Don't Ever Challenge Worse

Published on: 17:00PM Aug 07, 2020

Market Watch with Alan Brugler
August 7, 2020
Don’t Ever Challenge Worse

From an old comedy routine by Bill Cosby, set in a casino: You should never challenge "worse." Don't ever say, "Things couldn't get worse." Worse is rough ... I was down to my last two hundred dollars. I mean, not to my name, but I lost all I could sign for. And I said, "I'm gonna win something! It can't get worse!"  I went over to the roulette wheel. And got two hundred dollars' worth of quarter chips. Covered the table--I mean, covered the table! Red and black, even up. I'm going to win something before I go to sleep. And the guy spun the ball and it fell on the floor!

Farmers are optimists. You have to be, to invest $600 per acre or more in a crop and then let Mother Nature take pot shots at it for 5 to 6 months before you can collect a dime. We tend to think the lowest prices we just saw are the lowest they can get.  They can’t get worse! But just like calendar year 2020, sometimes they just have a tendency to deteriorate further.  In my technical analysis workshops, I emphasize that “oversold does not mean buy”.  Buyers may have a different sense of cheap than you do, and competing sellers may be willing to take less for a variety of reasons.  I’m not sharing the above to be pessimistic, or to try to drive prices lower.  I’m merely suggesting that you have to have a plan or risk management in place just in case Worse is winning the argument for a while. Ultimately, things really will become too cheap. That’s where market axioms take over. You know, like “low prices cure low prices” and “The news is always the most bearish at the bottom”.

Corn futures sank another 2.61% this week, as September is nearing the $3 mark. Monday’s weekly USDA Crop Progress report indicated roughly unchanged crop conditions as of July 30, with the Brugler500 index at 380. That was bearish because it usually declines in July and August. The crop seems to be progressing along at a decent pace, with silking nationally 5% ahead of normal and crop in the dough stage 6% faster than the 5-yr average. EIA data showed ethanol production down 27,000 bpd from the previous week at 931,000 bpd for the week of 7/31. The monthly Grain Crushing report indicated US ethanol plants used 378.9 mbu of corn in June. That was up 26.3% mo/mo, but still down 17% from a year ago. We also received June’s export data from Census, showing 5.035 MMT (198 mbu) in shipments. Export sales data on Thursday showed old crop corn bookings of 101,596 MT, with a massive new crop total 2.6 MMT. A bulk of the 20/21 sales were previously known from daily announcements. Old crop export commitments are still 97% of the USDA projection, vs. the 103% avg. Unshipped sales on the books are 57% larger yr/yr, with hopes for a big finish in August. Friday’s CFTC Commitment of Traders report indicated spec funds in corn futures and options adding another 29,540 contracts to their net short position. In the week ending August 4, they held a net short position of 172,820 contracts.  

All three wheat futures markets fell apart this week, as the three September contracts are now below $5. CBT futures lost 35 ¾ cents on the week, as Sept KC posted a 27 cent loss. MPLS HRS just 19 ½ cents as it works to narrow the CBT-MPLS spread. The Crop Progress report from NASS showed the winter wheat at 85% harvested. Spring wheat cutting has begun, with 5% done nationally as of last Sunday. Spring wheat condition ratings rose 6 points on the Brugler500 index at 378. Census data released on Wednesday tallied June’s US wheat exports at 2.283 MMT (83.88 mbu). That was a 3-year June high and 2.75% below May. USDA’s weekly Export Sales report tallied US export sales for 20/21 at 605,472 MT for the week that ended on July 30. Now in the 9th week of the MY, export commitments for 20/21 wheat are 40% of the USDA forecast, now 1% above the average for this time of year. They are the largest for this week in the MY since 2014. CFTC’s Commitment of Traders report showed CBT wheat futures and options managed money spec funds parring back their net long position by 521 contracts as of Tuesday to a net 1,178 contracts. They expanded their net short in KC wheat to by 6,785 contracts on August 4 to 25,811 contracts.

