Market Watch with Alan Brugler
Dec 13, 2019
The number of official trade consultations between the US and China is into double digits since the trade war began. The number of tweets, trial balloons and statements regarding the situation has to be well into the millions. Besides eating up terabytes of data storage, what have we accomplished? We have the equivalent of the boy crying wolf. In the fable, he finds that people respond when he warns about a wolf, even if no wolf actually exists. He likes the control and keeps repeating the behavior. Eventually the people around him get tired of finding no wolf threatening the sheep and quit responding. In the end, the boy sees a real wolf and nobody will come to his aid. We’ve had so many false alarms about a China trade deal, with nothing coming of it, that of late you got the impression “I’ll believe it when I see it” or “There is no wolf”. The market wasn’t reacting. I was looking for the end of the story, where the real wolf (trade deal) shows up. However, at the end of the week, the Administration was again teasing us with a China deal, and the markets were reacting. Is this time different? The deal isn’t actually signed yet, and the Chinese seem to be very evasive about the scale of what they have agreed to buy, in dollars. The USTR put some numbers on it, but China hasn’t confirmed them. And the product mix? We’ve heard energy, but is that crude oil products or ethanol? Do corn and wheat get to play in more than token quantities? We think some more soybeans and pork are givens, but will it be game changing quantities or just shipping (in pork’s case) the big backlog already purchased? There are a few more pages in the book!
Corn futures were up 4 ¼ cents this week, cancelling out the loss from the previous week. USDA reported net weekly export sales of 875,900 MT as traders got back to work after the Thanksgiving holiday. On Tuesday, USDA made absolutely no changes to the WASDE balance sheet for US corn. They did hike world ending stocks back above 300 MMT, thanks to an upward revision of more than 6 MMT to the Chinese crop estimate. Friday’s Commitment of Traders report showed the managed money spec funds adding another 29,664 contracts to their net short position in the week ending December 10. That put them net short 114,801 contracts of futures and options right ahead of the rally.
Wheat futures were higher in all three markets this week. Chicago futures gave back some of their premium to KC HRW and MPLS spring wheat. Chicago was still up 1.5% for the week. It just lagged the 2.78% gain in KC HRW. The WASDE report was modestly friendly to wheat, wit USDA Weekly Export Sales report more than doubled those of the slow Thanksgiving week, with USDA showing 502,700 MT. Export commitments for US wheat are now 64% of the USDA projection halfway through the MY, which is ahead of last year but lagging the 75% average. Actual shipments are 20% larger yr/yr, with unshipped sales lagging 2018/19 by 28%. The Commitment of Traders report on Friday afternoon showed the large spec funds getting nervous about their net long position in Chicago wheat. They reduced it by 8,964 contracts during the week ending December 10, taking it to 11,603 contracts net long. The managed money spec funds took their net short in MPLS spring wheat to a record large 23,231 contracts as of December 10.
Soybean futures posted a gain of 18 cents per bushel this week on top of 12 3/4 cents from the previous week. Soybean meal was down 0.8% on aggressive hedger crush selling. Soybean oil was up 4.4% on strength in EU rapeseed and palm oil. The USDA Export Sales report showed weekly sales above 1 MMT again at 1.05 MMT for old crop and another 125,000 MT for 2020/21 shipment. Export commitments for soybeans are 9% above last year, although unshipped sales are down 10%. Accumulated exports to date are 24% larger than last year. USDA left the S&D balance sheet UNCH for US beans on Tuesday, other than reducing the cash average price for the year by 15 cents. That was driven by the November price decline and the historically large percentage of producer sales for the year that occur in November. The CFTC report showed the large speculator funds loading up on short futures and options positions in the week ending December 10. They were net short 112,528 contracts after adding another 13,509 contracts during the reporting week.
Cotton futures were up 1.1% this week, on top of a 0.9% gain the previous week. Weekly export sales for Upland cotton rebounded. Combined old crop and 2020/21 sales were 273,700 RB. Pima sales were 5,800 RB. USDA cut projected US average yield and cotton production, and reduced projected cotton ending stocks to 5.5 million bales from 6.1 million. Upland export commitments YTD are 71% of the full year USDA projected total, outpacing the 64% average. Unshipped sales on the books are 8% larger than last year at this time. The trade is, of course, hoping that the China trade deal drives additional purchases. Spec funds bailed out of a big chunk of their newly hatched net short in cotton. They bought a net 4,702 contracts on the week, shrinking the net short to 2,959 contracts as of Tuesday night.
Live cattle futures rallied 1.8% for the week, with most of the gain on Friday. Nearby feeders were up 2.9% despite higher feed costs, thanks to the rally in the fats. Cash cattle trade saw most of the volume at $119 and $188-190 in the carcass-based market. The CME feeder cattle index was $143.40, down another $1.09 from last week. Wholesale beef prices were sharply lower again this week. Choice boxes were down $8.27/cwt (-3.6%) for the week, with Select product $3.06 lower or -1.5%. Weekly US beef production was down 2.21% this week, but up 2.4% from year ago. Year to date beef production is 0.4% larger than year ago on 1.1% higher slaughter. USDA Export sales data showed 11,900 MT for the week ending December 5. The large spec funds added 2,799 contracts to their net long position in cattle during the week ending December 10. That left them net long 81,013 contracts when CFTC collected the data.
Lean hog futures rallied 2.9% this week in new front month February. The CME Lean Hog index was $59.72, up $1.38 from the previous week. The pork carcass cutout value was down 20 cents or 0.2% this week. Hams and bellies drifted lower to create the negative number. Weekly pork production was down 1.2% vs. the previous week, but still 6.5% larger than a year ago. Estimated weekly slaughter backed off from the record 2.799 million head the previous week to 2.763 million. YTD pork production is now 4.6% above year ago on 4.0% more hogs going through the plants. The USDA weekly export sales data for the week ending 12/5 showed 44,800 MT sold. China continues to ramp up shipments, taking 13,900 MT for the week. The CFTC report showed the spec funds adding another 4,446 contracts to their net short in hogs, taking it to -8,220 as of December 10.
Next week is the final week before the hectic Christmas holiday schedule begins. We will start out Monday with the USDA Export Inspections report per usual, and the NOPA crush report for November will be released that morning as well. As with the normal weekly schedule, EIA will release ethanol production/stocks data on Wednesday. USDA will put out the Export Sales data on Thursday morning. Traders will head home before the holiday week with the Cattle On Feed report release on Friday afternoon.
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