Wheat Is The Exception

Published on: 16:29PM Sep 07, 2012


Market Watch with Alan Brugler

September 7, 2012


Wheat The Exception


Wheat was the bull leader this week, with all three exchanges closing higher. Minneapolis was the weakest of the three markets, due to excellent US and Canadian yields. KC and Chicago also rallied, despite middle of the road US export sales and aggressive Russian, Romanian and Ukrainian sales of wheat to Egypt and others. Wheat from the Black Sea is moving at an embargo discount. You can get it cheaper than other origins, but have more risk that the door will be shut before you get your product. The spread between those origins and EU wheat narrowed. The US still isn’t seeing much in the way of export sales, but still might when the Russians run out of wheat to sell. Russia also indicated that it would import wheat from neighbors to fill needs if too much is shipped out.  

Nearby corn futures were down 1% for the week, losing 8 cents per bushel as September contract went into delivery (there have been none thus far) and spec longs exited. December is nowhere near full carry, making it a dicey proposition for a hedge fund to take delivery and back to back it to December delivery. Weekly export sales for the prior week were again very light at a net 44,000 MT, reinforcing bearish arguments that the current level of prices is sharply reducing consumption/disappearance as it needs to do. Weekly ethanol production on the other hand, rebounded by 10,000 barrels per day from the previous week. At the current production rate corn use for ethanol would slow to 4.5 billion bushels per year, or 500 million below last year. Of course, the other question mark is production. Private yield estimates were all over the place this week, running from 116.6 to 124 bushels. Nearly all were below the USDA August forecast, and it can be argued that we are already trading a 120-121 bushel yield because the market failed to rally when numbers that low or lower were released.






























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Soybeans fell back 1.86% for the week after being up 1.55% the prior week. The market hit new all time highs, but couldn’t hold them. Meal futures were up $13.70/ton a week ago, but gave back $15.50/ton this week. Soy oil was also down a quarter percent, putting additional pressure on product value.  The USDA weekly soybean export sales were 5,100 MT for 2011/12 with net sales of 520,600 MT for 2012/13 delivery. China bought 453,000 MT of the new crop. Totals were below trade estimates of 600 to 775 thousand MT.  Informa estimates soybean production will be 2.639 billion bushels with a yield of 35.4 bpa. Stats Canada reported total canola stocks were down 64.1% to 787,700 MT as of July 31. On farm Canadian canola stocks dropped to the lowest level since 2004 at 225,000 MT contributing to the drop.  Soy oil futures were lower anyway, with all of their net loss for the week on Friday.

Nearby cotton futures lost 1% for the week, giving back a portion of the 2.7% advance from the previous week. Cotton is still in the midst of a rally that began back in the first week of June. It hasn’t been showy like the corn and soybean rallies, but there is a modest inflation/weak dollar argument out there, and also a number of indications that Southern Hemisphere producers are ignoring the white stuff in order to grow more of the yellow stuff this season. US weekly export sales through August 40 were 83,900 RB for 2012/13 delivery for upland cotton with traders looking for between 50,000 and 100,000 RB. Net sales of Pima were 30,100 RB

Cattle futures also escaped with a small gain for the week, 0.36%. The trade has definitely been looking for tighter supplies and higher cash prices into the fall. Cash cattle trade was very slow to develop. The choice cutout rose $1.11 this week, while the Select beef price finished 2.14% higher at $181.70. Weekly beef export sales improved to 18,200 MT. We continue to see declining supplies of ready cattle coming out of the feedlots, with October being the bottom of the hole. The cattle market is very good at closing those holes, however, by backing cattle into them or pulling cattle ahead. Weekly estimated slaughter was only 551,000 head, 28,000 smaller than the Labor Day week total for 2011. Weekly beef production was down 2.6% vs. year ago.  

Hog futures had the worst performance of the ag commodities we track, losing 3.8% for the week. Packers have been swamped with hogs, with market runs 6% or more above year ago. These are not sows, but market hogs. There is spirited debate within the industry about whether USDA missed low on the June snout count. Other opinions have producers marketing early because of the early corn harvest, and/or to avoid feeding more expensive corn to them. Estimated weekly pork production was up 2.7% from last year. Average weights have dropped to 201 pounds, matching year ago. Cash hogs eroded almost daily this week and were down $1.25 on average in IA/MN, down $2.28 in the WCB and down $2.55 in the ECB today.    The pork carcass cutout value was down $4.87 for the week, at $78.03. Estimated weekly slaughter was 54,000 head larger than year ago.


Market Watch:

We get a fresh round of USDA reports this week, with Crop Production and WASDE supply/demand numbers both due to be released at 7:30 am CDT on Wednesday morning. We’ll also get the usual Crop Progress and Export Inspections reports on Monday and USDA Weekly Export Sales on Thursday morning. NOPA is expected to release the monthly soybean crush report on Friday morning. Friday will also mark the expiration of the September grain futures contracts.


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