Ready or Not, Spring is Here

Published on: 16:32PM Mar 09, 2012


Market Watch with Alan Brugler

March 9, 2012

Ready or Not, Spring is Here


The calendar may say that Spring doesn’t begin until March 20, but it sure feels like we’re already there. Daylight savings time begins this weekend (March 11). The weather clearly thinks it is spring, with temperatures for much of the US as much as 20 degrees above normal in the 6-10 day forecast. The wheat thinks it is spring, breaking dormancy far north of where it normally would be by now. That could be a problem if we get a late March or early April cold snap. The other evidence it is spring comes from the markets, which had some wild intra-day action on Friday following the USDA reports. People are clearly positioning for the vagaries of the growing season.


Corn futures lost 5 cents per bushel this past week, all of it before the USDA reports came out on Friday morning. USDA left projected ending stocks UNCH at 801 million bushels, leaving the stocks/use ratio at the tightest reading since 1995/96. The cash average price for the year is still estimated at $6.20. World corn stocks are still tightening, with USDA showing 124.53 MMT by next August. That wasn’t as tight as the general public expected, because USDA raised rather than lowered Brazilian production (to 62 MMT) and did not change China or Argentina. South Africa production was cut by 500,000 MT.


The wheat complex saw all three exchanges lower, with Chicago dropping 4.8% for the week and KC down 4.3%. Minneapolis saw a smaller decline of 3.19%. Unlike previous reports, USDA cut projected world ending stocks to 209.6 MMT after raising them to 213.1 MMT in February. Smaller carryover from the prior year and increased domestic feed use more than offset a rise in production. With the tighter world number, USDA was comfortable raising the projected US exports and reducing projected ending stocks to 825 million bushels. As was the case with corn, prices were higher after the report, but not enough to get them into plus territory for the week. USDA does not issue next year balance sheets in March or April, kicking them off officially in May after the unofficial release at the Outlook Forum in February. A Memphis firm did release its private acreage guesses for 2012 on Friday, putting All Wheat at 57.745 million acres. The Other Spring crop was estimated at 13.793 million acres.


The soybean complex posted fractional gains. After a $2 rally, it gets a little more difficult to argue that prices aren’t high enough. Soybeans were up 4 cents, after gaining 14 cents the week before. Soybean meal was down 2.6% in sympathy with the feed grains, aided by another $1.30/ton gain in soybean meal. Soy oil squeezed out a 0.35% gain. Meal rallied despite the weaker corn market, but we need to remember that on a per pound basis soybean meal was the cheapest this winter vs. corn that it had been in years. It has to rally harder just to restore the normal price relationships. USDA cut projected South American production further than expected, with Argentina at 46.5 MMT and Brazil at 68.5 MMT. The Brazilian estimate is now 239 million bushels smaller than it was at the beginning of the growing season. The U.S. is in position to make up for much of that shortfall over the next 9-12 months.  The global ending stocks estimate was trimmed to 57.3 MMT.
















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Cotton futures were up 0.62% for the week despite additional losses on Friday. USDA cut projected domestic mill use, resulting in a carryover estimate of 3.9 million bales when the trade had expected a reduction from 3.8 million to 3.6 million. There are still those in the trade who insist that ginning results show a smaller cotton crop than the 15.67 million bales USDA is using. USDA analysts don’t agree, at least not strongly enough to change the US production and yield numbers. They did raise the cash average price estimate to 90.5 cents (midpoint). The USDA global estimates were bearish as well, with likely ending stocks raised to 62.32 million bales. The few trade estimates in circulation were looking for something closer to 61.5 million. The estimate for Chinese imports was raised 1.5 million bales to 18.5 million That compares to 11.98 million last year and 10.9 million in 2009/10.


Cattle futures sank 3.02% for the week. It was a tough week for cattle bulls, with wholesale prices under pressure, cash cattle down, export sales down and the dollar up.  The bottom line is that the futures premium to cash was taken out of the market, essentially saying to the cash market "prove to me that you can go up." Beef demand and packer offerings were both described as light on Friday, with the result that choice boxes were down 2.1% for the week. Select was down only 44 cents, and the choice/select spread is doing its typical March collapse. Feeders were being paid only 48 cents more for the Choice product, vs. $19.25 in November. Estimated beef production for the week was up 1.7% from the previous week, but total tonnage is still down 4.3% from last year at this time.


Lean Hog futures were down 67 cents this past week, almost erasing the 85 cents for the week before. Ham prices dropped $5.78 from Friday/Friday. Somebody appeared to have too much inventory after processors had finished their Easter ham buying. The pork carcass cutout value moved up a whole 4 cents for the week. Pork production year to date is up 0.5% from last year. Production this past week was 0.8% below the prior week so things are slowing on a relative basis. The pork cutout value declined 1.8% for the week, or $1.60. That certainly didn’t help packer margins, although cash hogs were also lower in most areas. USDA began taking public comments on a plan to begin reporting weekly pork export sales, as is already done for beef. Comments are due no later than May 7. With more than 20% of US pork production exported, it is much more important than it used to be to know how much is being sold. At the present time you have to wait about 60 days after the fact for Census to release official data.

Market Watch: We will start off the week adjusting to the change in the clock, with Daylight Savings time beginning on Sunday. Move your clock ahead an hour. The March grain futures contracts expire on the 14th. In a few cases there have still been no deliveries, raising the question of a short squeeze.  The Federal Reserve OMC meets on Tuesday. USDA will issue the usual Export Inspections and Export Sales reports on Monday and Thursday respectively. NOPA will also release the February crush estimate for soybeans on Wednesday morning. This private report has taken on more significance since Census quit reporting monthly crush data.


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