I See a Rainbow

Published on: 20:58PM Sep 11, 2015


Market Watch with Alan Brugler

September 11, 2015

I See a Rainbow

To see a rainbow in the sky you have to have a) rays of sunshine and b) a cloud raining on somebody. I think that is a pretty good description of the ag commodity markets on Friday. Corn had the rays of sunshine, with declining US and world ending stocks, a lower US average yield and a double digit futures rally. Wheat futures saw the rainbow, but bearish stocks and reductions in US export estimates look pretty cloudy. Soybeans saw the clouds lifting, with USDA reductions in projected US and world ending stocks but couldn’t see the rainbow because an increase in the projected US yield vs. last month was blocking the view. Instead, they stumbled into the canyon called Life of Contract Low before climbing back out. Over in the cattle pit it was raining all day, with sharply lower wholesale beef quotes and cash cattle trade dropping in some places to $139.

Corn futures jumped 6.7% this week, thanks to a set of modestly bullish USDA numbers released on Friday.  USDA cut projected US corn yield to 167.5 bushels/acre from the previous 168.8 bpa estimate. That took production down 101 million bushels from last month. When combined with a 40 million bushel drop in old crop stocks it took projected 2016 ending stocks down to 1.592 billion bushels and raised the average cash price estimate by 10 cents per bushel for the year. Futures quickly adopted the 10 cent higher valuation. A record number of ears per acre was found in the objective yield test plots, but average ear weight dropped from the August report.

Wheat futures were higher in all three classes last week. continued to grind lower in an attempt to buy export market share. Chicago was up 3.7%,  with KC up 2.3% and MPLS gaining 0.31%.  The USDA S&D report on Friday showed only a cut of 25 million bushels in the exports for 2015/16, bumping up the ending stocks by the same amount. Global news was not bullish, with a big jump in EU wheat production. The projected 2015/16 world ending stocks number at 226.56 MMT would be the largest in history.  On a stocks/use ratio, that is the most abundant supply since 2001/02 if realized. The Commitment of Traders report showed the large speculative traders getting more bearish on Chicago SRW, with a net short position of 47,460 as of Tuesday night. They added a net 20,457 bearish positions in the week of 9/1-9/8.      

Soybeans were up 10 1/2 cents for the week in the soon to expire September contract. Heavily traded November set a new life of contract low on Friday but was up a net 8 1/4 for the week. The decline in prices is beginning to buy some additional export sales activity, with total sales last week over 1.7 MMT. With available South American supplies dwindling, China is stepping up US origin purchases for their late fall and wintere shipping slots. USDA left projected Chinese imports for the year UNCH on Friday at 79 MMT. That is up from 77 MMT last year and reflects an opinion that any economic slowdown there won’t impact soy imports. USDA tightened old crop carryover to 210 million bushels on Friday. The official number will come on September 30 in the Grain Stocks report. New crop supplies are seen ample, with carryover at 450 million bushels. Several commentators have pointed out that USDA was in the same vicinity last year at this time and ended at 210 million. The Commitment of Traders report confirmed that the large spec funds are now actively bearish. They added 1,214 new short positions in the week ending 9/8 and were short 92 million bushels on that date. 














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October cotton futures were up 1.6% this week, more than offsetting a loss of 1.08% the previous week. is week.  USDA bumped up projected US production to 13.43 million bales from 13.08 million, deciding that some stressed acreage originally expected to be abandoned would instead be harvested. Average yield was cut slightly to reflect the inclusion of these lower producing acres. With the increased supply (and a lower average cash price estimate) WASDE was able to increase projected exports by 200,000 bales and limit the expected increase in carryover to only 100,000 bales at 3.2 million.  World cotton stocks are expected to remain burdensome at 106.26 million bales. That would be down 4.2% from the revised 2014/15 ending stocks figure, but was up from 105.19 million in the August report.  Brazilian and Pakistani production were cut, but the US was increased and global consumption was revised downward.

Live cattle futures eked out a 12 cents gain for the week despite triple digit losses on Friday. Choice boxed beef was down $3.98/cwt (1.7%) for the week, with Select product down 0.7%. Choice beef was down nearly $3 per hundred pounds on Friday. Weekly US beef production was down 9.7% from the previous week and 13.1% smaller than a year ago for the same week due to timing of the Labor Day holiday. Year to date beef production is down 4.5% on 6.8% fewer cattle slaughtered.  The WASDE report showed projected total beef production for 2015 shrinking about 0.89% from August, but the figure for 2016 production was up 0.3% month/month.

Lean hog futures were down 2.7% this week after gaining almost 4% last week. The CME Lean Hog Index was $73.08, down $3.31 from the previous week. The basis weakened from $7.24V last week to $5.725V this week. Weekly FI slaughter was estimated at 2.040 million head, down 15.4% from last week due to the holiday. Pork production YTD is 7.3% larger than last year at this time, on 8.0% larger slaughter. Average carcass weights are 3# below year ago. Wholesale pork prices were down 0.76% for the week. The WASDE report made a slight reduction to its 2015 pork production estimate, but left 2016 unchanged from the August figure.   

Market Watch

We’re 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. The September grain futures contracts all expire on Monday. Cotton traders will be dealing with any surprise futures positions following expiration of the October cotton options on the 11th.  The NOPA crush report is scheduled for release on Tuesday, with the monthly USDA Cattle on Feed report due out on Friday afternoon. The elephant in the room is the FOMC meeting on Wednesday and Thursday, with any interest rate hike expected to be announced on Thursday afternoon. It SHOULD already be be built into prices after months of discussion, but there is always the possiblility of a tantrum from the easy money crowd.

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