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Still Comfortable

Published on: 21:00PM Jun 12, 2015

 Brugler

Market Watch with Alan Brugler

June 12, 2015

STILL COMFORTABLE

The Commitment of Traders report on Friday gives us a window into the speculator psychology going into the Wednesday Supply/Demand report from USDA. Spec funds were covering short positions, reducing exposure to a bullish report and also causing prices to rise via their buying. Following the reports, prices for grains have declined, with additional speculative fund selling noted. Our takeaway is that those funds that actually trade fundamentals saw comfortable ending stocks levels for corn, soybeans, wheat and cotton. They definitely added to short positions in wheat after the report, and may have taken smaller positions in soybeans and corn.  USDA trimmed projected ending stocks for both old crop and new crop soybeans, in both the US and world tables. Corn stocks rose, but USDA is still projecting smaller US ending stocks in 2016 than in 2015, keeping a few bears on the sidelines who only trade rising stocks years.

The USDA report came and went, and the corn bulls went with it. USDA didn’t change much in the WASDE report, increasing projected ending stocks by 25 million bushels due to more efficient corn processing and higher proven ethanol yields. However, they also hiked their Brazilian production estimate to 81 MMT and raised the world stocks by 4.5 MMT. Corn was down 2.12% for the week. Corn export sales commitments still lag the average pace (90% of the WASDE forecast vs. the average of 97% for this date) after an “as expected” showing again this week. Sorghum sales and shipments slowed to a trickle. Weekly ethanol stocks were up a modest 100,000 barrels despite record weekly production of 992,000 bpd.

Wheat futures were down 1.8 to 2.6% for the week after big gains the previous week.  USDA caught the bulls leaning the wrong way, hiking projected Kansas wheat yield by 5 bushels per acre from the previous month. Some of the production increase flowed to higher ending stocks projections.

The marketing year for old crop wheat ended on May 31, with shipments at 831 million bushels. The WAOB cut its number to 855 million bushels. The final number won’t come out until July. Egypt bought 240,000 MT of Russian and Romanian wheat in two tenders, but there were no competitive US origin offers.  Spec traders in Chicago had exited 40,905  of their 71,673 net short position in the week leading up to the USDA production report.

Soybeans gained 2 1/4 cents per bushel this week in the July contract. Soy oil lost nearly 5% for the week despite a multi-week high in palm oil and confirmation of freeze damage to the canola crop. USDA hiked projected crush and export use on Wednesday, trimming the ending stocks forecast to 330 million bushels. Soybean export sales commitments continue to run comfortably above the level needed to meet the USDA forecast for the year.  They are typically 100% by now, but this year are at 104%.  Outstanding (unshipped) soybean meal sales are still much larger than last year at this time. That is a two edged sword, bearish if they are cancelled or deferred to 2015/16, but bullish if crushers have to continue to scramble for beans to meet those orders. USDA did tighten up projected world soybean ending stocks to 83.7 MMT for old crop and 93.2 MMT for new crop. That still shows a big stocks build for next year at current projected production levels.

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

05/22/15

05/29/15

06/05/15

Change

% Chg

July

Corn

$3.515

$3.605

$3.530

($0.075)

-2.12%

July

CBOT Wheat

$4.770

$5.170

$5.038

($0.133)

-2.63%

July

KCBT Wheat

$4.988

$5.353

$5.260

($0.093)

-1.76%

July

MGEX Wheat

$5.308

$5.715

$5.613

($0.103)

-1.83%

July

Soybeans

$9.340

$9.378

$9.400

$0.023

0.24%

July

Soy Meal

$305.700

$304.900

$317.400

$12.50

3.94%

July

Soybean Oil

$33.330

$34.780

$33.140

($1.640)

-4.95%

June

Live Cattle

$152.325

$152.825

$152.450

($0.375)

-0.25%

Aug

Feeder Cattle

$222.95

$221.90

$223.45

$1.550

0.69%

June

Lean Hogs

$83.825

$81.675

$81.450

($0.225)

-0.28%

July

Cotton

64.350

64.010

64.070

0.060

0.09%

July

Oats

$2.340

$2.588

$2.555

($0.032)

-1.27%

 

 Live cattle futures continue to be choppy, with a 0.25% drop for the week after June futures posted new highs for the move at midweek (and also hit their Head & Shoulders bottom price objective). Weekly beef production was down 8.6% from the same week in 2014. Beef production YTD is now down 5.0% from last year. Slaughter has been down 7.2%, with higher weights making up the difference. Weekly beef production was 8.5% under year ago. USDA trimmed projected second quarter beef production, now showing it below year ago. The 3Q and 4Q estimates are still above year ago. Cash cattle trade was light on Friday, but packers apparently succeeded in backing up some cattle. Cast trade was at $244, in the north and $152 in the north. Both were about $3 under the previous week. Wholesale beef prices firmed on pre-July 4th pipeline filling by retails. Choice boxed beef was up 0.4% and Select was up 1.2% on a Friday/Friday basis.

Lean hog futures were down 0.28% this week as June went off the board at $81.45. The CME Index was down 25 cents at $81.91 on Friday. US pork production YTD is up 5.9% from last year at this point. Weekly pork production was up 0.6%, but up 10.3%  from the same week in 2014. The USDA pork carcass cutout value was down 0.82%  this week.  Hams primals stabilized and bellies were higher, but loins ad pork butts were weak. Hog carcass prices were lower on Friday in both the WCB and IA/MN regions. Weekly pork export shipments were the largest of 2015.

July Cotton was up 0.09% for the week. The US dollar index was down 1.5% for the week. The weekly export data published by the USDA showed 43,500 RB of Upland cotton booked during the week ending June 3.  This is only 52% of the four week average pace.  However, 83,200 RB was slated for delivery during the 15/16 marketing year, the highest net new crop sales figure since the first week of March. USDA put the AWP for this week at 51.23 and the LDP at 0.77 cents.  The Commitment of Traders report showed 9,639 more long positions (net) in cotton on June 9 than there were the previous week.

The main USDA report for the week will be Cattle on Feed, released on June 19. USDA will release the usual Export Inspections and Crop Progress reports on Monday, with weekly Export Sales on Thursday.  Cotton traders will be reacting to any surprise futures positions obtained on options expiration (June 12). Soybean traders will look to the monthly NOPA crush report scheduled for Monday. The FOMC is also meeting Tuesday and Wednesday, with most who once anticipated a Fed rate hike at this meeting now expecting it will be delayed until September. The June Dollar futures expire on Tuesday.  Most stock options expire on Friday.

Visit our Brugler web site at http://www.bruglermarketing.com, find our iPad app "AgMarket" in the Apple app store, or call 402-289-2330 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

There is a risk of loss in futures and options trading. Past performance is not necessarily indicative of future results.

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