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Riding The Roller Coaster

Published on: 20:43PM Jul 08, 2016

 

Market Watch with Alan Brugler

July 8, 2016

Riding the Roller Coaster

Some people love riding roller coasters for the thrills, and the abrupt swings from peaks to valleys. They find it exhilarating. Other folks abhor roller coasters because the abrupt swings can make you side to your stomach, and at the end of the ride you are right about where you started.  Sounds like the soybean market to me, except that the ride must not be over.  The daily trading ranges in November soybeans this week were 46 cents, 41 cents, 64 cents and 38 cents going from Tuesday to Friday. That That 64 cent day was a value change of $3200 per 5000 bushels during the course of the Globex session, which of course began the night before. The net changes for those four days were -$.6025, -$.01, -$.53 and finally .34 on Friday as the bears cashed out for the weekend. If you were fully hedged, your financial position overall got a little better because basis strengthened. If you don’t hedge, the volatility is enough to push you to open an account, to start drinking, or both! This is a market that has bought all the US acres it can, and is trying to figure out if that was enough. There is always that kid that asks “Can we go again, Daddy?”

Corn futures lost 0.9% this week after dropping 8.9% the prevous week and 13.8% the week before that. The bearish momentum appears to have run its course, which is not the same as saying that corn has to rally. Daily average ethanol production slowed, and ethanol stocks rose about 400,000 barrels with ethanol futures 20 cents over gasoline. That is not a prescription for growth in industrial corn use. That said, ethanol exports are now 400.7 mgal for Jan-May, about 142 million bushels of corn exported in liquid form.  YTD DDG exports have hit the 4.4 MMT mark.  USDA weekly Export Sales for the week ending June 30 were only 813,000 MT, below trade estimates in the 900,000 category.  The Friday Commitment of Traders report showed the spec funds exiting 71,623 contracts (net) of their long position through July 5. They were still net long 103,103 contracts of futures and options at that time.

Nearby July soybeans were down 7.25% for the week, a whopping 79 cent decline. Product values were also down, with meal losing 6.9% and soy oil dropping 2.5%.  Old crop weekly export sales were impressive at 637,300 MT. That is larger than usual for the end of June. Brazil’s CONAB cut projected production there to 95.57 MMT, but that wasn’t enough to offset the damage done by confirmation of increased US acreage and fairly benign weather at the beginning of July. A rising US dollar also threatened to undermine export sales growth for both the beans and products.  CNGOIC is projecting 2016 Chinese production at 12.6 MMT, up 8.6% from year ago on a government engineered shift away from corn planting. After the close, the CFTC report showed the big managed money spec funds easing out of 27,942 contracts in the reporting week, leaving them net long 167,328 as of July 5 COB.

Wheat prices were higher in all three markets this week, thanks to gains of   8 3/4 to 11 3/4 on Friday as the shorts took profits and headed home for the weekend.  The bulls did have something to eat, with USDA weekly Export Sales stronger than expected at 825,300 MT for the end of June. Export shipments are also running well above year ago levels.  Cash wheat prices out in the country dropped below $3.00 per bushel, with some individuals reporting that they were able to capture an LDP payment from the government due to local prices dropping below loan rate. USDA will put the old crop wheat ending stocks at 981 million bushels on Tuesday, as the Grain Stocks number is official.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

06/24/16

07/01/16

07/08/16

Change

% Chg

Jul

Corn

$3.845

$3.530

$3.498

($0.032)

-0.93%

Jul

CBOT Wheat

$4.548

$4.163

$4.208

$0.045

1.07%

Jul

KCBT Wheat

$4.228

$3.943

$4.053

$0.110

2.71%

Jul

MGEX Wheat

$5.178

$4.893

$4.978

$0.085

1.71%

Jul

Soybeans

$11.030

$11.688

$10.898

($0.790)

-7.25%

Jul

Soy Meal

$375.60

$404.80

$378.70

($26.10)

-6.89%

Jul

Soybean Oil

$30.99

$31.03

$30.27

($0.760)

-2.51%

Aug

Live Cattle

$110.875

$112.975

$112.225

($0.750)

-0.67%

Aug

Feeder Cattle

$139.45

$142.45

$143.45

$1.00

0.70%

Jul

Lean Hogs

$84.050

$82.675

$80.050

($2.625)

-3.28%

Dec

Cotton

64.42

64.99

65.81

0.820

1.25%

Jul

Oats

$2.090

$2.055

$2.283

$0.228

9.97%

 

December cotton was up 1.25% this week despite a stronger US dollar.  Cotton export sales were a pleasant surprise on Friday, with old crop upland bookings at 201,900 RB.  Those need to be shipped by July 31 or they aren’t an old crop sale. Vietnam was the big buyer at 102,400 RB.  USDA is likely to increase cotton production on Tuesday vs. the June estimate, as NASS had US upland cotton planted area up 461,000 acres from the March Planting Intentions report.  At 10.023 MA, the figure is up 16.8% from 2015 planted acreage.  The LDP/MLG is still zero through next Thursday.

Live cattle futures ended the week 0.7% lower. Feeder futures were up 0.7% as the drop in feed costs allowed higher bids for the walking inputs. The cash cattle market was slow to develop this week, with prices through mid-Friday at $120-121 in the South and mostly $190-191 in the north. Wholesale prices crawled higher this week after good holiday retail movement.  Choice 600-900# boxes were on average up 62 cents (0.3%) this week. Select grade carcass value was up $2.55 or 1.3%. Weekly beef production was down 14.6% from last week because of the holiday, and down 8.8% vs. year ago. Weekly slaughter was 513,000 head. Beef production YTD is up 3.6% on 2.9% larger slaughter.

Lean hog futures dropped 3.3% for the week, with July going home at $80.05. The CME Lean Hog Index was $82.91 on Friday, down $2.00 from the previous Friday. The USDA weighted average carcass cutout value was up 27 cents for the week, a 0.3% change. Ribs and loins were lower, with the other primal cuts such as bellies higher. Pork production this week was estimated at 384.4 million pounds, down 14.2% last week and 12.3% smaller than the same week in 2015.  Pork production since Jan 1 is actually 0.6% smaller than in 2015 on 0.1% smaller slaughter.  Per the CFTC, managed money accounts added 580 contracts to their net long position from the previous week. 

Market Watch

We’re back to a full week of activity, with USDA Export Inspections and Crop Progress reports leading off on Monday. The main monthly reports from USDA will be on Tuesday, with Crop Production and WASDE supply/demand.  We expect the usual weekly EIA ethanol production and stocks data on Wednesday, with USDA weekly Export Sales on Thursday morning.  Thursday also marks the last trading day for July grain futures.  NOPA crush is expected to be released on Friday, which is also the expiration date for a lot of financial market options.

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