Strong Dollar vs. Fundamentals

Published on: 16:07PM Aug 22, 2014


Market Watch with Alan Brugler

August 22, 2014

Strong Dollar Vs. Fundamentals

The US dollar index broke out of a multi-week consolidation to the upside this week. Commodities priced in dollars tend to go down when each dollar can buy more value. It also means it takes more euros or yen or pesos to buy the same export good, sometimes resulting in lost export business.  There is a strong inverse correlation between the CRB Index (basket of commodities) and the US dollar which reflects these relationships. However, we have also taught our Brugler Ag Marketing Professional clients over the years that a) There are typically 3-4 commodities that are going the opposite direction to the CRB index due to their unique fundamental situations and b) for grains, the market pays more attention to exports and thus the dollar after harvest. Prior to harvest, fundamental news shifts carry more weight. Cattle appeared to be one of the counter-trend markets, due to futures being at a big discount to the cash market heading into the last week of deliveries. Soybeans and wheat were reacting to bullish fundamental threads, while some of the other markets let the dollar current push them along.

Corn ended the week just 1/4 cent from where it began. If not for a little last minute window dressing it might even have closed higher. USDA weekly Export Sales were about as expected at 819,200 MT. Cumulative sales commitments are now 100% of the USDA revised forecast for full year shipments. They would typically be 107% by now, which caused some head scratching when USDA hiked the number a week ago. The Pro Farmer group projected the US average yield at 169.3 bpa on Friday, vs. USDA @ 167.4 bpa.  The weekly CFTC commitment of traders report showed managed money accounts decreased their net long position in corn by 2,946, taking them down to a net long position of 64,719 contracts as of the closing bell on Aug 19.















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Soybean futures were up 64 cents per bushel in the nearby September contract for the week, but it was a mirage. Even with strong plus basis, flat prices are below where they were earlier in the summer, and the new crop November futures were 7 3/4 lower for the week.  New crop soybean export sales were reported at 1,420,600 MT, with China the largest buyer @ 947,900 MT.  We continue to have to report sales of 100,000 MT or more under the daily reporting system. A new sale of 120,000 MT to China was announced on Friday. The weekly CFTC Commitment of Traders report showed managed money accounts adding 4,994 contracts to their short position during the week ending Tuesday August 19.  The managed money net position is now short -16,698 contracts; the second most bearish net position reported for managed money since October 10, 2006.

Wheat futures saw another small weekly gain in Chicago, up 1 cent.  Unlike the past two weeks, the hard wheat futures contracts were higher as well, up 2.3 and 2.6%. The regular Friday "shooting in Ukraine" report propped up prices, already given a boost by heavy rains and high winds in spring wheat country. Those will slow an already delayed harvest.  Stats Canada also showed a smaller Canadian crop than expected, at 27.704 MMT vs. trade ideas closer to 29 MMT. Cumulative US export commitments are now 43% of the USDA forecast for the full year, up from the 5 year average of 41% for this week. The weekly CFTC Commitment of Traders report showed managed money accounts with a net short position of 50,668 contracts, with net buying for the week of 10.456 contracts. They added 2,062 contracts to their net long position in KC wheat, bringing them to a net long position of 15,421 contracts.

October Cotton futures shot up 6.07% for the week despite a surging US dollar index and competition from lower crude oil (synthetic fiber). Rapidly declining cert stocks may have spooked a few shorts, with a lot of the deliverable inventory being loaded out. The weekly USDA export sales report put Upland sales at 155,600 running bales. Total export commitments for the marketing year total 48% of the full year projection, and are running ahead of the 40% average for this date. The CFTC COT disaggregated futures and options report shows managed money speculative accounts adding shorts. They were net short -7,404 contracts at the end of the day on August 19.

Cattle futures were up $1.25 for the week, with all of it coming on Friday ahead of the USDA Cattle on Feed and Cold Storage reports. The COF report showed a few more cattle in the lots than expected, with July placements down 7.4% when trade ideas had been closer to 10%. When combined with smaller July marketings than expected, the August 1 On Feed total was 98.12% of year ago. The Cold Storage report also showed some beef backing up in the cooler, with the July 31 beef stocks 2.3% larger than last month. They are still very small vs. year ago. Wholesale beef prices were weaker this week, being dragged down by the pork market and larger weekly slaughter. Choice boxes were 2.3% lower on the week. Select boxes dropped 3.5%. Weekly estimated slaughter was up 2.5% from last week, but down 5.9% from year ago. Beef production YTD is down 6.3%, with slaughter down 7%. Higher carcass weights make up the difference.

Hog futures were down 2.19% this week, a slowing from the sharp 4.4% slide the previous week, but still bearish. Thus far in 2014, hog slaughter is off 5.0% from the same point in 2013.  Pork production is only down 1.3%, due to substantially higher carcass weights. Carcasses are currently running 10# above year ago, with live weights up about 13 pounds. Pork carcass cutout values continued to slip this week, with the average price reported at $103.60 on Friday, a weekly loss of 7.3%.  Hams were down 20.6%  a week ago, and fell another 9.6% this week. This time they were joined by a 10.6% drop in pork bellies, more typical seasonal weakness for the latter.

 Market Watch

The ag markets will begin the week reacting to the USDA Cattle on Feed and Cold Storage reports released on Friday night. Grain traders will be making adjustments tied to any surprise futures positions inherited on the expiration of September options, also on Friday. We will get the usual month end portfolio adjustment this week, with the Rogers roll out of October contracts at the end of the week. USDA Export Inspections and Crop Progress reports will be out on Monday and the weekly Export Sales report on Thursday morning. The markets are open on Friday, but it will be the beginning of the Labor Day holiday weekend and the trading population is expected to be thin.

Visit our Brugler web site at, find our iPad app "AgMarket" in the Apple app store, or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses. 

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

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