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Football Season and Harvest Close at Hand

Published on: 21:43PM Aug 14, 2015

 

Market Watch with Alan Brugler

August 14, 2015

Football Season, Harvest Close At Hand

Yes, I know that it isn’t quite football season yet, but they did play the first series of pre-season NFL games this week and the newspapers in major college towns are running saturation coverage of every position battle and quarterback controversy. We’re getting close. And if football season is close, corn and soybean harvest is just around the corner. The grain markets officially kicked off harvest this week, with prices plunging on Wednesday after USDA did some stalk counts and farmer surveys and found out that not everything was impaired by too much water. We know that the average slippage from the August soybean estimate to final is a little over 1.5 bushels per acre, and there are some prevented planting acres that likely haven’t been deducted yet. Still, these will be big crops just on the acreage and knowing that we need some pre-season discounts is usually helpful. It buys consumption and helps keep ending stocks down. Keep studying your playbook!

Corn futures lost 2.4% this week, all of it on Wednesday following the monthly USDA crop reports. As you know by now, the NASS folks raised projected corn yield by 2 bushels per acre, expecting the second highest national average yield in history. This put projected ending stocks at 1.713 billion bushels when the trade average 2015/16 ending stocks estimate was only 1.427 billion bushels. Domestic use is still strong with ethanol weekly use over 102 million bushels. Weekly ethanol stocks tightened further as use outstripped production. USDA raised projected feed use for 2015/16 in the monthly report. Export growth is challenged by low priced competition. The Friday Commitment of Traders report showed the large spec funds were adding shorts and exiting long positions even on Tuesday, ahead of the USDA report. They trimmed their net long position to only 101,118 contracts as of August 11, down 62,281 contracts in a week.

 

Commodity

 

 

 

Weekly

Weekly

Mon

07/31/15

08/07/15

08/14/15

Change

% Chg

Sept

Corn

$3.710

$3.728

$3.640

($0.087)

-2.40%

Sept

CBOT Wheat

$4.993

$5.105

$5.065

($0.040)

-0.79%

Sept

KCBT Wheat

$4.923

$4.930

$4.898

($0.032)

-0.66%

Sept

MGEX Wheat

$5.235

$5.250

$5.185

($0.065)

-1.25%

Sept

Soybeans

$9.533

$9.755

$9.253

($0.503)

-5.43%

Sept

Soy Meal

$338.700

$344.300

$325.200

($19.10)

-5.87%

Sept

Soybean Oil

$30.100

$30.130

$29.080

($1.050)

-3.61%

Aug

Live Cattle

$145.700

$149.650

$148.450

($1.200)

-0.81%

Aug

Feeder Cattle

$210.73

$214.03

$213.90

($0.13)

-0.06%

Oct

Lean Hogs

$63.725

$64.125

$65.325

$1.200

1.84%

Oct

Cotton

64.010

62.770

67.160

4.390

6.54%

Sept

Oats

$2.413

$2.360

$2.275

($0.085)

-3.74%

 

Wheat futures were oversold enough to react cautiously to the USDA numbers. The USDA numbers saw only modest changes, with projected US ending stocks rising to 850 million bushels as USDA trimmed projected exports. Chicago was down 0.8%, with KC down 0.7% and MPLS down 1.25%. USDA weekly export sales slowed from the previous week. The US is still not competitive into Egypt due to freight costs, but other destinations are in play. The Commitment of Traders report showed the large speculative traders clinging to a small (1,392 contracts for Chicago SRW) net long position going into the Wednesday crop reports.

Soybeans were down 50 1/4 cents for the week, all of it on Wednesday. August beans and meal saw some big swings heading into expiration, and September meal was down $19.10 for the week. The trade average guesses for old crop and new crop ending stocks were 247 million and 322 million bushels respectively. The old crop number was close, with WASDE at 240 million. The new crop figure was way off, at 475 million. USDA trimmed planted acreage by 900,000, but also raised expected yield to the second highest ever at 46.9 bushels per acre.  In a moral victory, USDA was able to tighten projected world stocks so that they are no longer the loosest in history but similar to other big surplus years. The Commitment of Traders report confirmed that the large spec funds still had a very modest net long position of 59,353 contracts as of August 11 and that they had added to it by 8,487 contracts between 8/4 and 8/11. Those tender young bulls likely led the panicky herd on Wednesday in the rush to “get short or get out”. 

October cotton futures shot up 6.5% in a week, rewarding all of those speculative longs. There are typically 3-4 commodities going counter to the trend of the multi-commodity CRB Index due to their own fundamentals. Cotton gets that label, as USDA cut both projected acreage and yield to surprise the market with a production cut of 1.42 million bales. Expected ending stocks dropped to 3.1 million bales. USDA dropped the average world price (AWP) to 46.94 and USDA put the LDP at 5.06 cents through next Thursday. CFTC reported today that the large spec funds were still long 28,147 contracts as of Tuesday night, down from 41,349 the week before. That left a lot of folks on the outside trying to get in when the post USDA report rally started.

 Live cattle futures gave back 0.8% after a nice gain of 2.6% for the previous week. The cycle low appears to be in place, with tighter finished cattle numbers expected in August, September and October. The big question is whether packers can move the product at a high enough price to pay up for the cattle. Pork and chicken supplies are larger than year ago, and exports aren’t bleeding them off.  Weekly beef production was up 1.0% from the previous week and 5.8% smaller than a year ago for the same week. Year to date beef production is down 4.7% on 6.9% fewer cattle slaughtered.  Wholesale beef prices were up 3.5% for the week in the Choice, and up 2.3% for Select 600-900# boxes. Cash cattle trade was slow to develop, with packers dragging their feet in paying the $153 asking prices.  A limited number of head traded at $148.

Lean hog futures were up 1.84%  this week. The CME Lean Hog Index was $78.45, down 63 cents from the previous week. Weekly FI slaughter was 2.218 million head, up 4%% from last week but “only” 8.5% larger than the same week in 2014. Pork production YTD is 7.1% larger than last year at this time, on 7.7% larger slaughter. Average carcass weights continue to come down. Wholesale pork prices pulled back 0.9% from last week, with loins losing 5.3%.

We will have the usual Export Inspections and Crop Progress reports on Monday, and Weekly Export Sales on Thursday. NOPA is also expected to release their monthly crush report on Monday. Livestock traders will see USDA monthly Cattle on Feed and Cold Storage reports on Friday night after the markets close.  September grain options will also expire on Friday, and Stats Canada is scheduled to release a Crop Production report.

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