Market Watch with Alan Brugler
November 8, 2019
Delightful Menace In The Air
I was looking for some kind of November quote to start this off, and had already used in some other year the gales of November in the song “The Wreck of the Edmund Fitzgerald” made popular by Gordon Lightfoot. Then I came upon this quote on the website Goodreads.com:
“November at its best - with a sort of delightful menace in the air.” ― Anne Bosworth Greene
That pretty much describes this fall. The wind in this part of the country has a nasty bite to it, promising winter but as yet not delivering the snow and ice. I know some of you have already been dealing with those. For most, it is a race to get corn that stubbornly refuses to dry down out of fields that …stubbornly refuse to dry down. Futures action also has that menace feel, with corn and soybeans and wheat all down from recent highs and having a hard time getting the bullish mojo back. So what’s delightful about that? First, we recall the market axiom that “low prices cure low prices”. We can also note the delightful exception on the table, which is the cattle market. Front month futures are up 27.7% since the low in early September.
Corn futures sank 12 cents per bushel this week, with cash corn prices still at a six year high for this date and causing damage to consumption. USDA cut projected feed use 25 mbu on Friday, also reducing ethanol 25 million from last month. Several more ethanol plants have gone to hot idle or stopped taking corn until margins improve. USDA also reduced projected exports for the year by 50 million bushels on Friday and could easily have gone 100 million. Export sales commitments YTD are 47% smaller than last year at this time. Monthly Census exports for September were the smallest since 1975. On a positive note, projected US and world ending stocks were both cut in the latest WASDE report, with US average yield trimmed to 167 bpa and the world stocks down more than 6.6 MMT from the previous estimate. In the week ending November 5, the large managed money spec funds got more bearish, adding 19,509 contracts to their CFTC net short, expanding it to -104,846 contracts.
Wheat futures lost ground in all three markets this week. Chicago was down 1.1%, KC HRW down 1.3% and MPLS down 2.45%. Year to date US export commitments are still 8% ahead of last year, but losing their lead. USDA says 58% of the full year estimate has now been booked or is already shipped. We would typically be at 65% by now. On Friday, USDA cut estimated harvested acres by 900,000 after their re-survey to gauge the impact of the October snowstorm. They cut estimated US production 42 million bushels and tightened the projected ending stocks to 1.014 billion from 1.043 billion. Unfortunately, world ending stocks crept another 400,000 tonnes higher. Friday’s Commitment of Traders report indicated that spec funds in Chicago wheat futures and options flipped back to a net bearish position of 654 contracts. They increased their net short in KC wheat last week by 4,540 contracts, taking it to -33,929 contracts. The spec funds reduced their net short position in MGE wheat by 318 contracts. They were still net short 9,044 contracts on November 5.
Soybean futures lost 4 ¾ cents for the week, all of that on Friday. A commercial stopped all of the November deliveries and supported the market, which is also seeing a seasonally strong basis. Soybean meal was up 0.3%, with soy oil gaining 1.5. Palm oil is at a two year high, and several countries with ASF are interested in importing BO because they aren’t crushing enough beans (meal not needed). USDA raised projected US ending stocks to 475 million bushels on Friday, trimming crush by 15 million. They made negligible changes to their soy production number on either the yield or acreage end. The world ending stocks estimate rose about 200 thousand tonnes from October. CFTC data released on Friday showed spec fund money managers still in the bull camp. They cut back 13,896 contracts from their net long position, taking it to +58,429 contracts as of Nov 5.
Cotton futures ended the week with December up 0.44% after losing 0.4% the previous week. Weekly export sales were excellent, with a combined 345,600 RB of upland and pima varieties added to the ledger across both marketing years. Export commitments for the year to date are 62% of the full year USDA forecast, better than the 55% average pace. Friday’s WASDE report showed US production dropping to 20.82 million bales. That is very similar to 2017/18 but still up 13% from last year despite lower average yields. USDA trimmed projected cotton ending stocks to 6.1 million bales from 7 million last month. The large managed money spec funds expanded their CFTC net short position in cotton futures and options, adding 9,149 contracts the week of 11/5 to be net short 15,247 contracts as a group.
Live cattle futures were down 22 cents for the week, despite a stronger cash cattle market. Cash cattle trade was $116 in the north on Friday, with $182 shown in the carcass market. Feeder cattle futures were down 1.4% on the week. The CME feeder cattle index was $145.85, down 13 cents from last week. Wholesale beef prices were on fire. Choice boxes were up a sharp $5.92, or 2.5% for the week, with Select product $5.75 higher or 2.8%. Weekly beef export sales totaled 15,700 MT for 4Q19 shipment, with another 400 MT for 2020. Weekly US beef production was down 0.9% this week, and 0.3% smaller than the same week in 2018. Year to date beef production is 0.2% larger than year ago on 1.1% higher slaughter. CFTC data released on Friday showed spec fund money managers stampeding into cattle. They added 20,362 contracts to their net long position in a week, taking it to +60,829 contracts as of November 5.
Lean hog futures lost 0.5% for the week and continue to be range bound. Seasonally large pork production is weighing on the market, but rising export shipments are supportive. The CME Lean Hog index was $60.19, down $2.55 for the week. USDA showed 2019 pork export sales of 16,600 MT for the week ending October 31. That was down 45% week/week. China did bump up weekly shipments to 10,600 MT. The pork carcass cutout value was $7.03 higher (+9.3%). The pork belly primal was up 11% this week. Weekly pork production was up 1.2% from the previous week, and 3.8% larger than the same week in 2018. Estimated slaughter of 2.693 million head would be 3.9% larger than the same week in 2018. YTD pork production is now 4.2% above year ago on 3.7% more hogs going through the plants. The managed money spec funds trimmed 582 contracts from their CFTC net long position in hogs last week. That left them net long 13,258 contracts (futures + options) by close of business on 11/5.
We have a typical “delay” weekly report schedule this week. The markets are open on Monday, but the federal government is closed for Veteran’s Day. The Export Inspections and Crop Progress reports will be released on Tuesday. EIA ethanol data will not be out until Thursday morning, with the weekly Export Sales report out on Friday morning. November soybean futures expire on Thursday. NOPA’s monthly crush report is scheduled for release on Friday, November 15.
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