Bear Party

Published on: 20:44PM May 22, 2015


Market Watch with Alan Brugler

May 22, 2015


Spring is nature’s way of saying ‘Let’s party!’.....  Robin Williams

This week had somewhat of a party atmosphere for the more bearish commercial and speculative commodity traders, with soybeans hitting life of contract lows, cotton down hard, soy oil on the skids and the corn/oats combo also lower. Bears were suggesting capitulation in corn, with grain starting to move at weaker basis in areas where the corn is all planted and off to a good start. They were smugly waiting for the real panic selling to begin. Capitulation is a key concept for forming market bottoms, whether in stocks, currencies or commodities. Panic has to set in to drive things too low and make them an obvious buy for those with deep pockets. Capitulation is notoriously hard to define until after the fact. We have also demonstrated that it takes at least a partial transfer of the cash commodity to the commercial short hedger to set up a rally, since the bullish specs need short paper to buy against.  Our technical indicators don’t show that we have reached panic levels yet, but be assured that the bear party will be interrupted eventually. See the wheat market.  

Corn was down 1.5% for the week, with most of the loss on Friday ahead of the 3-day weekend. Planting progress and emergence are both still running ahead of year ago and the 5 year averages.  Bears are also cocky because of expected above normal rainfall for the next two weeks and the old saying that “rain makes grain”. Some corn was definitely damaged by the freezing temps, but most is expected to grow out of it and thus the trade couldn’t get excited. Weekly corn use for ethanol production rose back above 101 million bushels, with ethanol stock up 100,000 barrels.  Corn export sales commitments still lag the average pace after a decent showing this week.

Wheat added to the prior week gains, mostly on Monday and Thursday. MGE was the leader, up 1.3% for the week. US winter wheat crop condition ratings continue to improve each week, with adequate moisture turning to surplus in some areas of TX that are ready to harvest. In those cases some sprout damage is being reported, or just muddy fields. Weather forecasts for southern Russia have turned drier for the moment. El Nino weather is also in play for Australia, where it is planting season for the wheat to be harvested at the end of the year.  US weekly export sales were supportive in that old crop sales were positive rather than negative, but the marketing year is wrapping up this month and cumulative commitments are only 93% of the USDA projection.

Soybeans were down 3.1% for the week after losing 2.4% the prior week. A number of new life of contract lows were set during the week, as the US crop appears to be off to a good start and final production estimates for Brazil and Argentina continue to grow. Soybean export sales commitments continue to run comfortably above the level needed to meet the USDA forecast for the year.  Outstanding (unshipped) soybean meal sales are still 88% larger than last year at this time. That is a two edged sword, bearish if they are cancelled or deferred to 2015/16, but bullish if crushers have to continue to scramble for beans to meet those orders. The Commitment of Traders report showed the large spec funds holding the largest net short position since 2006 at -90,271 contracts. The commercial sector is showing signs of not having cash beans, with crusher longs increasing (locking in on paper what they can’t do in cash) and elevator shorts decreasing. Both trends magnify the spec short because they are on the other side of those trades.














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 Live cattle futures were down 0.26% for the week, with a 20 cent loss on Friday after the monthly USDA reports. The USDA Cattle on Feed report on Friday showed slightly larger than expected On Feed numbers at 100.81% of year ago. April placements were light at 95.38% of last year, with notable reductions in states with excellent pasture conditions compared to year ago. The Cold Storage report confirmed beef stocks were down 1% from March, but 18% above the depressed April 2014 level. Weekly beef production was down 0.5% from the previous week and down 3.7% from the same week in 2014. Beef production YTD is still down 4.8% from last year. Estimated carcass weights are 23# bigger than year ago. Wholesale beef prices backed off of record highs, with Choice down 0.6% for the week and Select down 1.4%.

Lean hog futures were 0.45% for the week as the market rallied back late weekness the previous week. Carcass weights are now an estimated 2# below year ago. Pork production YTD is up 5.7% from last year at this point. Weekly pork production was up 0.7% from the previous week. However, it was still up 8.2%  from the same week in 2014. Pork export sales have slowed with the rise in the wholesale price.  The USDA pork carcass cutout value was up another 2.52% this week on top of 4.91% the previous week. Pork bellies were the strongest component, up 4.06% on a Friday/Friday basis.

Cotton was down a steep 5.6% for the week. A US dollar rally weighed on export prospects. USDA put the weekly AWP at 52.00 and thus left the LDP/MLG at zero through this coming Thursday.  USDA showed in its weekly report that US cotton export sales last week totaled 108,400 running bales, including 95,500 RB of upland.  Pima export shipments were a new high for the marketing year at 18,700 RB.The managed money spec funds were still net long 42,073 cotton contracts as of May 19, but had cut the position by 6,767 in the preceding 7 days.

Market Watch

The market will get a late start, with the Memorial Day holiday in the United States on Monday. Globex trade for grains will begin at 7 pm on Monday evening. The USDA will delay Export Inspections and Crop Progress on until Tuesday, and weekly Export Sales will be delayed until Friday. The news lineup will otherwise be pretty light. We always want to be aware of end of month spec fund position squaring, as some big moves can result.

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