Trains With No Engineers

Published on: 16:33PM Oct 04, 2013


Market Watch with Alan Brugler

October 4, 2013

Trains With No Engineers


There have been several incidents in recent years of empty or unmanned trains rolling down the tracks and eventually derailing or smacking into another train. There are some similarities to the current budget battle in Washington and its side effects. We are careening down the tracks, and there doesn't appear to be an engineer driving. Due to the Administration decision to shut down government web sites and data collection across a wide swath of the economy, many of the trains (economic, not literal) are running without signals on the tracks. Without the red light, there is a tendency for the train to keep going. We have noted overbought or oversold conditions in a number of commodity markets because they aren’t getting any signals to slow down, and half of the passengers are enjoying the ride. Corn and soybeans are in the oversold camp, while wheat, cattle and feeder cattle are overbought.


December corn futures lost 2.4% this week, taking out the August low while awaiting USDA production data on the 11th.  That train may not be coming, at least not on time. The overall tone continues to be bearish because of large anecdotal yield reports. As always the question to ask is "It surprised you, but did it surprise USDA?" If export business is picking up, it isn't publicly known. US ethanol production jumped sharply this past week to 875,000 barrels per day. Imports slowed to 14,000 bpd, and ethanol stocks dropped to 15.5 million barrels despite the larger domestic production.


November futures lost 25 cents per bushel on the week, about 1.9%. Weekly export sales were not reported. Export inspections on Monday were 14.3 million bushels. Shipments since September 1 are still 10 million below year ago, due to an overhang of South American supplies still being shipped. Soybean meal was the bull leader for all the ag commodities, as long as you were looking at the October contract. There is a bit of a short squeeze under way, with zero deliveries thus far against the contract. Crush has been constrained by the slow pace of harvest, and there has been strong export demand and domestic feeder demand for the product. Thus, limited interest in making supplies available for delivery.  Stats Canada reported a smaller than expected 16 MMT canola production number on Friday, but soy oil showed little reaction.


Wheat futures were solidly higher on the week. KC gained the most ground, up 2.5% due to strong export buying interest and the small 2013 production. MPLS also rallied 2% on short covering and spread unwinding as spring wheat harvest wound down. 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. China is also shipping large quantities bought previously.


Cotton futures marked time this week, netting only .17 cent per pound. That was still the highest Friday close in more than a month. Harvest continues to run a little behind normal at 7% complete, but old crop stocks are adequate to carry us for a while and global stocks are still seen as being record large in 2013/14. China is rumored to be looking for a different price support mechanism for 2014, but the CCA meeting on September 27 did not result in any policy announcement.  Cotlook reduced its global production estimate in September by 150,000 MT, with Chinese production dropped to 7 MMT.
















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Cattle futures lost 20 cents this week, a 0.16% drop after rising nearly 2% the previous week. Cash cattle trade was mostly steady for the week at $126 in the south and $198-200 in the north on Thursday afternoon and Friday morning.  The market is operating with limited information, as US slaughter, beef production, wholesale prices and export reports are all suspended. We do know that ready numbers should be declining into November, based on prior Cattle on Feed placement data.  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.


Hog futures were down 1.16% this week. Cash market information has been sparse, limited to auction results that represent a very small % of total trade volume. Retail meat prices are said to be a touch weaker, but with no hard data. Chicken producers are expected to still be expanding, but nobody except maybe Tyson or Sanderson has a good handle on it. They're not talking. CME Group has indicated that they might 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.  


Market Watch


USDA reports are still suspended due to the lack of a budget. Ditto for Census and CFTC reports. If there is somebody out there who can benefit from a lack of information for the counterparty, they are likely taking advantage! Weekly ethanol production and stocks are still expected on Wednesday, but we are told that EIA funding is only good until October 11. That leaves a heavy dependence on private reports like the NOPA crush report expected this week, and on technical analysis. Non-US information sources are also getting extra emphasis. USDA is scheduled to release a Crop Production report on the 11th.  We are skeptical that it can be released because nobody has been in the office to collate the data.


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