Market Watch with Alan Brugler
August 14, 2020
A fast moving storm known as a derecho swept through the Corn Belt on Monday, doing a great deal of damage to crops, buildings, trees and power lines. Some parts of Iowa were still without electricity on Friday. Derecho is defined as a fast moving windstorm/thunderstorm with damaging winds and covering a great distance (250 miles minimum). They are more similar to an inland hurricane than to a tornado, with the latter having a much narrower footprint. In this event, local wind speeds in excess of 110 mph were recorded, putting it in Cat 3 hurricane territory. The storm flattened a lot of crops, particularly corn, with yield losses that won’t be fully known until after harvest. Initial reports suggested 10 million acres had been impacted by the storm in IA. I almost titled this column Derecho Derangement, as there was a race to put up the biggest possible disaster numbers, growing from 10 million to 12 to 14, etc. By week’s end, RMA was indicating that 37.7 million acres had been impacted from NE to IN. We would not take the “impacted” too seriously. Not everything under the footprint of the storm experienced the high winds, due to topography and the fact that it is wind! NASA satellite data a few days after the storm shows the storm path in the vegetation. What is clear is that some crops will see high greensnap losses, others will lose significant test weight (which shows up in USDA data as yield loss), and other fields will be in the “nicks and cuts” category. The storm damage is real even if the estimates are fuzzy, and the market was able to treat the bearish crop estimates from USDA as likely to be the highest seen all year.
Corn futures rallied 5.44% this week, taking back losses from the two prior weeks. This week’s Crop Progress report showed crop conditions as of August 9 down 1 on the Brugler500 index at 379. The real story came after that, as IA and parts of IL were hit with a derecho on Monday that affected millions of acres. That gave bulls enough ammunition to fade the initial NASS yield projection of a record 181.8 bpa that was released on Wednesday. In the WASDE report, old crop US stocks were trimmed 20 mbu to 2.228 billion bushels (bbu) on higher exports. New crop carryout, pushed by the larger production, was increased by 108 mbu to 2.756 bbu. EIA data showed ethanol production backing off another 13,000 bpd from the previous week at 918,000 bpd for the week of 8/7. Stocks tightened 596,000 barrels to 19.750 million, the lowest since the last week of 2016. The weekly Export Sales report indicated old crop corn bookings of 377,188 MT, with new crop totaling 553,144 MT. Old crop export commitments are still 97% of the newly updated USDA projection, vs. the 103% avg. Exports are 88% of the projection, compared to the normal 93%. Unshipped sales on the books are 60% larger yr/yr, with hopes for a big finish in August. The weekly CFTC Commitment of Traders report showed spec funds in corn futures and options shaving just 459 contracts from their net short position to 172,361 contracts as of 8/11. That will likely be a lot smaller by next week.
The three wheat futures markets closed the week higher than they began. KC led the way this week with Sept up 2.35%. CBT wheat ticked 4 ½ cents higher since last Friday, with MPLS up just 0.61%. Crop Progress data from NASS showed the winter wheat at 90% harvested. Spring wheat harvest has begun, with 15% done nationally as of last Sunday. Spring wheat condition ratings dropped 6 points on the Brugler500 index at 372. The NASS Crop Production report showed 1.838 bbu in us wheat production, up 14 mbu from July. Winter wheat was down 20 mbu to 1.198 bbu, with spring wheat up 27 mbu to 577 mbu. US carryout for 20/21 was down 17 mbu from last month to 925 mbu. USDA export sales data showed 367,850 MT in 20/21 US export sales for the week that ended August 6. Now in the 10th week of the MY, export commitments for 20/21 wheat are 40% of the new 975 mbu USDA forecast. That is close to the 41% average. Friday’s Commitment of Traders report indicated managed money spec funds in CBT wheat futures and options flipping their position by 16,710 contracts to a now net short 15,532 contracts as of Tuesday. They expanded their net short in KC wheat by 8,781 contracts to 34,592 contracts.
