The Trend is Your Friend, Really!

Published on: 14:02PM Jul 03, 2014


Market Watch with Alan Brugler

July 3, 2014

The Trend Is Your Friend, Really! 

Repeat after me the old trader’s axiom, "The trend is your friend". Big financial gains are made by being on the right side of a trending market. For a speculator, that is preferable to being chopped up in a sideways market. For us in agriculture, it is important to favor those trends as well. For livestock producers, the relentless uptrends in prices have simply meant remaining as unhedged as possible for cattle and hogs, and long hedged on feeders if you are a feedlot. Stand aside and let the money come in. Grain guys and gals may not be as keen on the current trend, depending on their hedge status. We had a number of individual Brugler producer clients who reported 6 digit gains in their hedge accounts this week following the sell off. If you were not hedged up with futures or options, keep in mind that other market axiom "Low prices cure low prices". As with other medicine you have to take all of it to achieve the cure.

Corn lost 26 cents on the week,  a 5.9% decline.  The highest late June weekly crop condition ratings since 2000 weighed on the market, as they suggest little incentive to lower projected national average yield in the July WASDE report. USDA also confirmed that nearly all of the intended acreage from March was in fact planted.  Old crop demand remains stout, although export shipments have not kept up with sales. Total commitments are 98% of the forecast for the year. They would typically be 100% by now. Outstanding (not yet shipped) sales are 9.252 MMT, the largest backlog since 2010.

Soybean futures ended the week  3.1% lower.  Old crop exports have slowed, but commitments are still 105% of the USDA full year export forecast.  They would typically be 102%, so USDA is either still low on exports or there will be an unusually large carryover of unshipped business into the new crop slot on September 1. Of course the sell off this week was a double whammy in the June 30 USDA reports. June 1 stocks were larger than expected at 405 million bushels. More significantly, the 2014 planted acreage of 84.839 million was up more than 2 million from the March intentions.  On Friday, consultant Informa lowered projected national average yield to 44.5 bpa, using 83.228 million harvested acres.  Census also told us on Thursday that May soybean imports were 8.3 million bushels, bringing the 9 month total to 38.8 million.
















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Wheat futures ended the week 3% lower in Chicago, and 4% lower in KC. MPLS drpped 4.7% after USDA revealed that US producers had expanded spring wheat plantings to 12.709 millin acres since the March intentions report instead of switching to soybeans as the trade had believed was the case.  KC HRW is a substitute with MPLS HRS wheat, and took some of the selling pressure despite continued poor yield reports.  On Thursday, USDA reported better than expected weekly export sales of 567,500 MT.   US export sales commitments are currently 31% of the projected total for the year. The 5-year average pace would be 25%, so bookings to date would be regarded as strong.

July Cotton futures were big losers this week.  USDA  raised projected US cotton acreage to 11.369 million acres. That was up from 10.407 million last year. Cotton export sales commitments are 104% of the USDA forecast for the year. The average for this date would be 108%. There has been a marked slowdown in export sales in recent weeks, particularly to China.  USDA pegged weekly export sales for Cotton at 101,300 RB, including 94,600 RB of Upland, and 6,700 RB of Pima.   The marketing year ends July 31.

Front month cattle futures were up 1.8% for the week after a 3.2% advance the previous week. August feeder cattle shot up another 1.5%.  Cash cattle trade was reported mostly $2-3 higher than last week at $157-158.  Wholesale beef prices were sharply higher this week, setting new all time highs. USDA reported weekly beef export sales at only 5,700 MT for this past week, the worst performance of the year. Price rationing may be starting to affect foreign buyers.

August Hog futures were 1.4%% higher this week.  The Hogs & Pigs report a week ago was bullish, and market action reflected that confirmation of tighter hog numbers. Weekly pork export sales were OK at 12,300 MT, but down from 17,100 MT the prior week.  Week to date slaughter through Thursday was 1.626 million head vs. 1.57 million a week earlier. The total was well above the 1.274 million from 2013, but that is due to the timing of the July 4 holiday.

 Market Watch

USDA will issue the regular Export Inspections and Crop Progress reports on Monday, along with Export Sales on Thursday. CFTC will issued a delayed weekly Commitment of Traders report on Monday. Wednesday will mark the expiration of the July cotton futures contract. The main USDA reports this week will be the July Crop Production and WASDE supply/demand reports on Friday morning.

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