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Hansel and Gretel (Condensed Version)

Published on: 20:54PM Apr 24, 2015

 Brugler

Market Watch with Alan Brugler

April 24, 2015

Hansel and Gretel (Condensed Version)

In the German fairy tale, Hansel and Gretel are hungry and lost in the woods before finding a witch’s house made of cake and candy. They eat some of it, and are lured inside by the wicked witch with promises of more goodies. The witch’s intent is to fatten them and eat them. In the end they outwit the witch and escape with not only their lives but her treasure. For some reason, this week’s market activity reminded me of the fairy tale. You have the producers, hungry for higher prices after months of doing without. The candy house is the alluring rallies we saw in soybeans, wheat and cattle, with producing eating up the bull talk and being lured inside. Now they have discovered the reality of the situation. The witch, of course, is surplus global production of a wide variety of commodities. High cost producers will be eaten if the surplus remains and continues to pressure prices. The story isn’t over yet. Will the producers be able to trick the witch and escape with the treasure? In the fairy tale, the witch  is burned up. In another famous tale, she melts when hit with water. Sounds like a weather market is needed! It will be a while until we know whether Mother Nature has agreed to star as Gretel and take out the witch.

Corn dropped a sharp 4.2% for the week. Weekly export sales were larger than the trade expected, at 874,100 MT.  Planting progress was slower than some had expected, at 9%, but more rapid progress is expected over the next two weeks with drier weather for much of the country. Ethanol stocks rose to 21.342 million barrels, a 7 week high which was aggravated by the largest weekly imports since August 2013. Some traders were also lowering their corn feed use estimates due to poultry flock liquidations because of the H5N2 avian flu outbreak.  At this point, losses are conjecture until it is known how long the buildings will be left empty.

Wheat was rallying all week, until Friday came along. Double digit losses on Friday resulted in new life of contract lows for KC contracts. KC May was down 1.2% for the week, with Chicago down 1.6%. MPLS remained in plus territory with a 1/4 cent gain.  The Brugler500 Index for all winter wheat was UNCH from the previous week, with improvement in SRW offset by further deterioration in HRW. Traders still expect USDA to show improved HRW ratings on Monday, due to recent rains in the main HRW states. Combined old and new crop US export sales were much better than the previous week at 524,200 MT, but export commitments are still only 99% of the USDA forecast (which was reduced to 880 million bushels). They would typically be 102% by now, with 6 weeks remaining in the marketing year.

Soybeans gained 1 cent this week in nearby May. Total sales last week were only 110,200 MT, vs. 538,800 MT the previous week.  The market got a little bullish bounce going on potential shipping disruptions in Brazil caused by road blockages. However, the port operators say they have several weeks of beans in inventory to ship. US export sales commitments are 100% of the full year forecast, slightly ahead of the 98% average for this date. Soybean meal export sales are 86% of the full year USDA estimate, matching the 86% average for this date. Shipments are still lagging, however, with outstanding sales of 2.945 MMT, and 191% of last year at this time.

 

Commodity

 

 

 

Weekly

Weekly

Month

04/10/15

04/17/15

04/24/15

Change

% Chg

May

Corn

$3.77

$3.80

$3.65

($0.153)

-4.18%

May

CBOT Wheat

$5.27

$4.95

$4.86

($0.085)

-1.75%

May

KCBT Wheat

$5.59

$5.09

$5.02

($0.070)

-1.39%

May

MGEX Wheat

$5.81

$5.33

$5.35

$0.025

0.42%

May

Soybeans

$9.52

$9.69

$9.70

$0.010

0.10%

May

Soy Meal

$309.20

$315.00

$314.60

($0.400)

-0.13%

May

Soybean Oil

$31.09

$31.52

$31.67

$0.150

0.47%

Apr

Live Cattle

$158.80

$157.80

$161.18

$3.375

2.09%

Apr

Feeder Cattle

$212.45

$213.00

$214.85

$1.850

0.86%

May

Lean Hogs

$71.78

$70.53

$71.95

$1.425

1.98%

May

Cotton

65.06

63.29

66.50

3.210

4.83%

May

Oats

$2.67

$2.63

$2.42

($0.210)

-8.70%

Soybeans gained 1 cent this week in nearby May. Total sales last week were only 110,200 MT, vs. 538,800 MT the previous week.  The market got a little bullish bounce going on potential shipping disruptions in Brazil caused by road blockages. However, the port operators say they have several weeks of beans in inventory to ship. US export sales commitments are 100% of the full year forecast, slightly ahead of the 98% average for this date. Soybean meal export sales are 86% of the full year USDA estimate, matching the 86% average for this date. Shipments are still lagging, however, with outstanding sales of 2.945 MMT, and 191% of last year at this time.

Live cattle futures were up 2.1% for the week, and April was up $1.87 on Friday instead of limit down as it had been the previous Friday. Weekly beef production was up 2.0% from the previous week but down 5.1% from the same week in 2014. Beef production YTD is still down 5.3% from last year. Wholesale prices were lower, with Choice boxes down 0.3% for the week, while losing 1.3% in the Select. The USDA Cattle on Feed report showed larger than expected March placements at 100.44% of year ago. Coupled with marketings at 98.25% of year ago, that left April 1 On Feed numbers at 10.797 million head vs. 10.792 million head a year ago.  This is for 1000 capacity feedlots, which produce the bulk of US fed beef.

Lean hog futures were up 2% for the week. Pork production YTD is up 5.8% from last year at this point. A week ago it was only 5.6%. Weekly slaughter was down 2.6% from the previous week, a welcome slow down. However, it was up 9.7%  from the previous year. As hog weights have dropped about 3# from last year, weekly pork production was 2.5% smaller. Weekly pork export sales reported by the USDA were 22,600 MT. The USDA pork carcass cutout value was up 2.87% for the week.  The smaller weekly slaughter was supportive, along with a Cold Storage report showing pork stocks down 3% from the previous month. Hams were up a stout 8.8% for the week.  The weaker dollar also suggested better pork export sales activity to come.

Cotton was up a huge 4.8% for the week, with a big rally on Thursday as the US dollar index broke support and USDA reported larger than expected export sales. Certified stocks for April 15 are 72,131 bales with 1,933 new certs. Stocks were building ahead of May futures deliveries, with FND on April 24. USDA set the AWP for April 24-30 at 48.56, bumping up the LDP/MLG for this week to 3.44 cents from 1.69 cents last week.

Market Watch

Cattle traders will begin the week digesting the fall out from the Friday night Cattle on Feed report, with intial calls lower for Monday.  Grain traders will have fall out of their own, with some inheriting “surprise” futures positions from the expiration of the May grain options on Friday. With the price drops on Friday, some call options dropped out of the money, but lower valued puts were exercised into short futures. USDA will issue the regular Export Inspections and Crop Progress reports on Monday, with Export Sales on Thursday. The FOMC (Fed)  is scheduled to meet on Tuesday and Wednesday.  Thursday will see USDA weekly Export Sales, as well as expiration of the April Live Cattle and Feeder Cattle contracts. It will also be first notice day for May grain futures deliveries.

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There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.

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