Market Watch with Alan Brugler
March 27, 2020
It Will Change
Over the years, I have heard a number of variations on the phase “If you don’t like the weather here in (insert state or city here) just wait 24 hours and it will change”. This is clearly not applicable to states with perpetual sunshine and lack of rainfall, but it does apply to a lot of the US. It also applies to the ag markets, particularly right now. There is big money moving around. Just look at the $2 trillion spending and lending bill passed by Congress this week! And the Fed liquidity injections. And the declining volume and open interest in some markets, which tends to magnify price moves through a lack of liquidity. Throw in the USDA Planting Intentions and Grain Stocks reports on Tuesday, which already have a reputation for fueling big price moves because of the surprises in the data. That’s a recipe for some price change!
Corn futures found a temporary bottom this week, with May futures clawing back 0.65% from last week’s 6% drop. Increased export demand is keeping the market steady as ethanol demand is dropping. Reports were surfacing that several ethanol plants across the Midwest were idling production in some capacity, as EIA showed production dropping 30,000 barrels to 1.005 million bdp in the week of 3/20. That will likely drop more this week with the additional shutdowns and maintenance suspensions. Export business picked up during the week of 3/19, as weekly export bookings were the largest since December 2018 at 1.814 MMT. A good part of that was known from a large Chinese purchase that was announced by the USDA last week. Total export commitments are now 27.7% below last year (gaining wk/wk) and are now 70% of USDA’s full year projection vs. the 80% average. The CFTC Commitment of Traders report showed another expansion in bearish spec fund positions for corn. They rose 16,703 contracts in the reporting week ending March 24, expanding to -108,549 contracts.
All three wheat futures markets added to last week’s gains this go ‘round. Chicago wheat was busy trying to widen the spread with KC, as it saw the sharpest 5.93% gain. KC HRW was up 19 ¾ cents (4.21%), with MGE HRS front month futures 3.45% higher this week. US weekly export sales jumped 73%, to 740,000 MT. That included about 485,000 MT of Chinese purchases across two crop years, some of which were not reported under the daily USDA system. Total commitments are running 4% ahead of year ago. Managed money spec funds went short in Chicago wheat right ahead of the big rally, then flipped back to net long to chase it. They were net long 23,329 contracts as of Tuesday evening. In KC wheat futures and options they trimmed their net short by 7,950 contracts during the week, taking it to -5,356 contracts. Specs in MPLS futures and options reduced their net short position by 3,618 contracts (-16,307 as of March 24).
Soybeans posted another week of solid 2.2% gains, with help this time from soy oil that rose 4.72%. Meal gave back $2.10 of last week’s rally. Export sales for the week ending March 19 were up 43% at 904,300 MT. Soy oil sales were a marketing year high 55,900 MT. Export commitments are 14% below last year and 72% of the USDA projected total vs. the 91% average. Unshipped sales are the smallest since 2015/16 for this date, at 4.613 MMT. Friday’s CFTC report indicated managed money spec traders were only short 2,444 soybean contracts as of March 24. It took net buying of 28,202 contracts during the week to get them there.
Cotton futures added to last week’s 11.3% free fall, with May futures down another 4.64% this week. Loss of demand is still the concern, with both the US and Europe tipping into likely recession due to efforts to slow the COVID-19 pandemic. Thursday’s Export Sales report showed indicated a slow down in cotton interest, with net sales of 277,100 RB for old crop upland cotton. Another 120,000 RB were booked for new crop delivery slots. The US cotton export commitments are now 21% larger than last year and have reached 99% of the full-year WASDE estimate vs. the 92% average pace. The marketing year ends July 31. Unshipped upland sales on the books are 18% larger than year ago. CFTC’s Commitment of Traders report showed managed money spec traders expanding their net short position by 2,790 contracts in the week ending March 24, boosting it to 15,255 contracts.
Live cattle futures saw limit gains on Monday and Tuesday, with limit losses the last two days of the week, but still managed to squeeze out a 2.33% gain since last Friday. Cash trade was one reason for the improvement, with most cattle exchanging hands at $119-120 live and $185-190 dressed. Feeder futures were up another 2.26% this week. The CME feeder cattle index was $130.44, up $9.06 this week as it converged with March futures at their expiration. Wholesale beef prices were mixed this week after rising more than 19% last week. Choice 600-900# boxes were 0.4% cheaper on Friday than a week ago. Select product, on the other hand, was up $2.21/cwt or 0.9%. The Chc/Sel spread ended the week at $10.46. Grocery store meat cases were cleaned out by consumers working from home as part of the Wuhan virus solution set. Packers have adequate meat supplies, but some is packaged for institutional use and lines need to be reconfigured to send it to retail customers. Weekly beef production was up 3.6% from last week on 3.5% larger slaughter. It was a whopping 12.9% larger than the same week in 2019. The YTD beef production is now 4.8% larger than 2019. USDA’s weekly Export Sales report showed a drop off in sales, to 14,500 MT. Friday’s Commitment of Traders report showed managed money funds in live cattle futures and options going net short 3,055 contracts as of March 24. That is only the fourth time the big specs have ever been net short. The last attempt in September ended badly for them.
April lean hog futures gave back $3.125 of last week’s gains this week, with front month futures doen 5.04%. The CME Lean Hog index was up $4.84 this week on top of a $3.01 gain the previous week, putting the value at $66.17. The basis is a strong +$7.72. The pork carcass cutout value was down 1.7% on a Thursday/Thursday basis. Packers scrambled to reconfigure packaging lines for consumer rather than food service demand, with many restaurants forced to close or shift to carry out only. Weekly pork production was down 1.3% from the previous week and a 9.3% above the same week a year ago. Estimated pork production for the year is up 5.4% YTD on 5% more slaughter. Thursday’s Export Sales report showed net weekly sales of 38,600 MT, up 8% from the previous week. China ramped up purchases, and also set a new high for weekly shipments at 23,000 MT. Thursday’s USDA Hogs and Pigs report showed a slowdown in expansion, with the breeding herd 100.4% of year ago. However, market hog numbers were up 3.4% and larger than expected. CFTC data indicated managed money spec funds trimmed added 1,104 contracts to their net long position in the week ending March 24, growing it to 23,130 contracts of futures and options.
Next week will start out as any normal week would with the Export Inspections report on Monday morning. NASS will throw analysts and traders a bone on Tuesday with the March Planting Intentions and quarterly Grain Stocks reports. Wednesday will also be data filled with the weekly EIA report out that morning and all eyes on where ethanol production is headed. That afternoon, NASS will release the monthly Grain Crushings, Fats & Oils, and Cotton System reports. Export Sales data will be published on Thursday morning, with February trade data out from Census as well. Friday will mark the expiration of the April Live Cattle options.
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