Some Bullish Attitudes

Published on: 15:51PM Feb 01, 2013


Market Watch with Alan Brugler

February 1, 2013

Some Bullish Attitudes

It was an "up" week for most of the ag commodities, excluding the wheat and oats. The wheat market is all dressed up with nowhere to go. The US offering is cheap vs. most countries right now, but end users appear to be temporarily well covered. India also appears to have a large crop coming on, resulting in discounted sales and lost US opportunities. Fund investors were nibbling at the long side of the market, encouraged by a two week slide in the US dollar index.

Corn futures rebounded 2.1% for the week, and remain comfortably above $7. The EIA weekly ethanol report on Wednesday showed the lowest weekly production since weekly data reporting began in 2010. Ethanol stocks also rose despite smaller weekly imports. Despite those negative trends, profitability at the ethanol plants improved for the week, and RIN values were rising to levels that might stimulate production in areas with available corn. US weekly export sales remain poor, as the bulk of the price rationing has devolved to that portion of the market. World buyers have other corn sources and other feed substitutes and at a high enough price they will use them.
















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The soybean market picked up another 33 cents per bushel. US export sales were again strong. USDA reported that net export sales for last week were 1.253 MMT. The trade was expecting soybeans sales to come in between 300-600,000 MT of old crop and the actual number was 386,000 MT.  New crop sales were smaller than some had expected based on the daily sales reports. Soybean meal bookings were on the slow side at only 141,700 MT. Soy oil sales were 20,100 MT, comfortably within trade estimates. New crop bean bookings were again larger than old crop sales as South American new crop beans begin to enter the world trade equation. Most of the US old crop is already committed, even if not yet purchased from the producer. Weather in South America remains generally benign, but there has been a drying out trend in a few major production areas over the past two weeks. Soybean meal was up 2.8% for the week, and soy oil also advanced 1.7%. The reduced US ethanol production has constricted supplies of DDG and corn oil, supporting their substitutes in the soy complex. Soybean meal export commitments have also reached 88% of the USDA forecast for the year, with more than seven months for additional sales to occur.  

Wheat was lower on all three exchanges, with Minneapolis and Chicago the weakest. USDA reported weekly export sales for the week ending January 17 totaled 387,900 MT, a disappointment. The largest buyers were Peru and Japan, with Nigeria stepping up for 80,000 MT of new crop. Portions of HRW country saw some snow or rain, mostly on the eastern side of the Plains states. KC futures were better supported than the other two markets, with state level crop condition ratings still suggesting worse than normal abandonment. A 10 year average of harvested vs. planted acres for HRW shows that 21% is an average abandonment for that class.  In drought years it heads down toward 29%.

Cotton prices were up another 3.2% after gaining 2.5% the previous week. US weekly export sales totaled 158,400 RB,   a bit slower than the 264,100 RB from the previous week. That figure included 21,600 RB of pima and only 5,500 RB of upland sold for 2013/14. The rest was old crop upland. Total US export sales commitments are now 85% of the USDA forecast for the year. They would typically be at 80% by mid-January. They need to get to about 110% to allow for yearend carryover of unshipped sales.

Cattle futures rose 0.63% last week. The week started off strong, thanks to the bullish Cattle on Feed report. Then the longs started taking profits. Weekly beef production was 0.9% smaller than last week, but up 6.5% from the same week in 2012. Average carcass weights are still an estimated 11 pounds per animal higher than last year at this time. Wholesale prices were down $4.88/cwt for Choice boxes, a 2.6% slide. Select was also down, but a more orderly 1.8%.  US weekly beef export sales through January 24 slowed to 12,100 MT from 14,200 MT the week before.  On Friday night, USDA released the semi-annual Cattle Inventory report. They showed 89.3 million head, a drop of 1.6% from last year. That was a smaller cut than the trade had expected, but is still the smallest herd since 1952. Beef cow numbers were down nearly 3%, but there were nearly 2% more beef replacement heifers than last year.  Dairy replacements were down year/year for the first time in 4 years.  

Hogs were up just about 1% for the week. Estimated weekly slaughter was 2.176 million head, up 1.1% from the previous week and 2.1% larger than the same week in 2012. Pork production was up 1.2% from the previous week, and up 2% from the same week in 2012. Average weights are now estimated to be equal with year ago. The pork carcass cutout value rose $1.70 for the week, a gain of 2.0% after a rise of 1.8% the previous week. Cash hog prices were mixed on Friday in the west, but firmer in the ECB. The IA/MN weighted average was up 23 cents. The average WCB direct sale was $88.34, down 52 cents on the day but up from $85.64 a week earlier. The ECB average was $85.91, up $2.88 for the week (of which $1.78 was on Friday).  

Market Watch: Monday will be first notice day for February cattle futures, following hard on the heels of Friday’s options expiration and the semi-annual USDA Cattle Inventory report.  We’ll get the usual weekly Export Inspections report on Monday, and weekly Export Sales on Thursday. The main USDA reports will be on Friday morning, with Crop Production and the monthly WASDE supply and demand updates. Friday will also mark the expiration of the March cotton options. Chinese New Year starts on the 10th.

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