the  Board, we might not have seen the rally back. You would just have been out a lot of money on those cattle.

Corn was a spectator this week, gaining 0.74% on the week while watching the fireworks in wheat and in the cattle pits. Net weekly export sales were slower at 698,500 MT. The cumulative commitments are 55%  of the full year USDA forecast. The average for this date would be 56%. Weekly ethanol production set a new all time high. Ethanol stocks declined by 100,000 barrels. Brazil increased projected 2014/15 local production to 28.7 billion liters.















% Change










CBOT Wheat








KCBT Wheat








MGEX Wheat
















Soybean Meal








Soybean Oil








Live Cattle








Feeder Cattle








Lean Hogs































Soybean futures were down 1.6% for the week. USDA weekly soybean export sales through Dec 11 were larger, at 1.046 MMT, with 350,000 MT of that in 2015/16.  China signed a frame contract committing to 1 MMT of additional beans. Cumulative export commitments have reached 86% of the updated USDA forecast for the full year. They would typically be 79% by this date. Soybean meal export sales were solid at 146,800 MT. Meal export commitments are 60% of the full year forecast, ahead of the 56% average for this date. The USDA baseline forecast calls for no expansion in bean acres for 2015, at 84 million. Private forecaster Informa is still expecting more than 88 million.   

Wheat futures were up 5% for the week in KC, despite double digit losses on Friday. Chicago wasn’t far behind at 4.3%, and MPLS was up 4.4%. Most of the momentum came from expected cuts in Russian export availability. Russia is renewing buying of intervention stocks, and also changed the permitting process to make it more difficult to export wheat.  US weekly export sales were improved from the prior week at 476,300 MT of old crop and another 33,200 MT of new crop.  Total commitments (shipped plus outstanding sales) are 71% of the USDA forecast for the year. The five year average for this date is 72%. The Memphis folks are estimating winter wheat plantings at 42.3 million acres. USDA will release it’s estimate on January 12.

Cotton futures were up 0.6% for the week. The lower cash cotton prices facilitated by the LDP are boosting cotton exports, with commitments at 76% of the forecast for the year. They would typically be 75%. The average world price (AWP) for this coming week is rose to 47.66 for the week of Dec 19-25, reducing the LDP to 4.34. from 5.55 cents per pound the previous week. USDA reported weekly cotton export sales of 133,700 running bales of upland cotton were sold last week, along with 4,800 RB of pima types. The Chinese National Bureau of Statistics indicated the production there was 28.297 million stat (480 pound) bales, which is below the 30 million figure used by WASDE.    

Cattle futures had a roller coaster of a week, but ultimately lost less (0.8%) than they did the previous week (-1.5%). A strong US dollar threatens to hurt beef export sales, and indirectly the wholesale beef market. USDA Choice 600-900 pound boxes were down 2.6% Friday/Friday, and Select product was down 1.8%. Cash cattle traded at $156-157. Weekly estimated slaughter was 10.5% smaller than the same week in 2013, with beef production down “only” 7.9% due to sharply higher carcass weights. Beef production for the YTD is down 6.0%, with slaughter down 7.4%.  Weekly beef export sales totaled 11,200 MT, down slightly from the previous week. USDA released a monthly Cattle on Feed report on Friday night. November marketings were slightly below trade estimates at 88.9% of year ago, resulting in December 1 On Feed being 101.4% of the prior December when the analysts had been looking for 101.2%.

Hog futures lost 1.6% to go with the -2.8% from the previous week. For 2014 YTD (year to date), hog slaughter is off 5% from the same point in 2013. Slaughter this past week was down 2.8% vs. year ago. Pork production was only down 1.2% vs. year ago this week because of higher carcass weights. Pork production for the year is down 1.8% vs. Jan-Dec 2013.  Pork carcass cutout values were down 6.18% this week, with the ham primal down more than 14%. Weekly pork export sales totaled 15,900 MT for 2014 and 2015. That huge 46,700 MT for combined 2014 and 2015 bookings reported the previous week was an error. USDA subtracted 26,443 MT from that total.  

 Market Watch

USDA will issue the regular Export Inspections and Export Sales reports on Monday, along with the monthly Cold Storage report. Hog producers get a rare treat, with the quarterly Hogs & Pigs report coming out on Tuesday afternoon. The regular EIA ethanol data is expected on Wednesday morning, which is also Christmas Eve. Markets are closed on Thursday for Christmas. In past years, they would have been closed on the 26th, but now that the CME is publicly traded they will be open. Besides, they need to handle January options expirations in the grains on the 26th, and USDA will put out the weekly Export Sales report.

Visit our Brugler web site at, 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.

Copyright 2014 Brugler Marketing & Management, LLC