Not Off of Dead Center

Published on: 23:08PM Feb 08, 2019

Market Watch with Alan Brugler

February 8, 2019


A lot of the price charts for the grains were either in well defined channels or triangle formations this week. They were comfortable with what they knew but set up to break out larger price ranges on any surprises from the USDA reports on Friday. The USDA reports did not disappoint in terms of surprises (see the individual commentaries) but the markets acted more like a typical February report day than one with a stack of January and quarterly numbers.  They may be just a little cash starved, with the equity markets rallying enough to keep the hot money flowing that direction rather than into commodities. They are also a little one dimensional right now, focused excessively on the China trade situation and not getting much fresh info. The US is expected to send another team to China for further talks, but things are not far enough along to involve the two Presidents.

Corn futures were in for another round of losses this week, with March down 4 cents per bushel. The weekly EIA report showed production at 967,000 barrels per day in the week of February 1, which was down 45,000 bpd from the previous week. That was the lowest production (and implied corn use) since the week of October 6, 2017. Ethanol stocks did drop, but only by 33,000 barrels to 23.947 million barrels, The USDA reports on Friday were somewhat bull friendly, with USDA cutting final US yield by 2.5 bushels per acre and cutting projected ending stocks to 1.735 billion bushels. December 1 corn stocks were lower than the trade average guess, but USDA cut projected feed & residual use sharply because of what was still sitting there. Thus, the ending stocks figure was about 15 mbu higher than a representative trade average guess.













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Wheat futures were lower in all three flavors. The Arctic cold temps didn’t phase the bears, and neither did USDA’s winter wheat acreage estimate of 31.29 million. That was down 4% from last year, but not enough to reverse momentum from a double digit sell off on Thursday. The WASDE report did show projected ending stocks rising to 1.01 billion bushels.  USDA cut projected feed use to only 80 mbu based on the Dec 1 Grain Stocks total (and plenty of competition from corn and milo). Thanks to cheaper ocean freight rates, Cargill was successful in selling some US SRW to Egypt on Friday.  USDA left their full year wheat export forecast unchanged in anticipation of further such export business.

Soybean futures were down a modest 3 ¼ cents for the week. Soybean meal was down $5.70/ton or a sharp 1.8% this week.  Soy oil limited the damage to bean values with a 3.3% rally. Traders were exploring the idea that China would need to import more veg oils if domestic crush continues to be slow because of poor meal demand. The most bullish thing USDA did in the Friday reports was cut projected world soybean ending stocks back to 106.72 MMT from their 115.33 MMT number in December. A 5 MMT drop in Brazilian production was as expected, and a cut in Chinese imports by 2 MMT was not much of a surprise. The US ending stocks forecast was cut to a still considerable 910 million bushels courtesy of a 0.5 bpa drop in final soybean yield and a 200,000 acre reduction in harvested acres.  The Commitment of Traders report for the week ending Jan 8 showed the spec funds reducing their net short by 16,916 contracts for the week, leaving them net short 1,220 contracts.

Cotton futures were down almost 1.5% this week, with most of the losses coming on Monday and Thursday. The delayed Export Sales report on Thursday did show some increased Chinese purchase interest back at the end of December, but that was old news. The WASDE and Crop Production reports on Friday cut estimated US cotton yield to 838 pounds/acre from 860 in November and 905 last year. A couple hurricanes and some issues in Texas can do that! NASS hiked harvested acres, however, and production was only reduced 200,000 stat bales. They cut domestic use 100,000 bales, so ending stocks tightened from 4.4 million to 4.3 million. The cash price midpoint was dropped to 72 cents. The CFTC reports are still not up to current date, but the one released on Friday showed data through January 8 and indicated that the large spec funds had flipped their position from net long to net short 10,536 contracts.

Live cattle futures were up 1.5% this week, the second best ag performance. Cash cattle traded at $125 on Friday, up $1 from the previous week. There were also northern trades at $200.  Feeder cattle futures were up 1.1% for the week. The CME feeder cattle index was $141.69, down 17 cents for the week. Wholesale beef prices were mixed this week, with choice boxes up $1.09 or 0.5% while Select 600-900# carcass values were down $1.98 or 0.9%. The weekly beef production was up 3.7% from the previous week and 5.1% above the same week in 2018. Beef production YTD is down 1.2% on 1.5% smaller slaughter. Implied carcass weights would thus be a little heavier than last year, running counter to the narrative that muddy lots and winter storms have trimmed weights. There is some of that, but it must not be national in scope.

Lean hog futures posted another round of sharp losses, down 2.3% this week. The February futures contract is now discount to cash. That is a tremendous help for hedgers, who had been facing a $6 basis a few weeks ago. The CME Lean Hog index was $56.89 on Friday, down 51 cents from the previous week. The pork carcass cutout value lost $2.17 per cwt this week, or 3.2%. It is already cheaper than any year since the PED outbreak, but seems to be following the seasonal lower. The picnics and hams took a turn as the weak links. Pork production this week was up 5.4% from the previous week and 5.3 larger than the same week in 2018. Packers were trying to catch up after losing some through put to the weather the previous week. Pork production for the year to date is up 1.5% from last year on 1.8% more slaughter. Yes, that means average carcass weights might be a little lighter.

Market Watch

We start off with the Export Inspections report on Monday morning. Wednesday will show weekly EIA report, with November export data finally reported by Census. The Export Sales report will be released on Thursday (also Valentine’s Day), showing data for the first week of January.  Thursday will also mark the expiration of the Feb live hog futures contract.  NOPA crush is scheduled for release on Friday.

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