Market Watch with Alan Brugler
July 31, 2020
Our question is addressed to any ag commodity not currently trading at an all time high, which is to say all of them! Gold pays no dividends, and every ounce ever mined is allegedly still somewhere on the planet excluding a few spacecraft parts. Talk about a growing supply! Yet, it reached a new all time high priced in US dollars this week, with futures hitting $1981.10 per ounce. It has been higher 8 weeks in a row, as has silver. That collection of electronic bits known as bitcoin also hit the highest reading since August 2019. A weak dollar explains some of this, with the DX futures dropping to the lowest reading since May 2018 before end of week short covering pulled the value back up. With everything else equal, a 5% drop in the dollar implies a 5% increase in commodities priced in dollars. The ag problem at the moment is that everything else is not equal. The “S” in S&D balance sheets is shifting due to the growing season or in the case of meats due to the performance of the packing plants. That equation changes after harvest for the grains, when exports (influenced by the dollar) become the primary driver. That is, IF the dollar is still weak by then.
Corn futures sank 3.1% this week, the 4th consecutive weekly decline. Monday’s weekly USDA Crop Progress report indicated improved crop conditions as of July 23, with the Brugler500 index up 4 points from the previous week at 380. The crop picked up the pace over that week with 82% silking, now vs. the 5 year average of 76%. Thursday’s Export Sales report showed negative old crop corn sales of 29,300 MT due to cancellations and rollovers. New crop sales were a paltry 638,700 MT. The big story was a daily system report of a sale of 130,000 MT of new crop corn sold to unknown and 1.937 MMT of new crop corn sold to China. That was the third largest daily corn sale on record. Old crop export commitments are now 97% of the USDA projection, vs. the 103% avg. Unshipped sales on the books are 46% larger, however, so the ingredients for a big finish in August are present. The weekly CFTC Commitment of Traders report showed managed money spec funds in corn futures and options added another 5,510 contracts to their net short position in the week ending July 28, putting it at 143,280 contracts.
All three wheat futures markets were down on the week, giving back gains from the previous week. CBT futures dropped 8 ¼ cents since last Friday, as Sept KC settled 7 cents lower. MPLS HRS was down 1 ¼ after gaining 2 1/2 cents the previous week. Volatile they are not! The Crop Progress report from NASS showed the winter wheat at 81% harvested. Spring wheat cutting has begun, with 1% done nationally as of last Sunday. Spring wheat condition ratings UNCH on the Brugler500 index at 372. The weekly Export Sales report indicated US exporters sold 676,600 MT of new crop wheat in the week that ended on July 23. Now in the 8th week of the MY, export commitments for 20/21 wheat are 37% of the USDA forecast, matching the average for this time of year. Unshipped sales on the books are the largest since 2016 for this date. The Commitment of Traders report from CFTC showed CBT wheat futures and options spec traders expanding a net long as of Tuesday by 1,225 contracts to a net 1,699 contracts. They added 867 contracts to their net short in KC wheat to make it -19,026 contracts on July 28.
Soybeans were down 0.8% for the week, with nearby meal futures down nearly the same. Soy oil was a notable exception, up 1.8% on a big late week rally. NASS showed soybean condition ratings up 5 points in Monday’s Crop Progress report to 380 on the Brugler500 index. NASS said 76% of the crop was blooming, 4 percentage points ahead of average. USDA’s weekly Export Sales report showed 258,800 MT in 19/20 bean sales in the week of July 23, with new crop sales totaling a whopping 3.3344 MMT (123 million bushels in one week!). Just under 2 MMT of the new crop business was with China. Export commitments for old crop are now 104% of the USDA projection, ahead of 103% average. Unshipped old crop sales on the books are 4% below year ago, but new crop sales are doing quite well. As of Tuesday, specs in soybean futures and options were net long 62,161 contracts. That was a reduction of 13,638 contracts from the previous week.
Cotton futures rallied a sharp 4.3% this week. Cotton condition ratings were up another 11 points on the Brugler500 to 339 as of Sunday. Old crop US upland cotton export commitments are still 120% of the full-year USDA forecast vs. the 109% average. Accumulated exports, on the other hand, are 97% of the USDA projection, compared to 98% average. The Adjusted World Price for cotton is 47.71 cents/lb, down 133 points from last week. The updated LDP has risen to 4.29 cents/lb. CFTC’s weekly Commitment of Traders report showed specs in cotton futures and options reduced their net long position by 4,738 contracts to 25,635 contracts in the week ending July 28.
Live cattle futures recovered some of the ground from the previous down week, rallying 1.5% from Friday to Friday. Feeder futures were up 1.8% as both the cattle and the corn were allowing more to be paid for the walking inputs. The CME feeder cattle index was up 62 cents from last week to $138.58. Cash cattle saw another uptick this week as the South had cattle trade hands at $97 and some northern business was done at $101. Weekly beef production was down 1.3% from last week, but still up 3.8% from the same week in 2019. Total YTD beef production is now just 2.6% lower yr/yr on 5.3% fewer cattle head slaughtered. Wholesale beef prices were mixed this week, as Choice rose another $1.49 to $203.26 but Select was 74 cents lower @ $189.89. USDA reported the largest weekly beef export sales of 2020 on Thursday, at 29,500 MT. Low prices cure low prices! Specs in live cattle futures and options held their largest net long position since February at the end of Tuesday, with CFTC showing 33,622 contracts. That was up 3,949 for the week.
Lean hogs bulls ran out of gas, with spot August losing 3.7% for the week. The CME Lean Hog index was up another $3.87 from last week to $53.56. Pork production for the week was estimated at 539.8 million lbs, a 1.7% drop from last week but still 10.6% above a year ago. Packers are trying to get caught up! For the YTD, production is now 1.7% higher on just 0.8% more animals. The pork carcass cutout value was down $5.22 or 7.4% for the week. Hams shed 26.8% of their value in a single week. USDA Export Sales data showed 39,600 MT of pork was sold in the week ending 7/23, including 17,800 MT to China. Shipments were a little slower than the previous week at 31,500 MT. Friday’s Commitment of Traders report indicated managed money upped their net long position by just 209 contracts in the week that ended on July 28, to 10,721 contracts.
We’ll begin the report sequence on Monday with the weekly Export Inspections report and the afternoon Crop Progress report. Since it is the first day of the new month, USDA will also release the monthly Grain Crushings and Fats & Oils reports. Tuesday will include Session II of the Brugler Summer Seminars – Virtual Edition, beginning at noon CDT. Wednesday morning, we will get another round of ethanol production and stocks data from EIA. The weekly Export Sales report will be published on Thursday morning, with data from the week ending 7/30.
Visit our Brugler web site at https://www.bruglermarketing.com 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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