Acting With Uncertainty

Published on: 21:21PM Jul 10, 2015


Market Watch with Alan Brugler

July 10, 2015

Acting With Uncertainty

Market psychologists tell us that people break two ways when faced with uncertainty. Group A knows it doesn’t know and would prefer the pain of being right but late to the pain of being early and wrong. They wait for more facts. Group B thinks that it knows enough to act but really doesn’t have all the facts. They would prefer to act now on limited information and fix it later, rather than bounce off the walls waiting for better data. The grain markets are clearly under the sway of Group B types right now. They are building weather premium into prices until they get yield numbers that are concrete enough to say they don’t need to do that any more.

This is an anticipatory bull market, and those tend to rise sharply and fade quickly. Panic buying from trapped shorts tends to be the first phase, followed by bandwagon types. Realizing bull markets, the other type, tend to start after supply is proven not to be big enough to cover demand. That often doesn’t happen until close to harvest, when you can’t readily create more supply. They rally in longer trends, and sometimes to more extreme price levels if demand is inelastic.

Corn futures added on another 1.8% this week after the 8% pop ahead of July 4th. The market is in a bullish virtous circle right now. Higher prices feed more cash corn sales which feed commercial short hedges which feed spec fund purchases. Prices follow the funds.  US old crop ending stocks will be 1.779 bbu, according to the WASDE report published today.  That helped move the new crop ending stocks projection down to 1.599 mbu, which would be a year/year net change of minus 180 million bushels.  World ending stocks also shrank from the figures in the June report.  The old crop estimate slipped more than 1.5% and the new crop projection lost about 2.7%.  Much of the cut was due to smaller US production, which USDA now expects to be 13.530 bbu, down 100 million from June.  Brazilian corn production was raised 1 MMT to 82 MMT, but the Argentina figure was unchanged. 













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Wheat futures cooled off a bit, with KC seeing a 3.3% drop as harvest pressure intensified.  USDA put 2016 ending stocks at 842 million bushels, below the average trade estimate of 860 million thanks to an aggressive feed use estimate of 200 million bushels. The old crop figure of 753 million bushels had already been announced and USDA cut last year’s feed use to explain most of the shift from the June estimate.  NASS had winter wheat production smaller than their previous figure with SRW at 393 mbu, and HRW production coming in below the lower end of pre-report trade estimates at 866.4 mbu.

Soybeans were violent during the week (with a couple 20-30 cent daily moves), but posted a net loss of only 0.2% in the July contract. We traded weather most of the week, but the main event was the USDA report on Friday. The USDA report cut US old crop ending stocks 75 mbu from the June estimate to 255 million. New crop ending stocks are projected to be 50 mbu smaller than they were a month earlier with USDA now expecting to see 425 mbu left over come September 1, 2016.  Global ending stocks were trimmed nearly 2.5% for old crop, and new crop ending stocks are projected to be 1.5% smaller than the June WASDE figure. Argentine production was up 0.5 MMT from June, but Brazilian soybean production was unchanged at 94.5 MMT. 


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July Cotton expired this week, and new lead month October was down 3.1% for the week. The WASDE report left US production at 14.5 million bales, unchanged from June.  USDA boosted projected new crop yield while dropping planted acreage to 8.99 million. Old crop stocks shrank 200,000 bales, with the same change in the 2015/16 ending stocks. Both years are now seen at 4.2 million bales, i.e production and disappearance in balance. USDA put the AWP for this week at 51.76, moving the LDP from zero to .24 cents per pound.

 Live cattle futures shed 2.5% this week. Feeders lost nearly 3% since they also took a hit from higher feed prices. The CME feeder cattle index for the 7/9 average was $1.05 higher, up to $221.44.  Friday cash cattle trade was mostly $150 in the south and $242 in the north. Weekly beef production was up 6.2% from the July 4 short week. Beef production YTD is down 4.7% from last year, with slaughter off 6.9% and the balance made up by higher average carcass weights. In the montly WASDE report, USDA trimmed projected 2015 beef production by 185 million pounds vs. the June estimate, but raised 2016 production by 115 million pounds.

Lean hog futures eked out a 0.25% gain for the week, heading into expiration this coming Wednesday. The CME Lean Hog Index was up 59 cents to $78.66.  The morning report had the average carcass cutout price off 47 cents/cwt.  Cash hog prices are $1.65 lower in IA/MN, $1.48 lower in the WCB, and no report from the ECB.  Weekly FI slaughter was 2.079 million head, up from the holiday depressed 1.857 million last week. Pork production YTD is now 6.9% larger than last year at this time.  The USDA analysts raised projected 2015 pork production by 125 million pounds and bumped up their 2016 estimate by 5 million.

Market Watch

Things calm down just a little this coming week. There are no major USDA reports, just the regular Export Inspections and Crop Progress on Monday and weekly Export Sales on Thursday. The July grain futures contracts expire on Tuesday, with most of the volume already shifted to the fall contracts. July hogs go off the board on Wednesday. NOPA is also expected to release a month soybean crush report on Wednesday for June.  

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