Market Watch with Alan Brugler
January 17, 2020
The dominant trading inputs this week were the record highs in the stock market (pulling hot money away from commodities) and the Phase One trade deal with China inked on Wednesday. Just like a mega vacation trip with the kids, there was a lot of hopium and anticipation in the ag markets ahead of the signing, but the reality checking into the hotel was that the attractions and rides weren’t open yet. The dollar spends the Chinese have agreed to over the 2020 and 2021 calendar years are truly significant. The problem for our vacationing bulls is that timing of purchases is still subject to market forces.
China has historically been a heavy buyer of US soybeans for October-December shipment, since South American supplies dry up by then. They can certainly hold back a big chunk of the money destined for soybeans until that time period. If they do, there might not be much incentive to rally beans in the near term. We think they will be buying more beans than last year for shipment over the summer, but there is still that backloading potential for that particular commodity. There are also a large number of ag commodities that the $80 billion over two years can be spread across. The Chinese have indicated that they do not intend to raise the 2020 TRQs for wheat and corn, but the US has also captured almost none of those quantities in the past 5 years. Anything there is an improvement.
Corn futures had double digit moves in opposite directions on Thursday and Friday, but came out of the week with a 3 1/2 cent per bushel gain (0.9%). Export Sales report showed much improved weekly export sales of 784,762 MT. New crop sales totaled 207,000 MT for the week ending January 9. Old crop commitments (shipped and on the books) are now 40% behind year ago, gaining on a relative basis. Only 43% of the full year USDA forecast is accounted for, vs. 58% typical for this time of year. Friday afternoon’s CFTC report showed the managed money spec funds still net short 78,442 corn contracts on January 14. They reduced the position by 2,445 contracts of futures and options in this reporting week.
Wheat futures were 1.1% higher (6 cents) in Chicago this past week. KC was up only ¼ cent, and MPLS retreated ¼ cent. The weekly Export Sales report showed much improved weekly export sales of 650,622 MT as everyone got back to work after the New Years holiday. Old crop commitments (shipped and on the books) are now 9% larger than last year at the same point. The Commitment of Traders report for the week ending January 14 showed the spec funds adding 5,119 contracts this week to their recently established net long in KC HRW. They added 2,100 contracts to the existing long in Chicago SRW, bumping it to 29,787. The managed money crowd is still trying to get out of that record short in MPLS spring wheat. They had it pared down to -3,515 contracts on 1/14, from a peak of -23,231 on December 10. That was a 794 contract reduction for the week.
Soybean futures sank 16 ¼ cents this week, mostly on a “sell the fact” reaction to the signing of the Chinese Phase One deal. Soybean meal was down 1%, and soy oil dropped 1.9%. Soybean export bookings for the week ending January 9 were 711,462 MT, with 216,609 MT headed to China. Commitments for the 2019/20 marketing year are just a skosh ahead of year ago at 30.483 MMT. They are only 63% of the full year USDA forecast, and would typically be 78% by now. The WASDE folks may not be able to count their Chinese chickens before they hatch, but they are clearly expecting a back loaded export shipping program for the balance of 2020. Soy oil export bookings were larger than anticipated at 36,157 MT. The CFTC report on Friday afternoon showed the managed money spec funds adding 5,131 contracts this week to their newish net long position. That put them net long 6,290 contracts of futures and options as of close of business on January 14.
Cotton futures lost a single point for the week. Weekly export sales for cotton during the week ending 01/09 were 232,935 RBs. That was a 53.27% increase wk/wk and a 43.03% increase over the same week last year. Shipments from the same report were 301,710 RBs, a 22 week high. Friday’s CFTC report showed the large spec managed money funds adding another 9,384 contracts to their net long position. That were net long 30,262 contracts of futures and options as of January 14.
Live cattle futures dropped back 0.8% this week. Nearby feeders retreated 1.5% on the lower cattle and higher feed costs. The CME feeder cattle index was $145.74, down $1.09 from last week. Wholesale beef prices were higher this week. Choice boxes were up $3.62/cwt (1.7%) for the week, with Select product up $4.52(2.2%). The Chc/Sel spread is still narrowing seasonally, and down to $1.42. Weekly beef production was up 2.1% from the same week in 2019, but down 1.2% from last week. Year to date comparisons are still invalid due to different holiday timing. The weekly Export Sales report showed bookings of 17,838 MT for the week ending 01/09, which was the most sales since November 14th. Weekly export Shipments were 17,350 MT, which was also the most since Nov 14th. The USDA has reported cash sales ranging from $123 to $124 in the South and WCB, with dressed sales staying between $198 and $200. The Commitment of Traders report showed the big spec funds reversing course again and adding 2,917 contracts to their net long in the reporting week ending 1/14. That put them net long 83,603.
Lean hog futures were up 0.6% this week. The CME Lean Hog index was $60.15, up 59 cents from last week. The pork carcass cutout value was up $2.97 this week, a 4.1% rise. The USDA weekly pork bookings from the week ending 01/09 rose to 38,671 MT. That was the highest weekly sales since the week ending November 14th. Of the sales, China accounted for 2,289 MT of the pork. Exports were at 41,506 MT which was a 100.5% increase over the same week last year. China was the destination for 38.62% of the shipments. Weekly hog slaughter was up 3.3% from the same week in 2019, but down 4.3% from the previous week at 2.574 million head. Friday’s CFTC report showed the managed money spec funds net long 9,548 contracts of futures and options in hogs on January 14. That was up 353 contracts from the previous week.
Monday is a federal holiday, and the markets will be closed. Government reports will be delayed. The USDA Export Inspections report will be delayed until Tuesday. USDA monthly USDA Cold Storage report will be released on Tuesday after the close. The EIA weekly ethanol report will go back to Thursday release. The weekly Export Sales report will be delayed until Friday. The Cattle on Feed report is also scheduled for a Friday afternoon release. Friday will also mark expiration of February serial options in the grains and oilseeds. Chinese New Year begins on Saturday.
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