Stick Around For the Main Event

Published on: 20:28PM Jan 09, 2015


Market Watch with Alan Brugler

January 9, 2015

Stick Around for The Main Event

Price volatility in the grain markets has tended to be greatest around the releases of the quarterly grain stocks reports. That’s because the feed & residual or crush & residual use estimates are derived from the stocks report. Trade analysts are trying to anticipate what WASDE will show, but WASDE analysts can be surprised by the numbers the NASS branch of USDA actually finds. The January report day (Monday) is a quadruple threat because USDA will show not only the Grain Stocks and ending stocks numbers, but also final production and acreage for corn and soybeans. As a producer or end user, the risk of the reports is one directional. If you have the grain, you have a risk that it goes down. Up is not a problem. If you are a feeder or an ethanol plant, your risk is that costs go up.  A decision to “wait and see” is the willingness to accept a negative financial outcome. Options trades are popular around reports because they are one directional protection.

Corn settled 1.14% higher for the week, entirely due to the 6 cent bounce on Friday. The fundamental news was mostly bearish, with the ethanol stocks building sharply from the previous week.  Weekly export sales were so-so, but also included the New Years holiday and thus would be expected to improve next week.  The combined old and new crop total was 597,600 MT. Export commitments total 62% of the full year forecast. They would typically be 60% at this point. Traders are looking for USDA to find Dec 1 corn stocks to be a little above 11.1 billion bushels in the Monday report. There is little or no agreement on the direction or magnitude of acreage and national average yield.















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Soybean futures jumped 4.9% for the week, after dropping 4.3% the previous week.  Cumulative export shipments are running 207 million bushels above last year. Both the sales pace and shipments tend to slow in late December and early January, and the former will likely not recover as the market looks ahead to South American availability in March. The bull story this week was a surprisingly strong 550,100 MT bought by China, with total old crop bookings rising 910,600 MT. Export commitments have now reached 90% of the full year forecast. They would typically be 83%. CONAB on Friday increased their projection of Brazilian production to 95.9 MMT, 1.9 MMT above USDA’s December figures. CONAB sees Brazilian exports rising to 49.6 MMT due to record availability.

Wheat futures were down 1 1/2 to 3% this week, with Chicago the weakest. MPLS was firm, and traded at a premium to KC at the end of the week. US export sales are still slow, but the trade is finding quality problems which are creating a premium for the higher protein US spring wheat. US weekly wheat export sales for the week ending January 1 were 226,300 MT vs. 354,100  the prior week.  

Cotton futures were up 1.8T for the week.  The US dollar index surged to a new multi-year high this week (taking a breather on Friday), making US cotton expensive in terms of third party countries with floating currencies. The dollar doesn’t affect China trade much because of the managed value of the yuan. USDA reported all cotton export sales of 158,900 running bales. The AWP for January 9-15 is 47.13 cents, resulting in an LDP of 4.87 cents per pound.   It was only 3.26 cents last week. 

Cattle futures plunged more than 3% this week, with the selling concentrated in the Feb and April contracts. They had been up 1.97% the prior week. Cash cattle traded at $169-170, up $3-4 from the previous week.  Wholesale prices also rose on the week.  The selling in the futures appeared to be asset allocators dumping their 2014 winners in order to buy other beaten down commodities or assets. Weekly beef production was up 19.1% from the previous week but down 3.5% from year ago. Weekly slaughter was down 6.1% from the same week in 2013/14.  Average carcass weights are estimated to be 22 pounds above year ago.

Hog futures were down 2.8%  this week.  Weekly hog slaughter was up 8.3% from the holiday depressed previous week, and 3.5% larger than year ago for the same week. Pork production was 4.1% larger than the same week in 2014.  The YTD comparisons are not valid due to holiday timing. US pork exports for November were 125,377 MT, down 17.7% year over year.

 Market Watch

USDA will issue the weekly export inspections report at 10 am CST on Monday. It will quickly be overshadowed by the month USDA reports to be released at 11 am CST. Those include winter wheat plantings, final crop production, Dec 1 Grain Stocks and the WASDE supply/demand estimates which can change quite a bit depending on the first three. Wednesday will feature the weekly EIA ethanol inventory report, with concern about a stocks build. The January soy complex futures contracts also expire on Wednesday. We’ll have the monthly NOPA crush report on Thursday, also with the USDA weekly Export Sales report.  Friday will feature expiration of the February WTI Crude oil futures, along with a number of stock market related futures and options.

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There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.

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