Market Watch with Alan Brugler
January 24, 2020
It’s the middle of winter in North America. While we haven’t had much of the extreme cold (cross your fingers), the wind chills have been enough to remind me of thawing out drinking cups for the heifers and buckets cold enough to freeze to your bare hand if you touched them. Would be ag commodity bulls were hit by a splash of very cold water (or maybe a chunk of ice) this week. They’d been excited about the convergence of trade deals and potential export sales, particularly from the Phase One China deal. This week, we were reminded that the deal isn’t actually in effect yet, and neither is the USMCA. China is buying pork and soybeans at about the same level they were before the announcement. It isn’t helping that the US dollar has been rallying since January 1, or that early harvest reports out of Brazil suggest some record yields. Buyers are still going to play suppliers against each other, and freight or grain quality issues will pop up. The grain and meat supply on the planet doesn’t leave to go to Mars, but sometimes it takes a little shuffling or a January clearance sale to get the product to move.
Corn futures lost 2 cents per bushel for the week, a 0.5% haircut. Bulls got their hopes up with a nickel gain on Thursday, and a breakout above speedline resistance on the March chart. However, neither a 1.007 MMT weekly export sales number or two sales of corn to unknown announced Thursday and Friday under the daily system could keep the market from losing 6 cents on Friday. As mentioned, the Export Sales report showed much improved weekly export sales of 1.007 MMT, up 28% from the previous week. Old crop commitments (shipped and on the books) are now 37% behind year ago, gaining on a relative basis. Only 45% of the full year USDA forecast is accounted for, vs. 61% typical for this time of year. Friday afternoon’s CFTC report showed the managed money spec funds still net short 67,804 corn contracts on January 21. They reduced the position by 10,638 contracts of futures and options in this reporting week.
Wheat futures were mixed, thanks to Chicago. Chicago SRW was the only ag commodity with a higher price on Friday than it had the previous Friday, up 3 cents per bushel. KC HRW was down almost 9 cents, and MPLS March futures lost 15 cents. The weekly Export Sales report showed solid weekly export sales of 696,000 MT for old crop and another 46,000 for shipment after June 1. Old crop commitments (shipped and on the books) are now 12% larger than last year at the same point. The Commitment of Traders report for the week ending January 21 showed the spec funds adding 11,884 contracts this week to their existing long in Chicago SRW, bumping it to 41,671. They added 2,757 contracts to their net long in KC HRW, bumping it to 10,692 as of Tuesday COB. The managed money crowd is still trying to get out of that record short in MPLS spring wheat. They had it pared down to -3,515 contracts on 1/14, but bumped it back up 134 contracts this past week to 3,649.
Soybean futures sank 3% this week for a two week slide of 44 cents per bushel. While China continues to buy US beans, they appear content to allow new crop Brazilian beans (and a projected record crop there) knock down world FOB values. Soybean meal was down 0.8%, and soy oil dropped a whopping 4%. Palm oil futures in Malaysia stabilized, and some US biodiesel plants are re-opening. That wasn’t enough to halt long liquidation in the BO. Soybean export bookings for the week ending January 9 were 790,000 MT, up a bit from last week’s 711,462 MT, with China buying 225,900 MT vs. 216,609 MT the previous week. Commitments for the 2019/20 marketing year are just a skosh ahead of year ago at 31.203 MMT. They are only 65% of the full year USDA forecast, and would typically be 79% by now. That said, shipments since September 1 are 36% larger than last year thanks to the return of the Chinese to the market. Soy oil export bookings were larger than anticipated at 55,600 MT. Meal sales were huge at 641,900 MT due to issues in Argentina. The CFTC report on Friday afternoon showed the managed money spec funds flipping back to net short from long. On balance they sold 20,025 contracts, leaving them net short 13,735 contracts of futures and options as of close of business on January 21. They had only been net long for two weeks after a 6 week visit to the bear side.
Cotton futures shed 2.5% of their previous value this week. Weekly export sales for cotton surged 32% for old crop during the week ending 01/16, to 307,800 running bales of the upland varieties. New crop bookings totaled 13,200 RB, mostly to Vietnam. Another 20,200 RB of Pima exports were booked during the week. Friday’s CFTC report showed the large spec managed money funds trimming 1,256 futures and options contracts from their net long in the week ending January 21. That left them net long 29,007 at data collection.
Live cattle futures dropped 1.2% in the run up to the Friday afternoon Cattle on Feed report. Nearby feeders retreated 2.4% on top of the 1.5% decline from the previous week. The CME feeder cattle index was $144.84, down 90 cents from last week. Wholesale beef prices were mixed this week. Choice boxes were up $0.32/cwt (0.1%) for the week, with Select product down $2.05(1.0%). The Chc/Sel spread widened out a bit to $3.79. Weekly beef production was up 2.5% from last week, and up 7.3% from the same week in 2019. but down 1.2% from last week. Year to date comparisons (-2.2%) are still invalid due to different holiday timing. The weekly Export Sales report showed bookings of 27,800 MT for the week ending 01/16. South Korea and Japan continue to be the largest buyers. China is buying, but a lot of it is still coming from Brazil and Australia. The USDA reported cash sales were mostly $124 this week, with dressed sales staying between $198 and $200. Friday’s Cattle on Feed report was very close to pre-report ideas, with December placements up 3.45% from year ago and December marketings up 5.34%. That left January 1 On Feed at 11.958 million head, up 2.29% from last year. The heifer/steer ratio was 38.34%, the heaviest for heifers in January since 2004. The Commitment of Traders report showed the managed money spec funds expanding their net long position to 90,253 contracts, up 6,650 for the reporting week.
Lean hog futures were down 0.66% this week after rising 0.6% last week. The two week net change was a whole 2 cents per hundred pounds of lean hog. The CME Lean Hog index was $61.29m, up $1.14 from last week. The pork carcass cutout value was up $1.91 for the week (2.5%) on top of a $2.97 advance the previous week. The USDA weekly pork bookings from the week ending 01/16 slowed to 30,300 MT from 38,671 MT the previous week. Export shipments rose to 44,400 MT from 41,506 MT the previous week. China took 16,900 MT. Weekly hog slaughter was up 9.4% from the same week in 2019, and up 8.8% from the previous week at 2.72 million head. Friday’s CFTC report showed the managed money spec funds net long 11,566 contracts of futures and options in hogs on January 21. That was up 2,018 contracts from the previous week.
The Chinese are out for the New Year holiday week, although many more than usual are staying home due to coronavirus travel restrictions. Cattle traders will begin the week dealing with the aftermath of the Cattle on Feed report. The USDA Export Inspections report will be out on the usual Monday release schedule. The EIA weekly ethanol report is due on Wednesday. The weekly Export Sales report comes on Thursday. USDA will release the semi-annual Cattle Inventory report on Friday after the market closes.
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