Soybean traders joined the selling crowd this week, as September was down 2.75% for the week. Nearby meal futures added to the pressure with a 3.15% loss. Soy oil was again a notable exception, up 1.25$ on the week. Crop Progress data on Monday showed soybean condition ratings up another point to 381 on the Brugler500 index. NASS tallied 59% of the crop was setting pods, 5% above normal. Monthly data was released this week, with the first round showing June soybean crush at a monthly record 177.26 mbu. That was down 1.3% from May but 12.5% above last year. June’s soybean exports totaled 1.799 MMT (66.1 mbu), a MY low and down 44.9% from June 2019. Thursday’s Export Sales report showed 345,199 MT in 19/20 bean sales during the week of July 30, with new crop bookings totaling 1.404 MMT. Export commitments for old crop are now 105% of the USDA projection, ahead of 103% average. Accumulated shipments are just 89% of that number, vs. the normal 93%. Unshipped old crop sales on the books are 2% above year ago, but we need to ship them! Specs in soybean futures and options trimmed their net long position by 17,942 contracts as of Aug 4 to 44,219 contracts. That’s likely a lot smaller now.

Cotton futures spoiled this week’s 4 day rally with a 249 point loss on Friday, leaving Dec futures down 30 points on the week. Cotton condition ratings reversed trend, slipping 4 points on the Brugler500 to 335 as of last Sunday. Trade data released by Census on Wednesday showed June cotton shipments at 1.463 million bales, a 18.28% jump from May but down 14.6% from last year. Old crop US upland cotton export commitments are still 120% of the full-year USDA forecast, with just 1 reporting day remaining in the MY. Most of the 2.925 million RB in unshipped sales will be rolled or cancelled as we roll to the 20/21 MY. The Adjusted World Price for cotton is 49.44 cents/lb this week, up 173 points from last week. The updated LDP has narrowed to 2.56 cents/lb. As of Tuesday, spec traders in cotton futures and options held their largest recorded net long position in a little over 5 months at 31,344 contracts. The weekly Commitment of Traders report showed them adding 5,700 contracts to the position in the week that ended on August 4.

Live cattle futures traded 5 days out of the week, but only moved 1 tick Friday to Friday. Feeder futures slipped by 1.35% on the week. The CME feeder cattle index was up another $2.21 from last week to $140.79. Cash cattle have trended higher the past few weeks, with the South trading hands at $99-100 this week. Some northern trade was done at $101-103 live and $163-164 in the beef. Weekly beef production slipped another 0.6% from last week, but was up 0.5% from the same week in 2019. Total YTD beef production is now just 2.5% lower yr/yr on 5.2% fewer cattle head slaughtered. Wholesale beef prices were higher this week, as Choice rose another $2.21 to $205.47. Select was also higher, with boxed up $2.86 @ $192.75. June beef exports totaled 183.29 million lbs, an 11-year low for the month thanks to high prices and tighter supply. The weekly Export Sales report does show shipments rebounding, with another 17,567 MT shipped for the week of 7/30. Specs in live cattle futures and options held their largest net long position since the pre-COVID fallout (2/4), as CFTC indicated a net long of 38,179 contracts. That was up 4,557 contracts on the week. 

Lean hog futures were the bright spot this week, with October up 2.72%. August, which expires next Friday, was down 1.92%. The CME Lean Hog index was down 78 cents from last week to $52.78. Pork production for the week was estimated at 536.7 million lbs, a 0.3% drop from last week but still 9.9% above a year ago. YTD production is now 1.9% higher on just 1% more animals. Carcass weights are still an estimated 4 lbs above a year ago. The pork carcass cutout value was back up $6.62 or 10.1% on the week. All primals were higher, led by the hams and bellies. June’s export data from Census, converted by USDA, showed 515.3 million lbs in pork shipments. That was a 9 month low, but still 3.3% above last year.  USDA Export Sales data showed 30,348 MT of pork was sold in the week ending 7/30. Shipments picked back up a little bit, at 30,348 MT. Friday’s Commitment of Traders report tallied spec funds at a net long position of 13,571 contracts in lean hog futures and options as of 8/4. That was an expansion of 2,850 contracts on the week.

Market Watch
We’ll begin the report sequence on Monday with the weekly Export Inspections report and the afternoon Crop Progress report. Wednesday morning, we will get another round of ethanol production and stocks data from EIA. USDA will issue updated Crop Production and WASDE Supply/Demand estimates at 11 AM CDT on Wednesday. Not to be overlooked, we’ll also get the first FSA Prevented Planting report of the year. The weekly Export Sales report will be published on Thursday morning, with data from the week ending August 6.

Visit our Brugler web site at or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.  

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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