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Christmas on the Beach

Published on: 22:13PM Dec 11, 2015

 

Market Watch with Alan Brugler

December 11, 2015

Christmas on the Bech

OK, its not Christmas yet, but it sure looks like it with all the newspaper ads and the flood of helpful discount emails in my inbox. Anybody need 20% off on a boot scraper, good only until midnight tonight? While I am solidly in the camp that you can get any weather forecast you want to pay for, the real critter is in full El Niño mode. South America is wet in the north and dry in the south, while South Africa and India are seeing typical correlations to dryness.

Here in the US, we have those who prefer the corn, beans and Florida crop rotation, and other traditionalists who think you are supposed to have 4 seasons with all of them different! The white Christmas crowd is getting the chance to experience how the BCF folks live, with record or near record high temps for mid-December in the Midwest.  This too, is an El Niño effect. The market tie in? We do appear to be losing a little production here and there in the Southern Hemisphere. The Northern Hemisphere tends to be hurt more by the subsequent transition to La Nina, which could be next summer or not until 2017 depending on your weather guru. The average annual trading range in corn is $1.41, and it is well over $2 in soybeans. Things will happen to move prices in both directions. Try not to get burned!

Corn futures were down 1.7% for the week. The weekly USDA Export Sales report showed 1.977 MMT of sales, more than doubling those from the holiday week and also exceeding trade estimates. Prices rallied on the news, but got caught in the broad flight to cash on Friday as speculators are leery of market fall out from the Fed interest rate announcement expected next Wednesday. USDA hiked projected US corn ending stocks by 25 million bushels on Wednesday, increasing ethanol grind but reducing likely exports for the marketing year. No change was made to the average cash price ($3.65 mid-point). Ethanol stocks dropped 200,000 barrels from the previous week despite larger daily ethanol production.  The large spec funds cut their short position in corn by 13,394 contracts in the week ending 12/8, but were still net short 64,746 contracts as of that date.

Wheat futures were higher in KC and CHI, but lost about 1.5% in Minneapolis for the week. For the week ending Nov26,  USDA reported 225,100 MT of net export sales. This was below the previous week and below trade estimates. There was also no new Chinese business. The USDA report on Wednesday had no changes in the US balance sheet, but saw yet another increase to an all time high in projected world wheat ending stocks at 229.86 MMT. Canadian production was hiked as expected, but no cut was made in the Australian crop. Trade estimates are mostly running 2 MMT smaller than the 26.0 MMT USDA figure.   

Soybeans were down 35 1/4 cents for the week, erasing the 33 cent gain from the previous week. Weekly US Export Sales jumped back up to 1.47 MMT, well above trade estimates. China was again the dominant buyer.  USDA made no changes to the domestic ending stocks estimate, leaving it at 465 million bushels. They also made no changes to Brazilian or Argentine production estimates, taking a wait and see attitude. New Argentine president Macri took office on Thursday, with a plan to cut soybean export tariffs to 30% from 35%. However, there are also plans to devalue the peso, and producers would receive higher peso returns per bushel by waiting to see how that plan unfolds. The spec funds decreased the size of their net short position by 11,115 contracts in the week ending 12/8.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

11/27/15

12/04/15

12/11/15

Change

% Chg

Mar

Corn

$3.673

$3.815

$3.753

($0.063)

-1.67%

Mar

CBOT Wheat

$4.790

$4.845

$4.905

$0.060

1.22%

Mar

KCBT Wheat

$4.665

$4.805

$4.825

$0.020

0.41%

Mar

MGEX Wheat

$5.07

$5.16

$5.08

($0.078)

-1.53%

Jan

Soybeans

$8.730

$9.060

$8.708

($0.353)

-4.05%

Jan

Soy Meal

$283.80

$284.90

$273.70

($11.20)

-4.09%

Jan

Soybean Oil

$29.08

$32.08

$31.36

($0.720)

-2.30%

Dec

Live Cattle

$131.825

$124.275

$121.450

($2.825)

-2.33%

Jan

Feeder Cattle

$166.03

$159.45

$152.13

($7.33)

-4.82%

Feb

Lean Hogs

$57.675

$59.100

$60.550

$1.450

2.39%

Mar

Cotton

63.93

64.71

63.71

(1.000)

-1.57%

Mar

Oats

$2.325

$2.410

$2.325

($0.085)

-3.66%

 

 October cotton futures were down 1.5% for the week. The USDA reported that 129,500 RB of cotton was booked for sale to foreign importers during the week ending 12/3, including 6,800 RB of Pima. Net sales to China of 13,599 RB were the second largest of the marketing year, and more than double their average for the marketing year average. USDA showed that the average world price (AWP) was higher, cutting the LDP/MLG for this week to 2.96 cents from 4.05 cents per pound the previous week. USDA cut estimated US cotton production in the WASDE report on Wednesday, and also reduced projected US ending stocks to 3 million bales. World stocks were also reduced to a projected 103.71 million 480-lb bales (mb), down from the November estimate of 105.63 mb.

Live cattle futures lost another 2.3% this week as we are in deliveries and futures need to respect the cash cattle market. Feeders were down 4.8%, with huge negative closeouts for un-hedged cattle constricting demand for replacements.  Weekly beef production was 4% larger than the same week in 2014. Beef production is expected to exceed 2014 for the 4th quarter. For the year the cumulative total is still 2.8% smaller, but the gap is narrowing. Cash cattle trade took place at $119 on Friday, with $185 reported in Nebraska. These prices were higher than the early week trade, which was as low  as $116. Wholesale beef prices were lower this week, with choice boxes off only 10 cents per 100 pounds, while Select dropped $5.06 (-2.6%).  The Choice/Select spread has widened dramatically.

Lean hog futures were up 2.4% for the week. According to the USDA Export Sales report, only 10,100  MTs of US pork were sold last week for export. China was a smaller buyer, but did ship 1,300 MT. The CME Lean Hog Index was $56.60, up 47 cents for the week. Weekly FI slaughter was estimated at 2.426 million head, up 7.3% from the same week in 2013. Weekly pork production was up 0.1% from last week, but 6.4% above the same week in 2014. Carcass weights continue to run below year ago. Pork production YTD is 7.1% larger than last year at this time, on 7.90% larger slaughter.  Wholesale pork prices for the week were up $0.68 or 0.92%

Market Watch

We’ll have a normal 5 day trading week this week, with USDA Export Inspections out on Monday, and weekly Export Sales on Thursday. The December grain futures expire on Monday, as do December lean hogs. NOPA is expected to release their November soybean crush on Tuesday morning. The FOMC is meeting on Tuesday and Wednesday,with any interest rate hike announcement expected to be on Wednesday afternoon.  The main USDA monthly reports will be Cattle On Feed and Milk Production, both expected to be released on Friday afternoon after the markets close.

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