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Residual Use is Key

Published on: 17:27PM Jun 27, 2014

Brugler 

Market Watch with Alan Brugler

June 27, 2014

Residual Use Is Key

 

We have the quarterly USDA Grain Stocks report on Monday. The report has a reputation for creating surprises in the market, in both directions. In our opinion, part of that is timing, since the March, June and September stocks reports all fall on fiscal quarter deadlines when traders are already moving money around for asset allocation and performance reasons. The new data just aggravates the volatility. The other factor here is that everyone, including the analysts at the World Outlook Board (creators of the monthly WASDE supply/demand reports) is waiting to see what the NASS division of USDA finds in the bins.  The market, and WAOB have a pretty good handle on exports, ethanol use and soybean crush. What is unknown is residual use, the things not directly measured via surveys. For corn that is shown as Feed & Residual use, and can be up to 35% of total annual use. There is plenty of room for a surprise there. For soybeans, the seed & residual category is smaller, typically only 100 million to 150 million bushels for the whole year, but crush has also taken on a residual use component since Census quit surveying crush plants a few years ago and NOPA only surveys members. All this is to say that the Stocks report gives us hard numbers as of June 1, and those allow a more accurate computation of residual uses.  The changes will be made in the July WASDE report, so implied residual use is the key.  What about acres? Also important, but easier to rationalize away any surprise by changing your yield assumption.

 

Corn lost ten cents on the week, down 2.26% since last Friday.  Weekly export sales were large, coming in  at 321,400 MT for 2013/14, and  232,100 MT for 2014/15.  The report showed some cancellations for unknown destinations, but Japan, Vietnam, Spain, and the Netherlands all picked up tonnage that was switched from unknown destinations.  The CFTC Commitment of Traders report this afternoon showed managed money decreasing their net long position in corn by 22,104 contracts as of June 24, giving them a net long position of 115,176 contracts.  Reports from much of the Corn Belt describe a very good looking crop.  A fairly large pocket surrounding the area where the four states of SD, MN, IA, and NE come together that is very wet.  Extremely severe weather has reportedly damaged more than 700 pivot irrigation systems in Nebraska.   

 

Soybean futures ended the week 16 cents higher, up 1.15% in the July contract.  Weekly export sales were large, and the amount of fresh old crop bookings helped the old crop rally on Thursday. Bookings for the 2013/14 marketing year totaled 317,200 MT, and were 457,700 MT for 2014/15, with most of the new crop sales slated for China and "unknown" destinations.  As of the close on June 24, CFTC shows managed money accounts decreasing their net long position for soybeans from the previous week by another 5,403 contracts, bringing their overall net long position down to 41,221 contracts.  That is the least-long net soybean position reported for managed money accounts since January 31, 2012.  Soybean oil lost 6 cents on the week, but soybean meal rallied $10.60 this week, gaining 2.31% after losing more than $8.00 during the previous week. 

 

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

06/06/14

06/13/14

06/20/14

06/27/14

Change

% Change

July

Corn

$4.59

$4.48

$4.53

$4.43

($0.10)

-2.26%

July

CBOT Wheat

$6.18

$5.85

$5.85

$5.85

$0.00

0.00%

July

KCBT Wheat

$7.36

$7.11

$7.21

$7.26

$0.05

0.76%

July

MGEX Wheat

$7.09

$6.82

$6.90

$6.83

($0.06)

-0.91%

July

Soybeans

$14.57

$14.27

$14.16

$14.32

$0.16

1.15%

July

Soybean Meal

$487.60

$467.20

$459.20

$469.80

$10.60

2.31%

July

Soybean Oil

$39.01

$39.73

$40.04

$39.98

($0.06)

-0.15%

June

Live Cattle

$140.13

$147.60

$147.55

$152.25

$4.70

3.19%

Aug

Feeder Cattle

$200.52

$208.15

$206.88

$214.33

$7.45

3.60%

Aug

Lean Hogs

$129.30

$131.27

$129.15

$129.83

$0.67

0.52%

July

Cotton

$84.78

$86.95

$88.16

$80.89

($7.27)

-8.25%

July

Oats

$3.57

$3.47

$3.40

$3.32

($0.09)

