Railroad Blues

Published on: 16:33PM Apr 11, 2014


Market Watch with Alan Brugler

April 11, 2014

Railroad Blues


If there was a common theme to the grain markets this week, it was the Railroad Blues. Nearly all of the commodity organizations were testifying, lobbying or tweeting their displeasure over the inability of the US rail system to pick up needed cars on time and return the empties on time. The delays have had a serious economic impact on cash grain prices, fertilizer, ethanol, DDGS, coal, etc through basis adjustments or outright spot shortages and surpluses. River and lake openings should help a little, but it looks like it will be months before things return to anything resembling normal.

Corn futures rallied into the USDA reports on Wednesday morning, but closed 3 cents lower for the week despite nominally bullish numbers in the reports themselves. USDA hiked projected US exports by 125 million bushels, and trimmed ending stocks to 1.331 billion bushels. That took the stocks/use ratio below 10% and increased the cash average price estimate to $4.60 for the marketing year. The bearish news later in the week included a slowdown in corn export sales to 716,700 MT from 998,500 MT the week before. Daily average ethanol production slowed while ethanol stocks increased, a bearish combination. The pace of imports also increased from 11,000 bpd to 38,000 bpd as US prices exceeded the breakeven for imports from Brazil into the East and West Coast markets. Rail snafus continue to hinder US ethanol movement, as they are also doing with coal and grain. The CFTC Commitment of Traders report on Friday afternoon showed a reduction in the spec fund net long position. They reduced their exposure ahead of the April 9 reports. The Managed Money reporting category cashed out 5,699 long positions this week, reducing the net long to 270,137 contracts as of April 8.

Soybean futures were down 11 cents per bushel for the week, a 0.73% drop. Meal was down 1.29%, while soy oil rallied 1.27%. Old crop beans hit a high of $15.12 on Wednesday but sold off hard into the weekend. USDA tightened projected old crop ending stocks to 135 million bushels, both raising exports and imports. The weekly US soybean export sales announced on Thursday slowed to a paltry 79,100 MT of old crop, with new crop jumping to 210,400 MT.  Total US export Commitments for 2013/14 are now at 100% of the USDA forecast for the year. USDA announced another 330,000 MT of new crop sales to "unknown destinations" on Friday morning. As of the close on this past Tuesday, CFTC shows managed money accounts were exiting longs ahead of the USDA report. Their net long shrank12, 194 contracts bringing their overall net long position to 181,252 contracts.
















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Wheat futures were down 1.4 to 2.7% for the week, with Minneapolis down the hardest. Weekly wheat export sales reported this week were 390,900 MT, down from 646,900 MT the previous week. Old crop sales were only 41,800 MT. That encouraged the already aggressive bears. USDA wheat ending stocks were hiked to 583 million bushels. No change was made to exports, but feed use was reduced 30 mbu based on the March 1 stocks data and projected imports were trimmed back 5 million. The EU approved another 585,000 MT of wheat for export, taking the total for the year to roughly to 23.9 MMT. As of the close on April 8, managed money accounts were starting to cash out their new net long in CBT wheat, exiting 1,836 contracts for the week and bringing the long to 43,189 contracts. The big spec funds exited 4,731 longs in KC this week, cutting the net long to 40,978 contracts in KC wheat.

Cotton futures were down 3.6% this week after dropping 1.4% the prior week. USDA put weekly export sales for cotton last week at 109,600 RB, but old crop sales were net negative. Total commitments as % of total exports are now at 92% compared to 93% last year and the 5 year average of 97%. The weekly Commitment of Traders report showed managed money accounts paring back their net long position by 3,635 contracts. That left the net position at 59,670 long.

Cattle futures were up 1.26% this week. Cash cattle trade was spotty, with packers relying on captive cattle. Some traded at $148 in the south, with most asking prices on Friday at $150. April futures were being supported by their discount to the cash market. Weekly slaughter at 573,000 was down from 583,000 the prior week and 607,000 a year ago. Wholesale prices continued to retreat from the March 18 high. Choice boxes were down 2.9% this week, while Select dropped 2.3%. Weekly estimated slaughter at 583,000 head was down 2,000 from last week and 14,000 below year ago. Beef production YTD is down 5.9% from last year. USDA weekly beef export sales totaled 13,800 MT, up slightly from 13,300 MT the prior week and showing little price rationing damage.  


April Lean Hog futures were up 1.44% this week. April futures were supported by their discount to the CME Lean Hog Index, and the need to converge with that Index on April 14. Estimated weekly slaughter was 2.02 million head, down 10,000 head from the previous week. That was down 3.9% from the same week in 2013 and thus supportive to nearby pork prices. Carcass weights were up 6# from last year, which meant pork production for the week was down only 0.4% despite the light run. The pork carcass cutout lost 4.76% this week, with hams extremely week as processor demand dried up. USDA weekly export sales for pork were the poorest of the year at 4,200 MT. The CFTC Commitment of Traders report shows spec long liquidation of 3,267 contracts for the week, leaving the managed money crowd net long 70.655 contracts.


Market Watch


The cotton market will start the week adapting to any surprise futures positions inherited upon options expiration on the weekend.  USDA will issue the usual Export Inspections report on Monday morning, and hopefully a weekly Crop Progress report on Monday evening (last week was delayed until Tuesday). NOPA crush is scheduled for release on Tuesday or Wednesday. USDA weekly export sales are due out on Thursday morning. Equity options expire on the 17th, as do April feeder cattle. The US markets are closed on Friday for the Good Friday holiday and Easter weekend.


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