Hyper Focused On the Dollar

Published on: 20:00PM Jun 05, 2015

 Brugler

Market Watch with Alan Brugler

June 5, 2015

Hyper Focused on the Dollar

It’s the middle, or at least the third inning, of the US growing season. We typically would be focused with laser like intensity on weather patterns and yield prospects, with a sideways glance at the Grain Stocks and Planted Acreage estimates coming on June 30. The latter have typically been followed by large price swings in grain futures. This year, it seems like the focus has been heavily on the US dollar, with commodities swinging somewhat predictably to the moves in the buck. This seems overdone, with 1/4% moves in the dollar associated with 2-3% swings in some commodity prices.

It seems to me that this single minded focus on the dollar is a function of two investment themes. 1) The US has surpluses of corn, beans, wheat, cotton, beef and pork at the moment. That has not been the case for several years, and the market wants to get rid of that inventory. Thus, a more intense focus on exports as a way to move product. A weak dollar makes that sale easier to countries which float their currency, while a strong dollar forces up the cost in yen, euro, won terms and threatens to reduce sales. 2) Trading volumes and open interest are down. Commodities are an asset class competing for funds with bonds, equities, real estate and foreign opportunities. When the money comes into the ag commodities, it moves the price, and likewise when it flees to another asset class. The dollar is wrapped up in interest rates and debt default issues, which in turn are related to bonds, equities and bond prices.  It will likely take a large fundamental news event (which threatens to shake up the stocks/use ratios and associated price forecasts) to totally shake this currency focus.

Corn was up 2.5% this week, more than erasing the loss from the previous week. Slower corn planting progress was supportive, with more than 3 million acres remaining to be planted as of last Sunday. Yields are typically lower for late planted corn. Higher wheat prices also boosted the feed grains overall. Corn export sales commitments still lag the average pace (90% of the WASDE forecast vs. the average of 97% for this date) after an “as expected” showing again this week. Sorghum sales to China continue strong, with another 206,500 MT shipped there last week. Weekly ethanol stocks were UNCH from the previous week, while daily production rose. Total losses from the H5N2 avian flu outbreak now total over 46 million turkeys and layer hens. Those operations are expected to be vacant for a minimum of three months and in some cases longer. At some point USDA will have to show 40-50 mbu of reduced feed use, but may choose to wait for the Grain Stocks data to better quantify it.

Wheat futures were sharply higher at all three exchanges, more than erasing big losses from the previous week in CHI and MPLS.  July KC HRW futures were up 7.8% after being down a huge 9.6% the previous week. The marketing year for old crop wheat is wrapping up on May 31st.  Export sales commitments are only 93% of the USDA full year estimate of 860 million bushels. It looks like we are falling short, but don’t forget that the official figures are from Census, and often larger than those shown in the Export Inspections or Export Sales reports  The shortfall may not be as large as it appears from the FAS data.

Soybeans gained 3 1/2 cents per bushel this week in the July contract. That came despite an 8 cent loss on Friday. Soybean export sales commitments continue to run comfortably above the level needed to meet the USDA forecast for the year.  They are typically 100% by now, but this year are at 104% of the full year estimate.  Outstanding (unshipped) soybean meal sales are still 82% larger than 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.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

05/22/15

05/29/15

06/05/15

Change

% Chg

July

Corn

$3.600

$3.515

$3.605

$0.090

2.50%

July

CBOT Wheat

$5.153

$4.770

$5.238

$0.468

8.93%

July

KCBT Wheat

$5.465

$4.988

$5.413

$0.425

7.85%

July

MGEX Wheat

$5.688

$5.308

$5.715

$0.408

7.13%

July

Soybeans

$9.243

$9.340

$9.375

$0.035

0.37%

July

Soy Meal

$304.200

$305.700

$305.200

($0.50)

-0.16%

July

Soybean Oil

$31.640

$33.330

$34.800

$1.470

4.22%

June

Live Cattle

$152.125

$152.325

$152.900

$0.575

0.38%

Aug

Feeder Cattle

$219.00

$222.95

$221.55

($1.400)

-0.63%

June

Lean Hogs

$83.725

$83.825

$81.750

($2.075)

-2.54%

July

Cotton

63.300

64.350

64.010

(0.340)

-0.53%

July

Oats

$2.425

$2.340

$2.540

$0.200

7.87%

 

Soybeans gained 3 1/2 cents per bushel this week in the July contract. That came despite an 8 cent loss on Friday. Soybean export sales commitments continue to run comfortably above the level needed to meet the USDA forecast for the year.  They are typically 100% by now, but this year are at 104% of the full year estimate.  Outstanding (unshipped) soybean meal sales are still 82% larger than 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.

 Live cattle futures continue to be choppy, but posted a new gain of 57 cents for the week in the nearby June contract. Weekly beef production was down 8.6% from the same week in 2014. Beef production YTD is still down 4.8% from last year. Slaughter has been down 7.1%, with higher weights making up the difference. Futures continue to trade well below the cash market, anticipating a decline. Cash cattle trade was limited through Friday afternoon. Packers were facing declining wholesale prices and putting up $154 bids, while asking prices were as high as $162. Wholesale beef prices backed off of record highs, with Choice down 4.2% and Select down 2.5% on a Thursday/Thursday basis.  The Friday afternoon Commitment of Traders report shows the large spec funds were still adding to cattle futures longs as of Tuesday, up 2,101 contracts for the reporting week.

Lean hog futures were down a sharp 2.5% this week. Carcass weights are now an estimated 2# below year ago. Pork production YTD is up 5.7% from last year at this point. Weekly pork production was up 14.4%  from the holiday reduced previous week. It was up a huge 9.0%  from the same week in 2014. The USDA pork carcass cutout value was down 1.43%  this week.  Hams primals were down 8% for the week, while bellies started to show seasonal improvement with a 5.8% gain. Monthly export data from April (just released) was bullish at 483.362 million pounds. Those were the largest monthly pork exports since October 2012.

July Cotton was down 0.53% for the week. The US dollar rallied sharply on Fridya, but was still down on the week. USDA showed in its weekly report that US cotton export sales last week totaled 160,200 RB with 53,600 RB of the total slated for delivery in the new crop marketing year.  China was in the old crop market for 11,500 RB.  Pima sales were just 1,200 RB this week. USDA put the AWP for this week at 50.86 and the LDP at 1.14 cents.

Market Watch

The main USDA reports for the week will be Crop Production and WASDE Supply/Demand, both of them on Wednesday morning (noon EDT). The trade is expecting only limited adjustments to the US balance sheets. Cattle traders will begin the week reacting to any surprise futures positions inherited upon the June 5 options expiration.  USDA will release the usual Export Inspections and Crop Progress reports on Monday, with weekly Export Sales on Thursday.  June hog futures and options will expire on Friday, as will July cotton options.

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