Market Watch with Alan Brugler
July 19, 2019
We asked that fount of knowledge called Google for a definition of heat. It is both a noun and a verb. As a noun it is the quality of being hot, but also intensity of feeling synonymous with passion, i.e. the heat of anger. As a verb, it is to make or become hot. It sure has been hot in the central US this week, with triple digit daytime highs in many places. The ag commodity markets have BEEN hot since mid-May, passionate about flooded fields and lost production potential. However, when you quit applying heat things cool down. The forecasts for the rest of July are cooler, with some odds of below normal temps. If you apply too much heat, things burn up. That appears to have happened to the export markets for corn and soybeans. Old crop sales for the former were only 200,000 metric tonnes (MT) last week, and soybeans only notched 127,900 MT. If you screw up the demand side, you don’t need as much production. We still don’t know how much of the latter we actually have.
Corn futures dropped 5.2% this week as export sales continued to under perform and the weather forecasts grew a little less hostile to corn growth and pollination (in the areas the crop is far enough along). Most market participants believe the USDA acreage re-survey and first FSA Prevented Planting numbers will show a smaller crop in August than the one shown in the July USDA report, but yield is a moving target. One group stuck their neck out with a 167 bpa average yield estimate, while another went for 156 and change. Weekly export sales totaled only 333,000 MT for both marketing years combined. The Commitment of Traders report confirmed that the large managed money spec funds still have a big long position. They added 92 contracts in the week ending July 16, taking the net position to 187,260 contracts. The commercial net short was huge at 522,525 contracts (>2.6 billion bushels) and still growing.
Wheat futures were lower in all three markets, MPLS was down 2.3% for the week, with September CBT SRW down 3.9%. KC HRW was the bull leader the previous week, picking up 5%, but lost 5.8% this week for a two week net loss of 5 cents per bushel. The CHI/KC spread widened back out to 63 cents premium Chicago from 56 cents last week. US weekly wheat export sales totaled 347,300 MT, up 22% from the previous week. The Friday Commitment of Traders report showed the large managed money funds reducing their net long in Chicago by 11,623 contracts, dropping it to 18,751 net long. They were also trimming their net short in KC wheat, bringing both back toward neutral
Soybean futures dropped 1.3% for the week. Soybean meal was down 1.1%, with soy oil off 0.7%. All three were give backs from the previous week advances. US soybean condition ratings improved, with 54% of the acreage rated good or excellent. The Brugler500 ratings index was up 2 points at 347 and remains comfortably above 1993 at this point. NASS said 5% of the crop had yet to emerge. Friday’s Commitment of Traders report showed the managed money spec funds trimming their net short position a little further, by 2,999 contracts in the week ending July 16. That put them net short 38,935 contracts as of Tuesday evening.
Cotton futures were up 0.6% this week after plunging 6.2% the previous week in the active December contract. Both October and December printed new life of contract lows on Thursday and then bounced on Friday. Commitments for export are now 115% of USDA’s projected total, vs. the 107% average and 110% last year. Accumulated exports YTD are down 12%, however, and the marketing year ends July 31. CFTC indicated the large managed money spec funds are getting even more bearish. They added another 2,543 contracts to their record net short position in the week ending July 16, putting it at 44,270 contracts.
Live cattle futures pulled back 0.8% this week as longs took money off the table ahead of the Friday afternoon Cattle on Feed report. Feeder cattle futures were down 1.2% despite the lower feed prices. The CME feeder cattle index was $140.00, down $1.06 this week after a $7+ pop the previous week. Wholesale beef prices were mixed. Choice boxes were up 0.3% for the week, with Select almost UNCH at 9 cents lower. Weekly beef production was down 0.2% from the previous week. It was 1.4% above the same week in 2018. Year to date beef production is 0.3% larger than year ago on 1.3% higher slaughter. Cash cattle trade was $111 in the south, with $113-115 seen in the north. The Commitment of Traders report shows the spec funds quit liquidating longs. They added 3,690 contracts in the week ending July 16, putting their net long at 25,443 contracts. Friday’s COF report was neutral, with On Feed numbers 101.75% of year ago. Both placements and June marketings were close to the average trade guesses. The semi-annual Cattle Inventory report showed that expansion has ground to a halt, with the US herd overall 100% of year ago. Dairy numbers were down as expected. Beef cows were UNCH from year ago but the number of beef replacement heifers is only 95.7% of last year.
Lean hog futures shot up another 4% this week, adding to the 4.7% gain the previous week. Weekly pork export sales were much improved from the previous week at 30,100 MT. New Chinese business was negligible, but China continues to ship US pork every week. This week’s total was a high for the year at ~9,900 MT. Shipments to China have risen every month this year. The CME Lean Hog index was $71.52 on Friday, up 87 cents from the previous week. The pork carcass cutout value surged $6.88 higher this week (+9.6%), to $78.53. Weekly pork production was 5% smaller than the previous week, but also 0.9% smaller than the same week in 2018. YTD pork production is now 3.8% above year ago on 3% more hogs. The managed money spec funds nibbled at the long side in hogs. They added 1,534 contracts to their CFTC net long in the week ending July 16, taking it up to 34,169 contracts.
Cattle traders will begin the week reacting to the Friday USDA cattle reports, with the monthly Cold Storage report scheduled for Monday afternoon. USDA’s Export Inspections report will be released on Monday morning, with the Crop Progress report also out in the afternoon. Wednesday will show the release of the weekly EIA report for ethanol stocks and production. The USDA weekly Export Sales numbers will be out on Thursday morning. August grain options will expire on Friday afternoon.
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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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