Autumn Leaves Are Falling

Published on: 20:32PM Oct 23, 2015


Market Watch with Alan Brugler

October 23, 2015

Autumn Leaves Are Falling

Unseasonably warm temperatures may have delayed the season, but leaves are turning colors in the Midwest as nature puts on its annual show. And, of course, a week or two after that they are all on the ground in your yard or blowing into someone else’s! Commodity prices had a bit of a fall to them this week, with 9 of the twelve we follow turning red for the week. As with the leaves, a good bullish breeze caught the other three markets and lifted them higher.

Corn futures settled 3 cents higher this week, up 0.8% vs. a 1.6% loss last week. Concerns about exports are limiting gains, with US outstanding sales YTD down 4.9 MMT from last year at this time. We note that available corn supplies ex-China and ex-US are expected to drop sharply in 2015/16, so the assumption would be higher volumes at a later date. At the moment, Brazilian corn is still discounted from US offers. That could change once they get more on the books.  China is authorizing construction of additional corn based ethanol plants, which will help in cleaning up the air there while also potentially reducing their mammoth corn stocks.  A lower support price (~$8) and tighter quality rules are expected to significantly trim the amount of corn taken off the market this fall and winter into the Chinese reserve stocks, which are then sold back into the market after April.

Wheat futures were down 1.7% in KC HRW due to improved rainfall forecasts. Hurricane Patricia is expected to pump significant moisture up into the southern Plains. The other two markets were only slightly lower (1 3/4 and 4 1/4 cents) for the week. Lower wheat prices globally continued to be a drag on corn prices. US exports were down this week at 359,200 MT and total commitments lag year ago by 2.48 MMT.  A more aggressive export pace is expected out of Russia following tariff changes, and EU stocks are also considerable. Production reduction talk is focused on Argentina and Australia. The Friday Commitment of Traders report showed the large spec funds selling heavily into the CBOT wheat futures. They added 35,740 contracts to their short position in a week, putting it at -52,266 as of October 20.

November soybeans were down 0.3% this week, fading into the end of the week on profit taking and a stronger US dollar. Weekly export sales were 2.031 MMT for 2016/15 (74.6 million bushels). Total export commitments lag year ago by nearly 7.35 MMT, with unshipped sales down 7.96 MMT. To the surprise of some (given the slow sales) export shipments to date actually exceed year ago by 603,000 MT. It appears global buyers are comfortable enough with the supply situation to delay purchases until closer to when they actually need to ship them. China is buying aggressively when futures are under $9. The Commitment of Traders report confirmed that the large spec funds are net long. They added a modest 733 contracts to their net long in the week ending October 20, putting it at 2,860 contracts.














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December cotton futures were down 1.7% this week after a 3.5% advance the prior week. US export commitments are 37% of the full year forecast, lagging the 58% average pace for this date. That usually means WASDE is overstating the full year total. Outstanding sales (on the books, not shipped) are down 49% from last year at this time. USDA put the AWP for this week at 48.37 and the LDP/MLG is now down to 3.63 cents from 6.78 cents just two weeks ago. The Ginnings report showed a big lag in 2015 bale production due to late harvest and reduced acreage. Ginnings between Oct 1 and Oct 14 totaled 813,900 bales, down 53% from the 15 year pace.The Commitment of Traders report on Friday afternoon showed the managed money spec funds net long 47,870 futures contracts, up 9,269 for the reporting week.

Live cattle futures rose 3.6% this week, on top of a 3.8% advance the previous week. Large beef stocks in the Cold Storage report, slow export sales and a strong dollar all tooks bites out of the bulls, but wholesale beef was higher. October feeders were up 0.64% . A few cash cattle did trade at $208 in the north on Friday afternoon, up $3 from the previous week. Southern trade was slow to develop. Weekly beef production was down 3.0%  from last week, and down 1.3%  vs. the same week in 2014. YTD production is 3.5% below year ago. Wholesale prices were higher this week, up 2.6% in the Choice boxes and up 2.2% in Select.  The USDA Cattle on Feed report showed a few more cattle than expected at 102.33% of year ago. September marketings were 97.6% of last year, while placements were 95.9% and above trade estimates.

Front month lean hog futures were down 3.1% from last Friday. The CME Lean Hog Index was $74.27, down 71 cents for the week. Weekly pork export sales were down 64% from the previous week. China did move to allow more US plants to ship ractopamine free pork into the country, but results are not expected immediately. Weekly US pork production was up 0.1% from the previous week, but 6.3% larger than the same week in 2014. Year to date pork production is up 7.3% from last year. Weekly FI slaughter was estimated at 2.317 million head, down 1,000 head from last week but 8.1% larger than the same week last year.  YTD slaughter is 8.1% larger than a year ago. Wholesale pork prices were down 3.7% from Friday to Friday, with the ham primal down more than 10% for the week.   

Market Watch

We go into wrap up mode for the month of October this week, including one big index fund rolling out of December contracts and others selling their winners and buying losers under asset allocation strategies. Cattle traders will start the week reacting to the Friday afternoon Cattle on Feed report results. Soybean traders will be reacting to any surprise positions inherited as a result of November options exercises on the 23rd. The highest open interest was in the $9.00 puts and calls.  USDA will issue the regular weekly Export Inspections report on  Monday morning and the Crop Progress on Monday afternoon. The weekly Export Sales report is due on Thursday morning.  

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