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Dollar Dilema

Published on: 20:42PM Nov 27, 2015

 

Market Watch with Alan Brugler

November 27, 2015

Dollar Dilema

With the Northern Hemisphere crops tucked away, and the Southern Hemisphere still in vegetative growth, the market focus tends to lean heavily on export sales and domestic consumption data for direction. This (exports) is also the area where the competitive devaluation trade war is being fought. Relatively weak currencies tend to make for cheaper products in buyer currency terms. If it were all that simple, the US ag producer would be in a heap of trouble. The Fed looks likely to increase interest rates in December (often accompanied by a stronger dollar) while the EU looks to add more QE type weakening and Argentina needs to devalue the official peso to get it closer to the “real” black market value. One would assume therefore a stronger dollar and concrete overshoes for exports.

We would argue that there are other considerations. The above inputs have been well advertised, and should already be reflected in current exchange rates. If anything the dollar could be vulnerable to a “buy the rumor, sell the fact” reaction if the FOMC actually acts. The market also tends to trade technically.  The dollar index futures are in overbought territory, and testing the high from April at 100.380.  This is a classic “potential” stopping point, particularly if year end profit taking starts to take a toll. However, the main weekly chart resistance is up at 102.005, the 61.8% Fib retracement.

Corn futures took a beating on Friday, and were down 4 cents for the week. It was a combination of absent traders and ‘buy the rumor, sell the fact’ trade mentality. December corn has closed lower on the Friday after Thanksgiving in 60% of the years since 1980, and for the past 6 years in a row. The weekly USDA Export Sales report showed the largest corn sales of the year at corn bookings of 2.564 MMT(101 million bushels) during the week ending Nov 19. This included 528,500 MT for 2016/17. World stocks outside of the US and China are tightening significantly this year, so we do expect some strong export sales weeks. Next week likely won’t be one of them, due to Thanksgiving. The weekly EIA report on Wednesday morning showed that ethanol production reached a record level of 1.008 million barrels per day during the week ending 11/20. That reflects corn and sorghum use of about 105 million bushels for the week. Ethanol stocks increased by 400,000 barrels to 19.6 million barrels, the largest stockpile since the week ending July 24.

Wheat futures were higher in MPLS last week, but lower in the other two classes. The big run in the CHI/MPLS spread was unwound, with MPLS now at a 50 cent premium to nearby Chicago SRW futures. For the week ending Nov19,  USDA reported 325,700 MT of net export sales. This was 28% below the 4 week average. Source indicate that Russian wheat contracted for delivery to Turkey is again being issued the necessary documents after a suspension tied to the loss of a Russian bomber along the Turkish border.  If Russia actually halted those exports, Turkey would have to either buy lower quality wheat from other Black Sea origins, or pay up for US/Canadian/EU wheat.

Soybeans were up 15 1/2 cents for the week, or 1.8%. The USDA reported in its weekly Export Sales report that 1.178 MMT of US beans were sold to foreign importers during the week ending November 19. Old crop bookings were off 35% from the previous week. Soybean meal export sales were up 14% at 254,900 MT and soy oil net bookings totaled 12,800 MT. US soybean export commitments YTD are 69% of the full year export forecast. The 5 year average pace for this date would be 75%.

October cotton futures were up 4.1% this week. The USDA reported export sales of 313,100 RB during the week ending Nov 19, including 7,500 RB of Pima. Upland sales of 305,600 RB were the largest since the week ending October 1, and increased by 53% from the week before. The YTD export sales commitments (shipped and outstanding) are 45% of the full year forecast. They would typically be 74% by now. USDA showed that the average world price was almost UNCH for the week, bumping it up 1 point and lowering the LDP for this week to 5.11 cents per pound from 5.12 cents the previous week.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

11/13/15

11/20/15

11/27/15

Change

% Chg

Dec

Corn

$3.583

$3.633

$3.593

($0.040)

-1.11%

Dec

CBOT Wheat

$4.958

$4.885

$4.658

($0.228)

-4.88%

Dec

KCBT Wheat

$4.655

$4.570

$4.500

($0.070)

-1.56%

Dec

MGEX Wheat

$5.04

$5.10

$5.15

$0.050

0.97%

Jan

Soybeans

$8.590

$8.575

$8.730

$0.155

1.78%

Dec

Soy Meal

$288.80

$283.00

$282.40

($0.60)

-0.21%

Dec

Soybean Oil

$27.04

$27.90

$28.75

$0.850

2.96%

Dec

Live Cattle

$130.675

$129.700

$131.825

$2.125

1.61%

Jan

Feeder Cattle

$164.55

$163.65

$166.03

$2.38

1.43%

Dec

Lean Hogs

$54.800

$57.450

$58.725

$1.275

2.17%

Dec

Cotton

61.68

60.04

62.63

2.590

4.14%

Dec

Oats

$2.315

$2.510

$2.328

($0.183)

-7.84%

 

Live cattle futures were up 1.6% for the week. Feeders didn’t quite keep up, with a 1.4% advance. . In its weekly Export Sales report on Friday morning, the USDA announced export sales of only 8,700 MT of US beef through last Thursday. The 2015 total was 10,200 MT, but HK and Taiwan cancelled 1,700 MT for 2016. Weekly US beef production was down 19.2% from the previous week and 4.4% smaller than a year ago for the same week. The Thanksgiving holiday limited slaughter this week. Year to date beef production is down 3.1% on 5.5% fewer cattle slaughtered. We were running 6.8% light on slaughter for the year on Labor Day, so numbers have clearly picked up relative to year ago. Cash cattle trade was limited as of late Friday morning, with packers offering $124 and not getting takers. Northern bids were $195 while asking prices were close to $200.

Lean hog futures were up 2.2% for the week for a two week gain of $3.92/cwt. According to the USDA Export Sales report, 10,600 MTs of US pork was booked on the export market during the week ending 11/19. Export shipments were a solid 20,000 MT. This is a partial measure of US pork export business, focusing on muscle cuts. China was in the market, shipping 1,200 MT and buying 1,400 MT for 2016. The CME Lean Hog Index was $55.64. The national average basis was thus $3.08Z. Weekly FI slaughter was estimated at 2.129 million head, down 10.8% due to Thanksgiving. Weekly pork production was still up 6.3% from the same week in 2014. Pork production YTD is 7.1% larger than last year at this time, on 7.90% larger slaughter.

Market Watch

We’ll be back to a normal 5 day trading week this week, if any week in the commodity world is normal. That means the usual USDA Export Inspections and Crop Progress reports will be out on Monday, with weekly Export Sales on Thursday. Monday will mark first notice day for December grain futures deliveries. As the last trading day of the month it is also subject to the usual asset allocation adjustment trades where firms sell their winners and buy more losers.  December live cattle options will expire on Friday.

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