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Dangerous Friends

Published on: 21:03PM Jun 03, 2016

 

Market Watch with Alan Brugler

 June 3, 2016

Dangerous Friends

The capitalists will sell us the rope with which we will hang them.                 Vladimir Ilyich Lenin

When I was growing up in the 1960’s, the Russians were a very real threat. We practiced nuclear missle attack drills in grade school and there were signs in the hallways indicating which areas had the lowest radiation risks. What the Russians said was duly noted though not always believed, due to extensive propaganda efforts. The Lenin quote above stuck in my head from some time in that era (although I thought maybe Khruschev had said it), and it resonates with me in the current soybean market.

In this version, ag producers are the potential hanging victims. The rope is the speculative buying in the soybean and soybean meal markets. While the spec buying is currently being applauded in ag country (or rather the impact of same on cash bids and loan collateral) it also threatens destruction.  Wheat is a good object lesson. Sustained high prices attracted many new competitors and too much production compared to demand. Now we are looking at price pressure for an extended period because things got a little too good. World wheat stocks are record large and still growing. Soybeans might be facing the same situation. The rally into the $11’s told US producers to plant beans rather than take prevented planting (PP) on marginally wet ground. It is also telling South American producers to ramp up soybean acres in the fall. Unless Mother Nature cuts the rope, increased production in the Western Hemisphere this fall and winter is likely to choke the life out of this soybean market bull eventually.

Corn futures were up 5 1/2 cents for the week, a 1.3% gain on top of the 4.4% pop the previous week.  Strong corn export sales continue to be a feature, with unshipped sales on the books 27% larger than last year at this time. Total commitments are 98% of the full year USDA estimate. The 5 year average would be 97%. US ethanol stocks were UNCH this week, while production increased. Ethanol prices hit 13 month highs in the spot futures. DDG prices are also the highest of the year and were up $8.50 per ton this week.  China offered more than 3 MMT of 2012 crop corn in their weekly auction. Sales in Hebei went for an average of $6.08 per bushel.  The CFTC Commitment of Traders report on Friday afternoon showed an increased speculative commitment to the long side of corn, with the managed money net position up 66,102 contracts from the previous week.  This was prior to the first of month fund buying seen on Wednesday and Thursday.

Soybeans were up 4% this week, aided by a 2.8% advance in nearby soybean meal. Soy oil was also up 2.4% to support product value.  USDA Weekly Export Sales for soybeans were 1.046 MMT of combined old and new crop. Old crop soybean commitments are now 101% of the WASDE full year forecast, with June, July and August yet to go.  They would typically be 101% at this point. Soy oil bookings have been excellent at 99% of the full year figure when the average commitment would be 87% by now.  What about meal? Commitments are 90% of the full year forecast vs. the 5 year average of 91%. Outstanding sales commitments are 1% larger than last year, and total commitments are 11% smaller than year ago.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

05/20/16

05/27/16

06/03/16

Change

% Chg

Jul

Corn

$3.945

$4.128

$4.183

$0.055

1.32%

Jul

CBOT Wheat

$4.678

$4.815

$4.973

$0.158

3.17%

Jul

KCBT Wheat

$4.490

$4.598

$4.740

$0.143

3.01%

Jul

MGEX Wheat

$5.278

$5.280

$5.395

$0.115

2.13%

Jul

Soybeans

$10.743

$10.865

$11.320

$0.455

4.02%

Jul

Soy Meal

$392.70

$402.60

$414.30

$11.70

2.82%

Jul

Soybean Oil

$31.27

$31.48

$32.26

$0.780

2.42%

Jun

Live Cattle

$121.050

$119.700

$122.000

$2.300

1.89%

Aug

Feeder Cattle

$147.93

$146.70

$146.68

($0.03)

-0.02%

Jun

Lean Hogs

$79.850

$80.525

$82.300

$1.775

2.16%

Jul

Cotton

61.67

64.28

63.92

(0.360)

-0.56%

Jul

Oats

$1.895

$1.930

$1.880

($0.050)

-2.66%

 

 Wheat futures were higher in all three markets this week, with Minneapolis again the weakest. USDA showed positive old crop wheat sales for last week of 67,400 MT, a bit surprising with only 5 days remaining in the marketing year to get them shipped. Overall sales were 452,400 MT. USDA shows commitments for 98% of the full year export forecast, but we would typically be 104% by now. Unshipped sales on the books are 70% larger than last year (which was unusually small). Consultant Informa on Friday estimated that US HRW production will be 882 million bushels.

July cotton futures were down 0.6% this week after a huge 4.1% gain the previous week. US planting delays are a supportive factor, and the pull back in the US dollar on Friday erased most of the cotton loss for the week. USDA export sales data showed that 210,623 RB of cotton was sold during the week ending May 26. This included 11,400 RB of Pima. China purchased 21,282 RB. Weekly shipments were the largest in a month, while net shipments to Bangladesh were the largest of the marketing year.  US Export commitments are still behind, with 100% of the full year total on the books, The average for this date is 104%.  You have to have extra due to unshipped bales that will end up being delayed into the following year. The old crop marketing year ends July 31.  The USDA AWP for the new week is 53.75 vs 51.50 last week. That cuts the LDP/MLG to zero.

Live cattle futures were up 1.9% this week. Beef production this week was down 11.4% from the previous week because of Memorial Day, but down only 5.9% vs. year ago as packers scrambled to make up for the downtime. YTD beef production is up 3.0% from last year on 1.8% larger slaughter. Carcass weights have come down, but are still running about where they were a year ago.   Wholesale prices were mixed this week as retailers reloaded cases after the Memorial Day holiday. Choice boxes were up 54 cents to $222.61 for the week. Select boxes were down 1.6%from the previous Friday, to $198.36 per 100 pounds. Cash cattle traded at $128-130 on Friday, up $3-4 from the previous week. D dressed trade was $198-205. USDA beef export sales were reported at 10,044 MT for the week ending May 26. Commitments are now only 101.2% of a year ago at this time.

Lean hog prices were up 2.2% for the week at the Merc. USDA weekly Export Sales on Friday were a routine 22,000 MT, but did include a fresh 7,500 MT sale to China (where local pork prices are sky high). The CME Lean Hog Index at 76.68 was down $1.92 for the week, or 2.4%.  The average pork carcass cutout value was up $2.36 for the week, or 2.82%. Ham and belly primals were the firmest. Weekly hog slaughter is estimated at 1.899 million head, down from 2.181 million head because of the holiday on Monday. Pork production YTD is down 0.6% from last year at this time on a 0.1% smaller slaughter. Average carcass weights are running about 2# smaller. The CFTC Commitment of Traders report showed the spec funds net long 47,523 contracts, a drop of 1,114 contracts from Tuesday to Tuesday. Somebody left the party too early, as the rally happened later in the week!

Market Watch

We go back to the typical USDA report sequence this week, with Export Inspections on Monday morning and weekly Crop Progress in the afternoon.  Weekly Export Sales will be on Thursday morning. Cattle traders will begin the week reacting to any surprise positions inherited at June options expiration on June 3. July cotton options expire on June 10. The main monthly reports from USDA this week will be the Crop Production and WASDE supply/demand reports on Friday morning at 11 am CDT. Traders are expecting USDA to show stronger old crop soybean demand and smaller ending stocks than the 400 mbu shown last month.

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