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Rotation of Ownership

Published on: 22:20PM Nov 10, 2017

 

Market Watch with Alan Brugler

November 10, 2017

Rotation of Ownership

It is a given that investment money flows from target to target. As a bank CEO said a couple decades ago, money goes where it is wanted and stays where it is well treated. Many investors follow the asset allocation model, which says to sell off portions of your winners and invest that money in undervalued assets before their turn to rise. We got a little of that rotation this week. The hot livestock markets saw a bout of profit taking, and frequent loser wheat posted gains in all three markets. Oats and soybeans have been in uptrends for a while, but appear to have more patient money behind them.

Corn futures ended the week with the Dec contract 1.36% lower than last Friday. The week was fairly quiet until Thursday’s bombshell of a USDA report. To start off, the Crop Progress report showed the US corn harvest at 70% complete as of last Sunday. That was down from the average of 83%. The Export Sales report showed excellent performance at 2.364 MMT in 17/18 sales for the week of 11/2, with 574,180 in 18/19 sales. Some of that was expected, with Mexico’s large purchase last week, but it still beat expectations. Thursday threw a curveball, as the USDA updated their 17/18 US corn yield projection to an all time record of 175.4 bpa. An increase by that much was not expected, as production was bumped 298 mbu to 14.578 bbu. Some of that boost was offset by larger export and feed and residual projections, but predicted US ending stocks were still up 147 mbu to 2.487 mbu. On Thursday, China did announce that they were lifting an 11% value added tax on DDGSs in the future, but are leaving the 53.7% anti-dumping tariff on the US. 

Wheat futures saw gains among the December contracts in all exchanges on the week. The HRS market was the strongest, up 3.64%, as HRW was up 1.52% and SRW 1.35% higher. Monday’s USDA Crop Progress report showed winter wheat 91% planted, even with the average. The winter wheat crop was 75% emerged, slightly lagging the average, as conditions ratings improved 6 points to 351 on the Brugler500. The Export Sales report indicated sales picking up at 781,738 MT for the week of 11/2, as Iraq purchased nearly 450,000 MT. The monthly USDA supply and demand report showed 17/18 US wheat ending stocks trimmed by 25 mbu to 935 mbu, as expected exports were raised to 1 bbu. The world ending stocks number was cut by 0.6 MMT to 267.53 MMT, as smaller carryover from 16/17 played a factor. The USDA did end up increasing Russian production another 1 MMT to 83 MMT.

Soybean futures saw little net change for the week, as Nov was up ¼ cent. Soy meal was up 60 cents, with soy oil up 1.13% last Friday. US soybean acres were 90% harvested as of last Sunday, with most fields empty by this point. Soybean export sales during the week of 11/2 fell to a subpar 1.16 MMT. Going into Thursday’s November USDA report, traders had been expecting a 0.2 bpa drop in the US soybean yield. The USDA left the yield unchanged, as production was trimmed 6 mbu to 4.425 bbu. The major adjustment came in the form of the 17/18 world ending stocks, as they were raised 1.85 MMT to 97.9 MMT. Most of that came from a larger carryover number from 16/17 and an increase in Brazil production to 108 MMT. The USDA also increased Chinese imports of soybeans 2 MMT to 97 MMT.  During President Trump’s trip across Asia, China signed a letter of intent to purchase 12 MMT of 17/18 US soybeans. This is separate from the purchase of nearly 12.53 MMT earlier this summer.

 

Commodity

 

 

 

Weekly

Weekly

Mon

10/27/17

11/03/17

11/10/17

Change

% Chg

Dec

Corn

3.4875

3.4825

3.435

($0.047)

-1.36%

Dec

CBOT Wheat

4.2725

4.2575

4.315

$0.058

1.35%

Dec

KCBT Wheat

4.2525

4.2675

4.3325

$0.065

1.52%

Dec

MGEX Wheat

6.17

6.2475

6.475

$0.228

3.64%

Nov

Soybeans

9.7525

9.77

9.7725

$0.003

0.03%

Dec

Soy Meal

312.1

313.9

314.5

$0.600

0.19%

Dec

Soybean Oil

34.84

34.42

34.81

$0.390

1.13%

Dec

Live Cattle

120.825

127.3

120.575

($6.725)

-5.28%

Nov

Feeder Cattle

156.48

160.88

158.48

($2.400)

-1.49%

Dec

Lean Hogs

64.45

65.1

62.475

($2.625)

-4.03%

Dec

Cotton

68.2

68.72

69.05

$0.330

0.48%

Dec

Oats

2.6525

2.63

2.72

$0.090

3.42%

 