-2.50%

July

Rice

$14.18

$14.51

$14.64

$14.59

($0.04)

-0.31%

 

Wheat futures ended the week pretty much steady to last week.  The July CBOT wheat posted its third Friday in a row with $5.85 as the closing price; a market in need of direction!  KC wheat added a nickel in the July contract after gaining a dime last week.  In Minneapolis, July wheat lost six cents this week on overall favorable growing conditions.  Winter wheat harvest progress was slowed again this week by the additional precipitation.  USDA reported the export sales figure for this week at 359,400 MT.  As of the close last Tuesday, managed money increased their net short position in CBT wheat by 11,494 contracts over the past week.  They are now net short -40,436 contracts.  The managed money accounts added another 205 contracts to their net long position in HRW wheat, giving them a net long position of 24,949 contracts as of the close on Tuesday.

 

July Cotton futures were big losers this week.  July14 cotton was down 727 points, or 8.25% posting its lowest closing price since the first week in December. Global cotton trade is forecast by USDA to reach only 35.6 million bales in 2014-15, down 13% from 2013-14 and the lowest in four years. Chinese imports are seen lower as they try to work down domestic supplies.  The weekly Commitment of Traders report showed managed money accounts decreasing their net long position in cotton by 562 contracts bringing their overall net long on June 24 to 24,702 contracts.  Weekly export sales reported by the USDA were weak, showing net sales of only 3,600 RB of Upland cotton for 2013/14, and 1,000 RB of Pima.  2014/15 Upland bookings were for 24,100 RB.  

 

Front month cattle futures were up 3.2% for the week tacking on $4.70 since last Friday.  August feeder cattle shot up 3.6% despite some profit taking on Friday.  Cash cattle trade was reported mostly $5 higher than last week at $154-$155 in the South, and $7 to $8 higher at $243-$245 in the North.  Wholesale beef prices were sharply higher this week.  Choice boxed beef gained $5.09 or 2.1%, and select boxes increased $4.38 or 1.9% from Friday to Friday.  The grocers should be stocked up for the 4th of July holiday demand by now, so a dip in boxed beef prices next week would be typical.  USDA reported weekly beef export sales at 17,100 MT for this past week, up 1,000 MT from the previous week. Weekly FI slaughter was estimated to be 615,000 head vs. 613,000 the prior week and 654,000 head a year ago.  The weekly Commitment of Traders report showed managed money accounts increasing their net long position in cattle by 3,247 contracts, bringing their overall net long on June 24 to 127,647 contracts.

 

August Hog futures were 0.52% higher this week.  The pork carcass cutout value was sharply higher again this week, gaining $5.51 or about 4.32% from Friday to Friday.  Ribs notched out a whopping 10.08% gain on the week, and loin cuts were up 5.65% since last Friday.  Weekly pork export sales surged from 6,500 MT to 17,100 MT, thanks to a bid sale to Mexico.  The weekly Commitment of Traders report showed managed money accounts expanding their net long position in lean hogs by 3,531 contracts, bringing their overall net long on June 24 to 58,844 contracts.  Pork production YTD is down 0.6% from year ago despite slaughter being down 4.2%. Estimated hog carcass weight at 215# would match last week, but be 11# higher than year ago.  The hogs and pigs report released today after the close was quite bullish.  All hogs on June 1 came in at 95.3% of a year ago.  Those kept for breeding were reported at 99.5% of a year ago, and those kept for market were 94.9% of a year ago.  All three of these figures came in smaller than the lowest end of the pre-report trade estimate.

 

Market Watch

 

We start the week off with a bang and end it with a whole bunch of bangs. USDA will release the quarterly Grain Stocks and Planted Acreage reports at 11 am CDT on Monday morning. These reports have a reputation for stirring up big price moves, particularly in corn. Monday is also first notice day for July grain futures contracts. There were only 21 delivery receipts registered for soybean delivery heading into the weekend. USDA will issue the regular Export Inspections and Crop Progress reports on Monday, along with Export Sales on Thursday. Thursday will also be the last trading day for July live cattle serial options.  Friday is the July 4th Independence Day holiday in the US and all markets are closed. The bangs to end the week will of course be from the fireworks!

 

 

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