Time Warp

Published on: 15:30PM Oct 11, 2013


Market Watch with Alan Brugler

October 11, 2013

Time Warp 

The ripple effects of the federal debt standoff are spreading out and affecting more folks every day, due to paperwork that can’t be processed and checks that can’t be written. Government contractors who were still working are being told the window is closing soon as the bank accounts are drained. Craft beer brewers can’t even sell new types of beers because they need label approval and those federal employees aren’t working. Talk about stifling innovation! The grain and livestock trade has been limping along, using private and foreign data to fill in holes in information, but mostly stuck in a time warp. The Big Four packers and Big Four grain companies have inside information from their own operations which will likely be used against producers and end users as what is "known" by the public becomes stale. The reason we have daily Export Sales reports for transactions over 100,000 MT is because the Russians were able to buy massive quantities of wheat in the 1970’s at "big surplus" prices because nobody knew the size of the demand and that the ending stocks were rapidly shrinking. Similar things could be happening now, or perhaps the opposite scenario where supplies are building and a price crash comes once the information is confirmed.

December corn futures lost 2.3% this week on top of a 2.4% decline the previous week. They traded at the lowest level for a front month contract since August 2010. The overall tone continues to be bearish because of large anecdotal yield reports. EPA was rumored to be proposing a reduction in mandated corn based ethanol use for 2014 despite the abundant corn supplies. EPA rule making is also suspended by the government shutdown, however. If export business is picking up, it isn't publicly known. China bought some, but the full scope of activity is only known by the companies doing the deals. US ethanol production slowed a little last week to 868,000 barrels per day. An Ohio plant which has been closed since 2008 is due to start up next week and should add to the average daily production. Imports dropped to zero this past week and ethanol stocks dropped to 15.4 million barrels. Ethanol futures dropped to a 94 cent discount to gasoline, continuing to follow the corn market rather than the fuel market. It is a license to print money if you are blender and have E10, E15 or E85 distribution.

November soybean futures lost 28 cents per bushel on the week, about 2.2% on top of a 1.9% drop the week before. Friday marked the last day of the Goldman Roll selling and shrank the inverse to only ½ cent per bushel. Export inspections on Monday jumped to over 30 million bushels from 14.3 million bushels the prior week. Crush has been constrained by the slow pace of harvest, and there has been strong export demand and domestic feeder demand for soybean meal. Meal basis has backed off about $15/ton from recent highs as more beans become available, but it is still historically strong.

Wheat futures were higher in all three markets. KC gained the most ground, up 1.3% due to strong export buying interest and the small 2013 production. MPLS also rallied 1.1% on short covering and spread unwinding as spring wheat harvest wrapped up.  It wasn't due to a lack of competition, with Stats Canada confirming record high production of 33 MMT on record yields. Japan has been a steady buyer of US wheat, along with Brazil. Japan bought 39 thousand MTs of US wheat on Thursday. Seeding conditions for 2013/14 winter wheat are described as the best in years, resulting in a discount for new crop July Chicago and KC contracts vs. their old crop peers.

Cotton futures posted the worst weekly loss for the ag commodities, down 4.11% Friday/Friday. Nearly the entire decline came on Monday after heavy rains from Tropical Storm Karen proved to have minimal impact on standing cotton.  Cotlook reduced its global production estimate in September by 150,000 MT, with Chinese production dropped to 7 MMT. The huge cotton inventory held by the Chinese continues to hang over the market because any decisions to feed it into the market would greatly reduce imports from major exporters like the United States.
















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Cattle futures rose 75 cents this week, a 0.6% gain. Cash cattle trade was slow to develop, with steady money at $200 in the north on Friday. Packer bids at $198 were being passed. The market is operating with limited information, as US slaughter, beef production, wholesale prices and export reports are all suspended. The UB Yellow Sheet showed choice boxes down 4 cents at midday on Friday, with select also down 4 cents. We do know that ready numbers should be declining into November, based on prior Cattle on Feed placement data.  Private estimates of weekly slaughter are down about 5,000 head from last week. CME Group indicated that October futures deliveries for cattle would proceed as usual, as the necessary grading and inspection is done via user fees and not subject to the USDA furloughs. Deliveries are being made, with another 10 lots at Amarillo on the 10th.

Hog futures were down 1.2% this week. Cash market information has been sparse, limited to terminal auction results that represent a very small % of total trade volume. The terminals were fully steady on Friday. CME Group has indicated that they will have to adjust the delivery procedure for October hog futures if there isn't USDA data to calculate the 2 day moving average used in the CME Lean Hog Index prior to expiration.  If the government data is not available by October 15, CME said it would calculate final settlements based on the volume weighted average price of the October lean hogs futures contract for the two-day period of October 11 and 14. The price would incorporate activity from both the electronic Globex platform and the open-outcry pit during "regular" trading hours, from 9:05 a.m. to 1 p.m. CDT (1405 to 1800 GMT) on October 11, and 9:05 a.m. to 12:00 noon on October 14.

Market Watch

USDA reports are still suspended due to the lack of funding. If there is somebody out there who can benefit from a lack of information for the counterparty, they are likely taking advantage! EIA funding ran out on October 11, so there will be no more weekly ethanol reports until the Washington situation is resolved. Non-US information sources are getting extra emphasis in the data void. So are private sources, but many of those don’t have the same level of rigor used by USDA. Monday is Columbus Day, a government and banking holiday in the United States. The ag commodity markets will be trading as usual. NOPA is expected to issue their normal monthly Crush report on Tuesday. CME Lean Hogs will expire on Monday.  USDA is scheduled to release a Cattle on Feed report on Friday, but it will likely have to be delayed.

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