Taxing Markets

Published on: 16:34PM Apr 15, 2011


Market Watch with Alan Brugler
April 15, 2011
Taxing Markets?
April 15th is the traditional day when tax filings are due in the United States, along with any money due for last year. Due to a quirk in the schedule, taxpayers have until April 18th this year. However, the futures markets for agricultural markets have been taxing in their own way. The volatility continues, with 5 of the commodities we track moving 4% or more for the week.
Corn had a down week, losing 26 cents of the 32 cents it had gained the week before. A sell off in crude oil got the bearish ball rolling, putting some pressure on gasoline and ethanol. The biggest bearish variable was the sharp decline in old crop wheat futures, with May CBT wheat dropping below May corn for the first time since the 1990’s. That fed a lot of discussion about wheat feeding in place of corn. USDA says it will happen, and the price ratios are now in line. The question is whether livestock feeders will actually make the switch en masse, or only in a few selected situations where they have experience feeding a wheat based ration and are close to the rail lines or local SRW production.
The soybean complex was sharply lower, with soybeans losing 4.35% for the week. Meal fell 3.4% and soy oil dropped 4.9%, collectively putting a lot of pressure on product value and what the processors could afford to pay for the beans. South American crop production estimates also continue to rise, and basis at export ports weakened. There were rumors of Chinese cancellations and/or deferrals, due to negative crush margins for imported beans and also a Chinese government program to sell some subsidized reserve beans to crush plants forced to maintain a price cap on the veg oil they are selling. China’s sharp rise in first quarter inflation also fed talk of further tightening moves to come.
Wheat was down sharply at all three exchanges. The presumed bull leader, KC HRW, fell the furthest. It lost 7.2% for the week. It is unlikely to see major feed use due to the premium to SRW, and traders also convinced themselves that Russia and/or Ukraine would get back into the export business this summer and offer the wheat at bargain basement prices. In my view, neither of those is assured. Russian winter wheat plantings did not meet intentions last fall, and the “make up” spring wheat plantings are running behind schedule due to spring weather. Prices would also be presumed to move closer to world levels if/when those countries actually have wheat approved for export. Winter wheat crop condition ratings were the worst since 2002 for mid-April, at 291 on the Brugler500 index. That was all HRW, however, with SRW ratings above last year at this time. Rain and snow on Thursday and Friday helped improve moisture levels in about 2/3 of the Plains wheat area, with TX being missed for the most part.
Cotton futures were down 3.67% for the week, as opposed to being up 3.79% the previous week. USDA Weekly Export Sales below trade estimates were the main culprit for the weakness, along with concerns about high fuel costs squeezing consumer discretionary spending. Those fuel costs did drop a bit as the week went on. Old crop export sales were reduced by 96,300 RB as increased sales did not offset cancellations from China, Viet Nam, Turkey, Indonesia and Pakistan. Sales for 2011/12 were 165,800 RB for upland cotton. Shipments were down 41 percent from last week and 27 percent from the four week average.
Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:

% Change
CBOT Wheat
KCBT Wheat
MGEX Wheat
Soybean Meal
Soybean Oil
Live Cattle
Feeder Cattle
Lean Hogs
Cattle futures were down $1.43 per cwt. for the week, off 1.2%. On a Thursday/Thursday basis the choice boxed beef value was down $2.97 or 1.6%. The product weakness limited the ability of packers to pay up for cattle. Beef production for the year to date is up 1.3% from last year. Slaughter is up 0.4%, but average carcass weights are also running about 13 pounds higher than last year. Feedlot operators have so much money tied up in the animals and the corn that they need every last pound to improve the ROI.
Hogs were the only bullish commodity in our list this week. April futures were supported by pork cutout values in the mid-90’s and rising cash hog prices. April expired on Thursday and left a huge chart gap to the upside with June trading at $102.62. Futures dropped on Friday in an attempt to close some of that chart gap. The parts value of a hog carcass rose $1.72 or 1.8% for the week on a Thursday/Thursday basis.  Estimated pork production for the week was 422 million pounds, which would be down 2.1% from the previous week, but 2.5% larger than the same week in 2010.
Market Watch:  This is a short trading week, with the markets closed on Friday for Good Friday and the Easter weekend. That moves up the usual Friday release of the monthly USDA Cattle on Feed and Cold Storage reports to Thursday afternoon. The other regular USDA reports will be as usual, with Grain Inspections on Monday morning, Crop Progress on Monday afternoon, and Weekly Export Sales on Thursday morning. April feeder cattle futures and options are also scheduled to expire on April 21. April Live Cattle will trade until April 29. May grain options will also expire on Thursday, including some heavily traded corn and soybean options.
There is a risk of loss in futures and options trading. Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results. Comments made in this article are in no way to be seen as an endorsement of futures and options trading. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited. Call 402-697-3623 for information on our individualized subscription and consulting services or visit our web site at
 Copyright 2011 Brugler Marketing & Management, LLC