Bulls Catch Cold

Published on: 17:09PM Jan 31, 2020


Market Watch with Alan Brugler

January 31, 2020

Bulls Catch Cold

OK, so it isn’t a cold. The commodity bulls all appear to have Wuhan style coronavirus.  All that red ink in the ag price table below certainly suggests a fever, doesn’t it? Not the beans in the teens type of fever, but the stay home in bed and cover your head type. It wasn’t just ag.  The heavily energy weighted Goldman Sachs Commodity Index (GI) sank to the lowest reading since the week of September 6.  The more balanced CRB Index hit the lowest reading since December. For a change, the cash wasn’t just being steered to the stock market. The S&P e-mini futures were down almost 2%.

Just like the flu or a cold, this too shall pass. As doctors like to point out, anti-biotics don’t cure viruses. While anti-virals can be developed (see ASF news this week) it is mostly passage of time, while your body ramps up the anti-bodies. The big problem for the market right now is the infection curve. We don’t know yet how many people and countries will be affected, so it is difficult to gauge any demand loss other than fuel not used due to travel restrictions. It is likely that there will be some demand compression, with a surge of buying once the wave passes.

Corn futures fell with the rest of the grain complex over the course of the week, albeit losses were limited compared to other commodities. Nearby March was down 6 cents (1.55%) since last Friday, despite several daily export sales announcements by the USDA totaling 369,607 MT over 19/20 and 20/21 MY’s. Even a bullish Export Sales report failed to lift the market, as USDA announced 1.234 MMT in old crop corn sales for the week of 1/23. That was the third largest weekly total this MY, yet the combination of shipped and unshipped sales is down 39% from last year, gaining on a relative basis. This is still only 48% of the full year USDA forecast, while the normal pace is around 63% for this time of year. Ethanol production was down again to a 12-week low of 1.029 million barrels per day, with stocks rising to a 26 week high. Spec funds in corn futures and options peeled back 38,328 contracts from their net short position as of Tuesday to -29,476 contracts according to Friday afternoon’s CFTC report.

Wheat futures saw a lot of red this week, as all three exchanges posted double digit losses. KC HRW led the way to the downside, dropping 4.12%, as Chicago SRW fell 3.44%. Minneapolis HRS slipped another 2.47% to bring the 2-week loss to 26 cents. Egypt’s GASC was in for wheat this week, but due to a premium for US prices (plus freight disadvantage), the buying was held to just 180,000 MT of French wheat. Data from the weekly Export Sales report indicated another round of robust sales, as all wheat bookings were tallied at 646,295 MT. That was the third straight week above 600,000 MT as we start out the new year and above normal for January.  Commitments of old crop wheat are now 6.2% above last year and are 79% of the 19/20 USDA export projections vs. the 85% average.  Commitment of Traders data showed managed money adding to their net long position in Chicago wheat futures and options by 6,798 contracts as of Tuesday to 48,469 contracts. They skimmed back 1,308 contracts from their net long in KC wheat to 9,384 contracts by 1/28. Specs were still paring back their net short position in MPLS futures and options, taking it to -3,532 contracts by Tuesday. 

Nearby soybean futures have not seen a daily gain in 2 weeks, as the 3.27% losses this week added to the 3% from last week. That 2-week loss stands at 57 ¼ cents. Soybean meal was down 2.45%, and soy oil dropped another eye-popping 6.5%. Malaysian palm oil futures were down hard this week to assist the BO long liquidation. While fears of the coronavirus took up most of the headlines, export data was showing the lack of demand for US beans as the record expected Brazilian crop is starting to be harvested. While the Export Sales report did show 1.231 MMT in shipments, just 469,710 MT of old crop bookings were listed for the week of 1/23. That was a 3-week low and well below last year’s 6-week average (due to the government shutdown). Export commitments for the 19/20 soybeans are 5.6% below last year, and just 66% of the USDA forecast, normally 80% by now. Customs data out of China showed 9.542 MMT in December imports of soybeans. Of that total, 3.09 MMT was from the US. From Sep-Dec, Chinese imports have totaled 32.196 MMT, which is the second largest on record only behind 17/18, according to the country’s customs data. Friday’s Commitment of Traders report showed managed money adding another 37,220 contracts to their net short position in soybean futures and options as of close of business on January 28. That net short position stood at 50,955 contracts as of Tuesday.