Soybean futures headed into the weekend up 31 ¼ cents for the week. Product values helped to propel the rally, with meal rising $9.80/ton and oil 68 points higher. Crop Progress data on Monday showed soybean condition ratings rising another 4 points to 385 on the Brugler500 index. NASS came out on Wednesday with an initial national soybean yield projection of 53.3 bpa, bringing the production total to 4.425 bbu. Old crop stocks were trimmed by 5 mbu on an increase to crush. With the larger crop, 20/21 US carryout was up 185 mbu to 610 mbu. The Thursday Export Sales report indicated 570,114 MT in 19/20 bean sales during the week of August 6, with new crop bookings totaling a massive 2.84 MMT. Forward sales for 20/21 now total 17.98 MMT. Export commitments for old crop are now 106% of the USDA projection, ahead of 104% average. Accumulated shipments are just 91% of that number, vs. the normal 95%. Unshipped old crop sales on the books are 14% above year ago, but we need to ship them! Managed money spec traders cut back their CFTC net long position in soybean futures and options by 17,355 contracts as of Aug 11 to 26,864 contracts.
Cotton futures took back last week’s losses, with Dec 49 points higher vs. last Friday’s close. Cotton condition ratings dropped another 13 points on the Brugler500 to 322 as of last Sunday. NASS released a national cotton yield at 938 lbs/ac on Wednesday but cut harvested acres by 1 million acres on larger abandonment. US production was up 580,000 bales to 18.08 million, helping to increase 20/21 carryout by 0.8 million to 7.6 million acres. USDA tallied export sales of 6,891 RB in the first week of the new MY. Exporters carried over 2.88 million RB from last year, boosting 2020/21 bookings to 6.288 million RB. Commitments for the new crop are 47% of the full year 15 million projection, vs. the 43% average. The Adjusted World Price for cotton is 48.92 cents/lb this week, down 52 points from last week. The updated LDP rose to 3.08 cents/lb. As of Tuesday, spec traders in cotton futures and options increased their CFTC net long position by 8,503 contracts to their largest net long since November 2018 at 39,838 contracts.
Front month live cattle futures got help from cash this week, with Aug rallying $4.80. Cattle traded hands this week at $103-105 in the South, with the North trading in a range from $105-107 and $165-170 in the beef. Feeder futures closed higher this week, albeit by just 0.84%, as strength in corn suppressed support from fats. The CME feeder cattle index was $142.25, up $1.46 from last week. Weekly beef production was up 1% from last week, and 0.4% from the same week in 2019. Slaughter was actually down 2% from a year ago, but 20lb heavier carcass weights are leading to larger production. Total YTD beef production is now just 2.4% lower yr/yr on 5.1% fewer cattle head slaughtered. Wholesale beef prices were higher this week, as Choice rose another $8.77 (4.3%) and Select was also higher, with boxes up $6.54 per cwt (3.4%). The weekly Export Sales report showed a 13% drop from the previous week. The weekly CFTC Commitment of Traders report tallied a net long position of 45,612 contracts for specs in live cattle futures and options. The increase of 7,433 contracts was the largest Tuesday/Tuesday move to the long side since last November.
Lean hog futures added another $2.05 in gains this week, ticking higher for the second week in a row. The CME Lean Hog index reversed course, rising 70 cents to $53.48 after shedding 78 cents the previous week. Pork production for the week was estimated at 541.2 million lbs, 0.8% higher wk/wk and a 4.55 jump from last year. YTD production is now 2% higher on just 1.2% more animals harvested. Carcass weights are narrowing the spread vs. year ago, now estimated at 3 lbs above 2019. This suggest the industry is becoming a little more current, but still not caught up from the COVID-19 disruptions. The pork carcass cutout value was up another $3.00 to $74.93, a 4.2% pop. All primals were higher except bellies, with hams up 20.1%. USDA Export Sales data showed only 10,500 of pork was sold in the week ending 8/6. China cancelled about 8,800 MT out of some large previous deals to shrink the net sales. Shipments picked back up a little bit, at 34,900 MT. China was on the receiving end of 9,900 MT, with Mexico the highest tonnage destination. Friday’s Commitment of Traders report showed spec funds at a net long position of 18,286 contracts in lean hog futures and options as of August 11. That was an expansion of 4,715 contracts on the week.
Next week starts out with the weekly Export Inspections report on Monday morning, with the Crop Progress report in the afternoon. We will also get a peek at NOPA data for July soybean crush and oil stocks at noon EDT. Wednesday morning, we will get this week’s ethanol production and stocks data from EIA. Weekly Export Sales data will be published on Thursday morning, with data from the week ending August 13. Friday rounds out the week with the monthly Cattle on Feed report from NASS. September grain options also expire on Friday.
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There is a risk of loss in futures and options trading. Similar risks exist for cash commodity producers. Past performance is not necessarily indicative of future results.
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