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Divergent

Published on: 20:11PM Jun 19, 2015

 Brugler

Market Watch with Alan Brugler

June 19, 2015

Bullish Divergent

In the 2014 movie Divergent, people are split into population groups by function. Think corn vs. beans vs. wheat vs. cattle. Anyone who doesn’t fit the mold for that group is labeled as divergent and thus dangerous and weeded out. Later one, one of the groups attacks and seeks to take over the other previously equal groups. I was reminded of the movie by the grain market action this week. Corn had a bullish divergent in its midst, sustained by wet weather and ideas of lower yield potential. The bears were working pretty hard to eliminate it on Friday. Beans had two bullish divergents (S, SM but not BO) and they were starting to create some instability. They weren’t quite taking over the other groups, but there would certainly be a mechanism where rising meal values could boost corn and DDG prices if the rebellion continues. The movie was clearly set up to spawn a series of sequels, ala another recent movie called Hunger Games. Unless you are a livestock feeder or grain processor, you are probably rooting for the bullish divergents to win control.

Corn was up 1/4 cent for the week in the July contract, giving back nearly all of the gain for the week on Friday. Corn export sales commitments still lag the average pace (92% of the WASDE forecast vs. the average of 99% for this date) after an improved showing again this week. Sorghum sales and shipments slowed to a trickle. Weekly ethanol stocks were up a about 450,000 barrels despite a slow down from record weekly production of 992,000 bpd to 980,000 bpd last week. Miles driven are rising nicely, but production occasionally gets ahead of consumption. Memphis based Informa projected US planted acreage will be 88.777 million, just a hair below the March intentions. The USDA report will be on June 30.

Wheat futures were down 3.1 to 4.5% for the week as the bears barbeued some tender young bulls who had ventured into the market ahead of the monthly WASDE report. The marketing year for old crop wheat ended on May 31, with shipments at 831 million bushels. The WAOB cut its number to 855 million bushels. The final number won’t come out until July. Japan and Taiwan were back in the market for US wheat for fall delivery.  The weekly USDA Export Sales report showed 315,700 MT booked, but due to smaller carryover business the YTD commitments are about 60 million bushels light. Twitter is awash with pictures of combines buried to the axles in mud. The weather should get a lot better for TX and OK producers this week, but we would not agree with those expecting “rapid” harvest progress.

Soybeans gained a substantial 31 1/2 cents per bushel this week in the July contract. Soybean export sales commitments continue to run comfortably above the level needed to meet the rising USDA forecast for the year. They are typically 101% by now, but this year are at 104%. New crop bookings got a nice boost, with USDA showing 532,000 MT purchased. Outstanding (unshipped) soybean meal sales are more than twice as large as 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. USDA did tighten up projected world soybean ending stocks to 83.7 MMT for old crop and 93.2 MMT for new crop last week. Brazilian producers are seeing sharply higher bean prices in recent weeks, due to the drop in the Real vs. the dolla

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

06/05/15

06/12/15

06/19/15

Change

% Chg

July

Corn

$3.605

$3.530

$3.533

$0.003

0.07%

July

CBOT Wheat

$5.170

$5.038

$4.885

($0.153)

-3.12%

July

KCBT Wheat

$5.353

$5.260

$5.033

($0.228)

-4.52%

July

MGEX Wheat

$5.715

$5.613

$5.430

($0.183)

-3.36%

July

Soybeans

$9.378

$9.400

$9.715

$0.315

3.24%

July

Soy Meal

$304.900

$317.400

$323.100

$5.70

1.76%

July

Soybean Oil

$34.780

$33.140

$32.550

($0.590)

-1.81%

June

Live Cattle

$152.825

$152.450

$151.900

($0.550)

-0.36%

Aug

Feeder Cattle

$221.90

$223.45

$223.43

($0.025)

-0.01%

July

Lean Hogs

$81.125

$78.050

$75.750

($2.300)

-3.04%

July

Cotton

64.010

64.070

63.320

(0.750)

-1.18%

July

Oats

$2.588

$2.555

$2.440

($0.115)

-4.71%

 

July Cotton was down 1.2% this week. The US dollar index was down a little over 1% for the week. Weekly cotton export sales were sluggish at 63,500 running bales. Planting progress continues to lag because of the wet weather, but most of the US crop will be considered planted by the end of this week. USDA cut the average world price (AWP) for this week to 50.51 and increased the LDP from 0.77 to 1.49 cents. 

 Live cattle futures broke hard this week, with specs exiting the June contract ahead of expiration and futures converging with cash. Weekly beef production was down 9.2% from the same week in 2014. Beef production YTD is now down 5.1% from last year. Slaughter has been down 7.4%, with higher weights making up the difference. Cash cattle trade was light on Friday ahead of the COF report, with some limited $150 sales reported. Wholesale beef prices firmed on strong exports and July 4 retailer orders. Choice boxed beef was up 2.3% and Select was up 2.4% on a Friday/Friday basis.  Weekly beef exports are rising seasonally, with 14,200 MT last week the largest of 2015. The Cattle on Feed report showed smaller than expected May placements at 89.8% of year ago. Marketings were about as expected at 91.8% but the light placements left June 1 On Feed numbers only 0.6% above year ago.

Lean hog futures were down 3% this week. The CME Index was down 46 cents at $80.11 on Friday, and down $1.80 for the week. US pork production YTD is up 6.2% from last year at this point. Weekly pork production was up 0.7%, but 13% larger than the same week in 2014. The USDA pork carcass cutout value was down 2.6%  this week. Pork bellies continue to rise in seasonal fashion, but the pork butt primal fell 21.9% in a single week and loins were also under pressure. Estimated weekly slaughter of 2.14 million head was up 0.6% from the previous week and 13.5% more than the same week in 2014.

Market Watch

Cattle traders will begin the week reacting to the USDA Cattle on Feed report, which was released on Friday after the market closed. They will also face the USDA Cold Storage report on Monday afternoon. Hog producers get the rare quarterly Hogs & Pigs report on Friday afternoon.  On the grain side, the regular USDA Export Inspections and Crop Progress reports are due on Monday, with weekly Export Sales on Thursday. All of the July grain options expire on Friday. Wednesday is also FND (First Notice Day) for July cotton futures deliveries.

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