Shot Full of Holes

Published on: 15:43PM Jul 18, 2014


Market Watch with Alan Brugler

July 17, 2014

Shot Full of Holes

There is an old warning from the battle front that if you let your posterior get too high when crawling it will get shot off. The corn, wheat and soybean markets had a little bit of that feel this week, with modest short covering type rallies being shot full of holes on Friday. Wheat was as well ventilated as a pheasant crossing a full line of hunters. It had rallied on Thursday following the shooting down of a Malaysian airlines passenger plane in the Ukraine. By Friday, the markets had come to the conclusion that Russia would not be punished (grain export limitations being the concern) for its role in the incident until further evidence was gathered about who fired the missle and where they got it. The credit default swaps for Russia also relaxed on Friday after spiking on Thursday.

Corn lost 7 cents for the week after losing 17 cents the previous week. All of the loss was on Friday as the wheat market collapsed and took corn with it.  The highest early July weekly crop condition ratings since 1994 kept a lid on corn prices all week, as they make it easy to believe in upward revisions to the US yield forecast. That would presumably mean more burdensome ending stocks. USDA left the yield at a record 165. 3 bpa in the Friday WASDE report, but there are a number of estimates from 167 to 173 bpa floating around out there. US corn export sales are now at 100% of the USDA forecast for the marketing year. Ethanol stocks dropped 400,000 barrels last week, as production failed to keep up with consumption over the July 4 holiday weekend.  As of July 10, the large spec funds were still net long 93,101 corn futures contracts, trimming their position by 14,499 in the prior week.

Soybean futures ended the week  1.5% lower after a 6.6% drop the prior week. Futures had rallied due to a grain inspectors strike in Argentina and some continued old crop export interest.  USDA is calling for a 3.8 billion bushel US crop, and record loose global stocks/use ratio in 2015 unless South America cuts production.  US ending stocks would grow modestly to 415 million bushes but that assumption is based on sustaining this year’s export pace with the help of lower prices.















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Wheat futures ended the week higher in Chicago and MPLS, but down 4 cents in KC. All three markets were rallying until Friday and then posted double digit losses.  US export sales continue to be soft, with sales last week at 320,700 MT. That did include 60,000 MT to China. Export commitments YTD are 35% of the USDA forecast for the year. That is better than the 5 year aveage of 30%, but lags the 39% booked last year.  The Commitment of Traders report showed the large spec funds adding another 2199 contracts to their net short position in Chicago, bringing it to 46,495 contracts (231 million bushels).

October Cotton futures were down a modest 0.16%.  USDA  raised projected US cotton acreage to 11.369 million acres and hiked projected US production by 1.5 million bales and put 2015 ending stocks at 5.2 million. That would be the largest surplus since 2008 for the US. Global ending stocks are seen record large at over 105 million bales. Weekly export sales on Thursday were the best (combined old and new crop) since May, as lower prices attracted some interest. A big 5 day gain in the US dollar index was a headwind for all of the field crops (and likely for meat export sales as well).

Front month cattle futures were up 1.7% for the week. August futures had traded as low as $147.27 on Monday, anticipating major weakness in cash cattle. Cash cattle traded at $155-157 this week, and wholesale prices were still firm albeit off of the record levels. Choice boxed beef was down 1.3% for the week after setting the all time record on July 10. Weekly beef production was 11.4% smaller than the same week in 2013. Beef production YTD is down 6.2%, with USDA expecting the third quarter production to be smaller than even 2003. Average carcass weights are running 2-3# above year ago.

August Hog futures were down 1.2%  this week.  Pork production for the week was down 1.7% from the previous week, and 4% below the same week in 2013. Year to Date production is now below year ago by 1% as the cumulative effect of reduced slaughter runs offsets the increase in average  carcass weights. Slaughter YTD is down 4.7% with the pork production down 1% . Pork carcass cutout values continued to rise, with the average at $137.56 on Friday.  It was only $134.85 on Monday.

 Market Watch

The main USDA reports for the coming week will be Cold Storage on Tuesday and the monthly Cattle on Feed report on Friday afternoon. We’ll also have the regular weekly Export Inspections on Monday morning  and Export Sales on Thursday.   The crop condition ratings on Monday night will be closely scrutinized for their typical last half of summer drop off. Friday will mark the expiration of the August grain options.

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