Once In a Blue Moon

Published on: 20:43PM Jul 31, 2015

 

Market Watch with Alan Brugler

July 31, 2015

Once In A Blue Moon

Gold had its biggest monthly drop in 2 years during July. KC wheat was down 17% for the month. The 24 commodity CRB Index hit the lowest reading since July 2009.  The US dollar index was up 1.7% for the month, while the CRB was down about 7%. Thus, it wasn’t just the same old dollar strength argument that killed commodities. Rather, it was a more fundamental drop in commodity prices due to surplus production and sluggish world growth. China got some of the blame, but the US, EU and other major players also have GDP growth well below their targets. A  “once in a blue moon” event is a very rare event. This kind of decline, without much of a shove from the currency valuation has to be seen as a blue moon kind of event. That doesn’t mean it is over. The CRB dropped 39% from June 30,2008 to December 31 of the same year. This drop is down 21% since April 2014.

Corn futures lost 5.8% this week, on top of a 7% decline the previous week. Drier weather in the ECB and rains in the upper Midwest were both seen as likely to improve yield prospects. Plunging wheat prices didn’t encourage the spec bulls to hold onto corn, but wheat is still not cheap enough to feed in quantity. The corn demand side weakened a bit, with ethanol production down and weekly export sales dropping to 808,200 MT.  Old crop total export commitments have hit 100% of the recently increased USDA forecast for the full marketing year. They would typically be 104% by this date. Ethanol stocks were up slightly at 19.648 million barrels. Corn use for ethanol production is still running over 100 million bushels per week. The Friday Commitment of Traders report showed the large spec funds liquidated -36,864 contracts from their big spec long position, leaving them net long 242,801 contracts as of July 28. It is not the specs who are pushing this market lower.  

 

Commodity

 

 

 

Weekly

Weekly

Mon

07/17/15

07/24/15

07/31/15

Change

% Chg

Sept

Corn

$4.203

$3.925

$3.710

($0.215)

-5.80%

Sept

CBOT Wheat

$5.540

$5.118

$4.993

($0.125)

-2.50%

Sept

KCBT Wheat

$5.465

$5.073

$4.923

($0.150)

-3.05%

Sept

MGEX Wheat

$5.748

$5.450

$5.235

($0.215)

-4.11%

Aug

Soybeans

$10.148

$9.913

$9.808

($0.105)

-1.07%

Aug

Soy Meal

$361.100

$354.800

$354.600

($0.20)

-0.06%

Aug

Soybean Oil

$31.780

$30.480

$29.980

($0.500)

-1.67%

Aug

Live Cattle

$146.650

$143.025

$145.700

$2.675

1.84%

Aug

Feeder Cattle

$215.20

$209.68

$210.73

$1.05

0.50%

Aug

Lean Hogs

$75.675

$77.675

$78.500

$0.825

1.05%

Oct

Cotton

65.870

65.840

64.010

(1.830)

-2.86%

Sept

Oats

$2.503

$2.288

$2.413

$0.125

5.18%

 

Wheat futures continued their impression of a rock dropped in a deep pond. MPLS was the weakest with a 4.1% loss as the Wheat Quality Tour released the highest estimated spring wheat yield since they began keeping records in the early 1990’s.  KC was down because of substitution with spring wheat. Chicago was down because spring wheat can be railed into Chicago and delivered against the Chicago SRW contract. USDA reported a total of 700,400 MT was booked during the week ending July 23, including a small sale of 15/16 wheat to Italy.  This was better than trade ideas for 350,000 to 620,000 MT.  Total export commitments are 7.731 MMT (284 million bushels) but 21% smaller than they were a year ago. They are 30% of the full year WASDE forecast but would typically be 36% by now.  The big year/year increase in exports foreseen by USDA isn’t happening, at least not yet.  The International Grains Council in London trimmed its global wheat production estimate by 1 MMT, blaming unfavorable growing conditions in Canada and the EU.

Soybeans were down 10 cents per bushel for the week in nearby August. Nearby meal futures were well supported with a 0.06% drop, but soy oil lost 1.7%. A strong old crop weekly sales number of 416,700 MT got the bulls going on Thursday, but on Friday China cancelled a big chunk of old crop and killed the momentum. US old crop commitments now total 103% of the increased full year forecast. They would typically be 104%. Meal bookings match the average rate at 99% of the full year forecast. The backlog of unshipped old crop meal exports continues to shrink but is still 699,000 MT larger than last year. The Commitment of Traders report confirmed that the large spec funds still had a very modest net long position of 62,295 contracts as of July 28 and that they had reduced it by 27,924 contracts between 7/21 and 7/28.

October cotton futures dropped 2.9%. USDA reported combined old and new crop cotton export sales at 99,200 RB. Shipments were 168,500 RB, helping accumulated exports get to 100% of the total projected for the year. US export commitments (previous ships plus outstanding sales) are 107% of the full year USDA number, but would typically be 109%.  That said, shipments are at 100% with a week remaining,  so USDA raises exports if they do anything.  There will just be a smaller beginning total for 2015/16. USDA dropped the average world price (AWP) to 49.54 and increased the LDP for this week to 2.46 cents vs. 1.98 cents last week.

 Live cattle futures posted a nice gain of 1.8% for the week.  Feeders were up 0.5% with the weaker corn market but leery of a reversal. The Cattle Inventory report also showed more feeder cattle out there than had been previously assumed.  Weekly beef production was down 1.2% from the previous week and 6.3% smaller than a year ago for the same week. Year to date beef production is down 4.7% on 6.9% fewer cattle slaughtered.  Wholesale beef prices were up 1.1% for the week in the Choice, and up 0.5% for Select 600-900# boxes. Cash cattle trade was firm on Friday, with $148 trading in the north.

Lean hog futures were up 1.05% after a 2.6% gain for previous week. The CME Lean Hog Index was $78.51, down 42 cents from the previous Friday. More significantly, with the August dropping to $78.50 cents on Friday the basis narrowed to only 1 cent. Weekly FI slaughter was 2.137 million head, up 1.7% from last week but a huge 14.3% larger than the same week in 2014. Pork production YTD is now 7.1% larger than last year at this time, on 7.5% larger slaughter. Yes, average carcass weights are running below year ago. Wholesale pork prices firmed another 3.3% this week, on top of a 2.7% gain the previous week. They were up 7.4% for the month of July. The Ham and pork belly primals led the gains for the week.

Market Watch

We turn the calendar to August, when soybean yields are typically “made” or “lost”. The report line up is pretty quiet, with the usual Export Inspections and Crop Progress reports on Monday, and Weekly Export Sales on Thursday.  The August cattle options will expire on Friday.  The main game for the week will be the private analysts guesstimating the USDA NASS crop production numbers to be released on August 12. Doane has already weighed in with 1 13.204 billion bushel corn figure and 3.675 billion bushels of beans. The Bloomberg survey is expected on August 5.

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