Bring A Bucket of Water

Published on: 20:54PM Jul 01, 2016

 

Market Watch with Alan Brugler

July 1, 2016

Bring a Bucket of Water

While not widely adhered to, safety instructions for shooting off July 4th fireworks ‘responsibly’ often suggest one keep a bucket of water nearby to douse the misfires, put out used matches, etc. A week ago the Brexit vote seemed like it was going to put out the bullish fires in commodities and equities around the world. However, as is often the case with well advertised market news, the initial move was quickly faded, the smoldering bottle rockets went off, and things like soybeans managed 5% gains for the week. Alas, the corn and wheat market clearly are getting too much water dumped on them literally and figurateively. A budding drought pocket in MO and IL is now expected to get 4 inches of rain in a 7 day period. Well watered Kansas wheat is setting all kinds of yield records in a year nobody wants the product. Bean traders are trying to keep their firecrackers away from the bucket. For corn it might take a flamethrower (100 degree temps for a week or two, anyone?) to get things firing again.

Corn futures lost 8.9% the last week of June, an arguable improvement over the 13.85% plunge from the previous week. Ethanol production jumped back to 1.003 million barrels per day and ethanol stocks were only marginally higher. The Grain Crushings report on Friday showed May corn industrial use of 479 million bushels, which was 5% smaller than in May 2015. The ethanol portion was 425.7 million bushels. Weekly export sales were a part of the problem as they slowed to 1.005 MMT. The big problems came on Thursday at 11 am CDT.  USDA indicated that producers had actually increased corn acreage since the March Intentions, and were planning on planting 94.148 million acres as of June 1. The Quarterly Grain Stocks report also showed a larger overhang of inventory from last year’s crop, with 4.722 billion bushels still on hand. That was about 200 million above trade estimates and will likely result in WASDE trimming their Feed & Residual use line in the July S&D estimates. So we have more old crop corn than expected, and are producing more than needed in 2016 if the yield holds up. At the moment, the crop condition ratings are the fifth best since 1990 for late June. The Friday night Commitment of Traders report showed the spec funds reducing their net long position by about 50,000 contracts, as expected.

Soybeans shot up 5.6% this week, aided by a 7.2% jump in July soybean meal futures. There have been zero delivery notices thus far vs. July meal. The crushers hold a considerable number of the shorts in July, but were not anxious to dump them into the delivery market. US June 1 soybean stocks were actually on the high end of expectations at 870 million bushels. The surprise factor was soybean acreage, up  to 83.688 million from 82.236 million in March, but not as large as feared. And only 5% of the acres are double crop. This would imply a higher national average yield, but that was being ignored on Thursday when the bulk of the rally took place. On Friday, the monthly Oilseed Crush report showed just under 161 million bushels cruhsed in May, up 3 million from April and 5 million larger than in May 2015.

Wheat futures were hammered this week, with Chicago July down more than 9% and the hard wheats not a whole lot better off.  Veteran traders say that wheat takes no prisoners, and that has definitely been the case in the past month. US weekly export sales through June 23 were actually strong at 645,300 MT. However the bearish news keeps piling up. Crop condition ratings suggest a US average winter wheat yield of at least 41.15 bushels per acre, with the HRW figure at least 56 bpa and perhaps as high as 50. The USDA Grain Stocks report was neutral, putting 2015/16 ending stocks at 981 million bushels.  Despite every intention to cut back production, US wheat producers are likely to show higher than numbers than last year. Increases in the USDA planted acreage numbers for winter wheat, spring wheat and durum brought US All Wheat plantings to 50.816 million acres. The IGC hiked projected world wheat production 7 MMT, to 729 MMT. CFTC says that as of Tuesday’s close the managed money accounts held net short positions of 81,986 contracts in CHI wheat. That was 18,698 more bearish than the previous Tuesday, and they likely added further to the position later in the week.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

06/17/16

06/24/16

07/01/16

Change

% Chg

Jul

Corn

$4.378

$3.845

$3.530

($0.315)

-8.92%

Jul

CBOT Wheat

$4.813

$4.548

$4.163

($0.385)

-9.25%

Jul

KCBT Wheat

$4.608

$4.228

$3.943

($0.285)

-7.23%

Jul

MGEX Wheat

$5.398

$5.178

$4.893

($0.285)

-5.83%

Jul

Soybeans

$11.595

$11.030

$11.688

$0.658

5.63%

Jul

Soy Meal

$407.40

$375.60

$404.80

$29.20

7.21%

Jul

Soybean Oil

$31.93

$30.99

$31.03

$0.040

0.13%

Aug

Live Cattle

$112.550

$110.875

$112.975

$2.100

1.86%

Aug

Feeder Cattle

$137.43

$139.45

$142.45

$3.00

2.11%

Jul

Lean Hogs

$86.175

$84.050

$82.675

($1.375)

-1.66%

Dec

Cotton

65.92

64.42

64.99

0.570

0.88%

Jul

Oats

$2.083

$2.090

$2.055

($0.035)

-1.70%

 

December cotton was up 0.88% this week despite a big down day on Thursday. NASS had US upland cotton planted area up 461,000 acres from the March Planting Intentions report.  At 10.023 MA, the figure is up 16.8% from 2015 planted acreage.  Planting delays due to wet weather did not limit acreage, and in fact might have allowed more in certain moisture limited areas. USDA reported the AWP has risen to 56.11 cents from 55.48 last week. As we anticipated, the LDP/MLG is still zero through next Thursday.

Live cattle futures ended the week with the June contract rising to $120 at expiration, and August gaining 1.86% despite a Friday fade.  Feeder futures were up 2.1%. The cash cattle market was stronger this week, with dressed contracts up as much as $8 and lives sales up $4-6 at mostly $122-123. Wholesale prices again truggled with the average price for choice boxes down $5.13 for the week and the select price down $4.10 from Friday to Friday. The Choice cutout was recovering from a big drop on Monday as the week went on, but Select continued to struggle.  Weekly beef production was down 1.8% from last week, but up 13.6% from year ago due to different holiday timing. Weekly slaughter was 598,000 head, off 13,000 from the previous week. Beef production YTD is up 4.1% on 3.3% larger slaughter.

Lean hog futures ended the week 1.7% lower than they started it. The CME Lean Hog Index was $84.91 on Friday, up 89 cents from $84.02 last Friday. The USDA weighted average carcass cutout value was down 6 cents since last Friday, a -0.07% change. A big drop in ribs was offset by a firmer tone in bellies and hams. Pork production this week was estimated at 448 million pounds, up 0.6% from last week and 14.8% above the holiday impacted week in 2015.  Pork production since Jan 1 is actually 0.1% smaller than in 2015 despite 0.3% larger slaughter.  Carcass weights continue to run lighter as producers push capacity limits. Per the CFTC, managed money accounts pared back their net long position from the previous week by 1,034 contracts. 

Market Watch

The markets will begin the week with the July 4 holiday in the US.  The usual USDA Monday reports will be delayed until Tuesday (Grain Stocks and Crop Progress). USDA weekly export sales will also be delayed until Friday morning. July cotton futures expire on the 7th.  

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