Market Watch with Alan Brugler
June 5, 2020
Let The Summer Games Begin
The Summer Olympics are often referred to as the summer games. They are no longer scheduled for 2020. But then again, a lot of other games have been missing from the schedule, including the NBA, NHL, MLS and MLB. Golf and NASCAR have limped along with fan free offerings. Now, we’re starting to see some movement toward normalcy, with the NBA announcing a summer season and playoffs (though held entirely in a Florida bubble). Ohio announced that some actual fans would be permitted at the Muirfield golf tournament in July. Grains and livestock are acting like they would like to play their normal summer schedule as well. You know, a little drought scare here, a little hurricane action there, some BLT sandwich demand, maybe some big election year market moving deals.
Corn futures crawled another 2.1% higher this week, posting a 15 ¼ cent gain over the past 2 weeks. Corn planting progressed to 93% complete, with 78% emerged, both above normal. The Bruger500 crop condition index rating improved 6 points to 382. EIA showed US ethanol production continuing to rebound, up 41,000 bpd to 765,000 bpd. Meanwhile, ethanol stocks were down another 700,000 barrels to 22.476 million. Monthly Grain Crushings data indicated 244.98 mbu used for ethanol production in April, down 44.38% from a year ago. Continuing with the monthly data, April corn exports from Census were tallied at 199.1 mbu. That was down 7.58% from April 2019, but a 12-month high. As of May 21, US export commitments have reached 90% of the full year WASDE forecast, vs. the average pace of 96% for this date. Unshipped sales on the books are now 46% larger than year ago, hinting at a large summer shipping program. Spec fund traders were even more bearish on corn in the week ending June 2. The CFTC net short position for that group expanded another 6,063 contracts to -282,266. The record for spec fund bearishness is -322,215 contracts set in April 2019.
The wheats were not so lucky this week, as all three markets were lower vs. last Friday. KC was the weakest with losses of 1.91%, as CBT was down 1.06% and MPLS 0.57% lower. Monday’s Crop Progress report put winter wheat ratings @334 on the Brugler500 index. That was down 7 points from the previous week, with notable SRW deterioration. Spring wheat plantings still lag the 5 year average pace at 91% complete. Census trade data indicated April wheat exports of 86.73 mbu, down 16.59% from last year but the largest since August 2019. Old crop wheat export commitments are 102% of the figure needed to meet the WASDE forecast. They typically would be 106%, as some will typically not be shipped on time. The spec funds added 1,268 contracts to their net short in Chicago SRW during the week ending June 2. That left them net short 13,472. They pared their net short in KC HRW, by 1,610 contracts of futures and options during the week, to -24,133. The record large speculative CFTC spec fund short in MPLS futures shrank another 1,001 contracts for the week to -21,917 contracts.
Soybeans put up double digit gains this week, with July up 27 ½ cents. The product values followed suit, with bean oil 3.21% higher and meal gaining 2.15%. USDA reported that 75% of the US crop had been planted as of Sunday, still ahead of the 68% average pace. Export commitments are up to 94% of the USDA projected total vs. the 99% average. Outstanding sales are 43% lighter, however, due to the Chinese emphasis on Brazilian supplies in April and May. April soybean export shipments were tallied at 79.48 mbu by Census, down 9.84% from 2019. The Commitment of Traders report showed the managed money spec funds cautiously adding to their long position in beans, bumping it up 824 contracts in the week ending June 2. They were still net long only 6,637 contracts as of Tuesday.
Cotton futures were propped up by sizable gains to start and end the week, as July was up 7.48% since last Friday. Cotton export commitments through May 21 were 117% of the full year USDA forecast. They would typically be 105% by now. Outstanding sales are only 4% larger than last year. Census data showed cotton exports in April at 1.254 million bales. That was down 28.7% from a year ago as the impacts of COVID were being felt. The Adjusted World Price for cotton is now 48.32 cents/lb, dropping the LDP by 84 points to 3.68 cents/lb. Both are in effect through Thursday. Spec funds flipped their CFTC position from net short in cotton futures during the week ending May 26 to net long 2,623 contracts by June 2.
Live cattle futures lost any momentum they had been picking up the last few weeks as nearby June fell 5.41%, widening the discount to cash. Cash cattle trade continues to be very disconnected, depending on packer operations and the condition of the cattle. Discounts for YG4 and YG5 cattle are substantial. Transactions were reported from $105 to $118 this week, with dressed trade ran $165-187. August feeder futures slipped 10.9% on the week. The CME feeder cattle index was $127.93, down $1.43 from last week. Wholesale beef prices are going back from whence they came. Choice boxes collapsed 28% in a single week ($1.02 per pound) and Select boxes were down 27.5% at $246.42 per hundred pounds. Choice beef has dropped 43% since the COVID scarcity peak on May 12. Weekly cattle slaughter was 636,000 head, still 4.4% below last year. Beef production was down only 0.4% from last year due to much higher average carcass weights. Beef production YTD is now down 4.4% from last year. Estimated carcass weights are 33# higher than last year. Beef export shipments during April totaled 235.19 million lbs according to census data converted by USDA. That was a 3-year low but still decent considering the slaughter impacts. Exports to Japan were a 20-year high for April at 88.02 million lbs. with assistance from lower tariffs. The Commitment of Traders report showed the big managed money funds extending their net long in cattle futures by 1,519 contracts in the week ending June 2. That boosted the net long to 16,496.
Lean hogs gave back all of last week’s gains, with nearby June down 4.78% as they look to keep things par with cash ahead of expiration next week. The CME Lean Hog index was down $7.57 from last week at $55.38. The pork carcass cutout value retreated 17.5% during the week. Pork belly primals rose 18% but loins were down 33.4% for the week. Eat more pork chops! Weekly hog slaughter was 1.7% larger than last year at 2.42 million head. Pork production was up 25.9% from the holiday week and also up 4.2% from year ago. Pork production since Jan 1 is now down 0.3% from last year. The Export Sales report showed 17,335 MT of pork booked in the week ending May 28. Accumulated shipments are 68% ahead of last year’s pace. Of the week’s shipments, 42% were destined for China. China has been the destination for 41% of all pork shipments so far in 2020. Census data tallied US pork exports in April a record 641.265 million lbs for the month. Of that total, 230.5 million was headed to China, an all-time high. Shipments to destinations outside of China were at a 4-year low. The COT report on Friday afternoon showed the managed money spec funds net long 6,679 hog contracts on June 2. That was down a sharp 3,594 contracts of futures and options from the previous week.
Next week starts out normal for this time of year, with the weekly Export Inspections report due out Monday morning and the Crop Progress report that afternoon. Monday is also first notice day for June live cattle futures. The Fed is scheduled to meet next Tuesday and Wednesday as the economy tries to rebound from the effects of COVID-19. We will also get a look at likely improving ethanol data on Wednesday morning, as ethanol plants continue to reopen. Skip ahead to Thursday and USDA starts off a busy day with the Export Sales report. At 11:00 am CDT, we will get all new WASDE and Crop Production numbers. Friday rounds out the week as the last trading day for June lean hogs and July cotton options.
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