Soybean futures saw little net change for the week, as Nov was up ¼ cent. Soy meal was up 60 cents, with soy oil up 1.13% last Friday. US soybean acres were 90% harvested as of last Sunday, with most fields empty by this point. Soybean export sales during the week of 11/2 fell to a subpar 1.16 MMT. Going into Thursday’s November USDA report, traders had been expecting a 0.2 bpa drop in the US soybean yield. The USDA left the yield unchanged, as production was trimmed 6 mbu to 4.425 bbu. The major adjustment came in the form of the 17/18 world ending stocks, as they were raised 1.85 MMT to 97.9 MMT. Most of that came from a larger carryover number from 16/17 and an increase in Brazil production to 108 MMT. The USDA also increased Chinese imports of soybeans 2 MMT to 97 MMT.  During President Trump’s trip across Asia, China signed a letter of intent to purchase 12 MMT of 17/18 US soybeans. This is separate from the purchase of nearly 12.53 MMT earlier this summer.

Cotton futures saw another week of slight gains, up 0.48%. The US cotton harvest advanced 8% to 54% complete as of November 2. Weekly upland cotton export sales for 17/18 fell to 205,297 RB, but were still 21.61% larger than the same week last year. Export shipments increased to 124,292 RB. This week’s AWP (average world price) was updated to 61.38 cents/lb, up just 33 points from the previous week. Thursday’s Cotton Ginnings report showed that the US had ginned 4.964 million RB as of November 1, down 1.02% from last year. The USDA hiked their US cotton yield projection 11 lbs to 900 lbs/ac in the November WASDE report. That increased production 0.26 million bales, against expectations, and US ending stocks were raised 0.3 million bales to 6.1 million bales. The 17/18 world ending stocks number was trimmed 1.5 million bales to 90.88 million bales, with lower carryin and increased usage.

Live cattle futures fell 5.28% on the week, following strong gains the previous 2 weeks. Feeder cattle futures were down just 1.49%, as they worked to unwind the Feeder/Fat spread. Weaker corn also helped the feeders. Cash cattle trade for the week fell $1 in most regions to $124. Wholesale beef prices were higher on the week. Choice boxed beef was up another $5.11 per hundred pounds ( 2.4%). Select was just $1.43 cents higher or 0.7%. That widened the Chc/Sel spread to $19.34, a jump of $8.88 the past 2 weeks. Weekly beef production was down 2.8% from the previous week, and 0.6% lower than the same week in 2016.  Year to date beef production is up 3.9% on 5.6% more slaughter. On Monday, Trade data reported by the USDA showed September beef exports of 242.954 million pounds. That was down 7.9% from August, but 13.2% larger than last year and a record for the month of September. Projected fourth quarter beef production for 2017 was trimmed 150 million pounds to 6.965 billion pounds on Thursday. Overall 2018 production was raised 350 million pounds to 27.620 billion pounds. On Wednesday, a Chinese firm agreed to purchase $200 million worth of beef from Montana producers.

Lean hog futures posted losses of 4.03% on the week. The CME Lean Hog index lost $1.48 over the past week to $67.94. Weekly pork production was up 2.2% from the previous week and 1.1% larger than the same week in 2016. Pork production YTD is 2.4% above last year. Weekly slaughter was reported at 2.495 million head, up 2.7% from the previous week. The USDA pork carcass value was 2.30% higher this week, led mainly by the belly primal, up $9.53. US pork exports for the month of September totaled 421.443 million pounds, 0.8% above August and 1.4% larger than last year. Another Chinese firm agreed to purchase nearly $1 billion of US pork over an extended period from Smithfield on Wednesday. The USDA trimmed fourth quarter pork production 70 million pounds on Thursday to 6.955 billion pounds.

Market Watch

The following week has a typical schedule for this time of year. As usual the USDA will release the Export Inspections report on Monday morning. That afternoon, the Crop Progress report should show the US soybean harvest nearing completion, with the corn harvest moving along. Tuesday will present us with the Outlook reports from the USDA, showing a more in depth look at the S&D tables for grains and oilseeds. The November soybean contracts will also expire on Tuesday. The weekly EIA report will be Wednesday morning, along with the NOPA crush report. Thursday will show the expiration of the November Feeder cattle futures and options. The weekly USDA Export Sales report will be out that morning. Friday will end the week with the Commitment of Traders and the Cattle on Feed report (for September Placements and Marketings and November 1 cattle on feed).

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There is a risk of loss in futures and options trading. Similar risks exist for cash commodity producers. Past performance is not necessarily indicative of future results.

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