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GET ME OUT!

Published on: 21:37PM Jun 24, 2016

Market Watch

June 24, 2016

GET ME OUT!

With the British majority voting to leave the European Union, world markets are adjusting to extreme changes in asset values across many sectors. It looks like now that the Brits will have their cake, they will be eating it too with the Pound hitting a multi-year low after the news broke. The official date of the departure is yet to be determined, but asset managers are clearly placing their bets and moving large amounts of capital around. The “get me out” mentality took many stocks and commodities sharply lower on the day, as uncertainty poses the largest risk. Now there is talk of other countries leaving the EU, with words like “Nexit”, “Frexit”, and even “Italexit” suggesting that this mentality may turn out to be contageous. Of course traders long the grain markets had probably been chanting “get me out” all week, but the sharply higher US Dollar gave the vicious bear yet another meal to end the week sharply lower.  European leaders are holding emergency meetings over the weekend with market volatility widely expected to continue into next week.      

 

Corn futures lost 13.85% in one week.  Last Friday, the July16 contract posted a new high closing price, but a break in the weather forecasts poked a hole in the bull story that kept getting bigger all week.  Old crop corn dropped more than 53 cents week/week, and new crop futures lost 54½ cents, but settled Friday almost 12 cents off their weekly low. New crop export sales reported on Thursday were more than three times the previous week, and the largest of the marketing year thus far.  Ethanol production slipped back 5% from its new record the previous week.  Ethanol stocks were down less than half a percent week/week.  Brazilian farmers received further motivation to plant corn next year with their Minister of Agriculture talking about a higher minimum price.  A Bloomberg survey suggests US corn planted acreage will be 92.8 million acres in the June 30th report which would be 800,000 acres less than the current USDA figure.  The Commitment of Traders report published after the close today showed that as of Tuesday’s close, managed money accounts had already added 28,792 short positions in corn futures and options vs. the previous week, and their net long position was 27,468 contracts smaller than a week earlier.  The Index funds had collectively lightened up their net long position by about 1.44% week/week..

 

Soybeans were also significantly lower, with the July contract losing 56 ½ cents, or about 5.12%. November16 futures were down 69 ¾ cents, but Nov 17 only lost 29 cents. July meal futures were down $31.80/ton, or nearly 8.5% from last Friday. Only a slight reduction in the condition ratings for the national crop on Monday night combined with cooler and wetter forecasts set the soy complex up for a losing week.  Lower corn and a stronger US Dollar after the Brexit combined to help keep the 3 month rally in chill mode after Summer’s official start on Monday.  NOPA crush for May was revised to 152.28 million bushels from the 152.82mbu it had reported last week. Total export commitments as a % of the total projected for the year reached 104% this week, suggesting USDA may still need to increase its estimate. They were 101% for this week last year and 102% for 13/14. China had a net reduction on US export sales of 9,650 MT in the weekly report, and the second week in a row with zero shipments from US. USDA announced a sale to unknown of 411,000 MT on Friday morning.  As of Tuesday, the spec accounts still held a net long position in soybean futures and options of 200,789 contracts, but it is down 4.4% from the peak reported a couple weeks ago. This group actually shows 2,355 less short positions week/week.  Their net long bean meal position had eroded 5.25% from the previous Tuesday, and the Index funds cut their net long by about 3% from the previous week.

 

 

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

06/10/16

06/17/16

06/24/16

Change

% Chg

Jul

Corn

$4.230

$4.378

$3.845

($0.533)

-13.85%

Jul

CBOT Wheat

$4.950

$4.813

$4.548

($0.265)

-5.83%

Jul

KCBT Wheat

$4.685

$4.608

$4.228

($0.380)

-8.99%

Jul

MGEX Wheat

$5.385

$5.398

$5.178

($0.220)

-4.25%

Jul

Soybeans

$11.783

$11.595

$11.030

($0.565)

-5.12%

Jul

Soy Meal

$414.00

$407.40

$375.60

($31.80)

-8.47%

Jul

Soybean Oil

$32.76

$31.93

$30.99

($0.940)

-3.03%

Jun

Live Cattle

$122.450

$116.725

$114.700

($2.025)

-1.77%

Aug

Feeder Cattle

$145.55

$137.43

$139.45

$2.03

1.45%

Jul

Lean Hogs

$85.700

$86.175

$84.050

($2.125)