Cotton futures dropped another 2.87% on the week, posting a 2-week loss of 5.31%. The weekly Export Sales report tallied upland cotton booking during the week of 1/23 at a MY high 347,123 RB. China was the buyer of 109,862 RB, their largest weekly purchase since the pre-Trade War period of October 2016.  Shipments to China were the largest in over a year at 71,408 RB, as total exports were the largest going back to the week of August 15 at 327.079 RB. There was also 50,160 RB of new crop sold. CFTC’s Cotton on Call report showed mills with unfixed call sales of 26,144 contracts for March, with unfixed call purchases at 19,931 contracts. The weekly Commitment of Traders report indicated the large spec managed money funds adding 7,534 futures and options contracts to their net long in the week ending January 28. That took them to a net long position of 36,541 contracts by Tuesday, their largest bullish position since Dec 2018.

Live cattle futures joined in on the selling with the rest of the commodities, falling 2.78% on the week.  New front month for the feeders, March, followed suit slipping 2.58% since last Friday. The CME feeder cattle index was down $2.46 from last week to $142.38. Wholesale beef prices were lower this week. Choice boxes were down $1.49/cwt (-0.7%) for the week, with Select product just 4 cents lower. After dropping to the lowest point since 2017 earlier this week, the Chc/Sel spread ended the week at $2.34, narrowing $1.45 from last Friday. Weekly beef production slipped 1.5% from last week, but was up 7.4% from the same week in 2019.  Through the first month we are down 0.9% on slaughter, but less than 0.01% lower in terms of beef production. Export sales data tallied beef sales at 21,747 MT for the week ending 01/23. South Korea and Japan continue to be the largest buyers. USDA reported cash sales of $122 this week, down $2 from last week, trades of $194-195 in the beef (down $4-5). The bi-annual Cattle Inventory report showed all cattle and calves down 0.41% from last year at 94.413 million head. Beef cows were down 1.18%, with replacement heifers 1.92% lower. Other heifers were up 0.85%, woth steers over 500 lbs down 0.69%. The calf crop was tallied at 36.06 million head, down 0.7% for the first time since 2015. Weekly data in the Commitment of Traders report indicated the spec funds skating out of their net long position by 19,175 contracts to 71,078 contracts in live cattle futures and options. In feeder cattle, they bailed out of their net long position at the largest Tuesday-Tuesday rate since back to 2006 at 5,705 contracts to a net long of just 1,490 contracts.

It was not a good week to be long lean hog futures. Nearby Feb completely fell apart, dropping 15.02% just this week on several limit/near limit down days. A mix of fear over the impact from the coronavirus on US demand from China, and news of an ASF vaccine discovery were a major reason. On top of that, weekly hog slaughter was up 14.0% from the same week in 2019, but down 0.6% from last week at 2.703 million head. Through the first month of 2020, estimated pork production is up 2.8% YTD on 2.2% more slaughter.  The CME Lean Hog index was up $1.49 on the week to $62.78. The pork carcass cutout value was down a sharp 10.1% for the week ($7.81), with the ham down 20.2% and belly dropping 15.3%. The weekly Export Sales report from USDA tallied pork bookings at 34,090 MT for the week ending 01/23. Shipments have kept their robust pace, at 43,646 MT, with 18,617 MT headed to China. CFTC’s Commitment of Traders report indicated spec funds at a net long of 10,099 contracts of futures and options in hogs on January 28.  That was down 1,467 contracts from the previous week.

Market Watch

We start out next week with Chinese markets back open after the New Year holiday week and react to the fallout to the coronavirus. Cattle traders will begin the week dealing with the aftermath of the bi-annual Cattle Inventory report. Monday morning, the USDA will release the Export Inspections report per normal. That afternoon, NASS will put out the monthly Grain Crushing, Fats & Oils, and Cotton Systems. Skip to Wednesday, the weekly EIA ethanol report is due, as well as the monthly trade data from Census. The weekly Export Sales report will be released on Thursday. Friday is the last trading day for February Live Cattle options and March Cotton options.

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