-2.53%

Jul

Cotton

64.75

64.57

64.50

(0.070)

-0.11%

Jul

Oats

$2.018

$2.083

$2.090

$0.007

0.36%

 

Wheat futures followed corn and beans lower. A sharply higher US Dollar pushed wheat prices even lower on Friday.  July futures were down -8.99% for HRW, -5.83% for SRW and -4.25% for HRS.  Spring wheat condition ratings slipped from the previous week, down 6 points on our Brugler500 Index. Export sales were solid for the current year, but below published trade expectations. Mexico started booking some 17/18 crop already.  Egypt rejected a 33,000 MT cargo of US wheat due to ergot.  US winter wheat harvest is widely reported with good yields and test weights, but lower protein content as would be expected.  CFTC says that as of Tuesday’s close the managed money accounts held net short positions of 63,288 contracts and 3,989 contracts in SRW and HRW respectively.

 

July cotton futures were only slightly lower on the week, losing just 7 points from last Friday despite the US Dollar ending the week on a sharply higher note. December cotton posted a trading range of 280 points during the week and ended it 150 points lower on trendline support and above its 100 week moving average. Cotton condition ratings published at the beginning of the week showed an improvement from a week earlier.  Combined old and new crop export sales for upland cotton in the Thursday morning USDA report were the largest reported since early March.  The USDA pegged the AWP for the upcoming week at 55.48, up 108 points from last week. The LDP/MLG for the week is once again zero.  CFTC says that as of Tuesday’s close, managed money accounts were net long 35,322 contracts, down a net 5,573 contracts vs. a week earlier.

 

Live cattle futures ended the week with the June contract $2.025 lower, however the front month feeder contract was up $2.125 on the week; benefiting from the steep drop in feed costs, despite a surge in the US Dollar to end the week. The cash market was fairly quiet again this week. Live sales reported on Friday averaged $117.72, and dressed sales averaged $186.93. Wholesale prices also struggled with the average price for choice boxes down $7.97 on the week and the select price was down $1.78 from Friday to Friday.  The choice/select spread ended the week at its narrowest level in more than a month. Weekly beef export sales were the largest in more than a month, and beef exports reported this week were the largest of the calendar year. The monthly Cattle on Feed report had the key figures slightly above the average pre-report trade estimates.  COF June 1 were up 2.16% from a year earlier.  May placements were up 9.6% and May marketings were up 4.85% vs. a year ago.  The Cold Storage Report showed smaller beef stocks both month/month and year/year, down 1.41% and 5.88% respectively.  

 

Lean hog futres ended the week $2.125 or 2.53% lower in the July contract. The CME Lean Hog Index was up $1.83 vs. a week earlier. The USDA weighted average carcass cutout value was up $1.57 since last Friday. Weekly pork exports were larger than last week, but below the weekly average for 2016.   Pork production this week was estimated at 446.3 million pounds, slightly lower than both last week and last year. Monthly cold storage data from USDA had pork stocks on May 31 down 6.50% from a year earlier, and down 3.9% vs. April.  The quarterly Hogs and Pigs report showed all hogs and pigs on June 1 were 101.81% of a year earlier, which was slightly higher than the high end of published trade estimates.  Hogs kept for breeding were up 0.89% and market hogs were 1.9% larger than a year ago.  The highest pre-report estimate for market hogs was only looking for a 1% increase. FI slaughter, including Saturday estimates is 2.103 millino head, down 57,000 head vs. last week and down 38,000 head from the same week last year. Per the CFTC, managed money acocunts increasing their net long position from the previous week as of the close on Tuesday. This was the largest net long position reported for this group since April 29, 2014. 

 

Market Watch

 

The markets will begin next week as they ended this week: adjusting to fallout from the “Brexit”. The row crop markets will certainly take another close look at the crop condition ratings published on Monday afternoon.  USDA Grain Inspections will be first though, coming out on Monday morning. On Tuesday at 7:30 AM CDT we find out about 1Q 2016 US GDP, and there is a regular update on Consumer Confidence scheduled for 9:00 AM. The EIA weekly report with provide updated figures for ethanol production and stocks on Wednesday. Weekly export sales are published again on Thursday morning, but after that USDA will give us two critical reports: Quarterly Grain Stocks, and an update to the Planted Acreage figures.  

 

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