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Summertime All Over Again

Published on: 21:36PM Jun 17, 2016

 

Market Watch with Alan Brugler

 June 17, 2016

Summertime All Over Again

 

The juke box in my head has no trouble coming up with summer related tunes, anything from Mungo Jerry (In the Summertime) to Nat King Cole (Lazy,Hazy Crazy Days of Summer) to Don Henley (The Boys of Summer). I highly recommend Billboard magazine’s Top 30 Summer Songs list.  I can’t recall any that have a strong commodities theme, but it wouldn’t be hard to do a re-write, ala

 

In the summer time, when the bean market’s hot

Get your hedges on, ‘cause the forecast is not

da,da,da, the markets are just crazy once again

 

The main point is that for US growers this is where the action is. Options price volatility skyrockets in the summer because the crop conditions and yield estimates change as quickly as the weather forecast, and it changes frequently. You get pricing opportunities that sometimes turn out to be well above what the supply/demand situation ultimately dictates. In other situations, a fall drought like ’83 or an early freeze provide the price juice. Don’t get distracted by all the spraying and irrigation and hay baling and your kids showing animals at the county fair.

 

Soybeans were down 18 cents in the July contract this week, after rallying 25 cents on Friday. July meal was $6.60/ton lower for the week, also posting a sharp rally ($9.70/ton) on Friday.  July bean oil too was in the green on Friday, but still lost 83 cents for the week.  Weekly export sales reported on Thursday were bull-friendly at 1.585 MMT, which was above the higher end of published expectations. Old crop bookings were up 8% vs. last week and 57% above the four-week average. 2015/16 meal sales were within trade expectations, but up 91% vs. the previous week.  NOPA showed its members crushed 152.82 million bushels last month, exceeding the average trade estimate of 148.2 million bushels, and setting a record for May crush. Soy oil stocks as of the last day of May were in line with pre-report expectations at 1.994 billion pounds, but 26.4% larger than May 2015, and the highest of the 2016 calendar year.  Weekly data from the CFTC showed managed money accounts with a net long position as of Tuesday 6/14 that was net -2,963 contracts smaller than a week earlier, after they were shown with smaller positions on both the long and the short side.

 

Corn futures ended the week 14 3/4 cents higher for July, a 3.37% weekly jump.  The rally on Friday took back everything the corn market lost on Thursday, helping front month corn futures post their highest closing price since June of 2014.  The bull was fed by hot and dry forecasts for much of the US and important second-crop corn-growing regions of Brazil, coupled with indications of solid demand.  Weekly EIA data showed a new record pace for ethanol production, but stocks crept significantly higher on the increased crush.  Net export sales reported this week were over a million MT even after a reduction of 218,200 MT. Sales reported over the last few weeks have been well above those reported for most of the recent years during the same time period. Export shipments were larger than 1.5 MMT and a new high for this marketing year. Total commitments as a % of the total USDA projection for the year are up to 98%. The CFTC report showed spec funds added another 44,328 contracts to their net long position during the week ending  6/14.  That is on top of the net 77,169 contracts they added during the previous week.  

 

 

Commodity

 

 

 

Weekly

Weekly

Mon

06/03/16

06/10/16

06/17/16

Change

% Chg

Jul

Corn

$4.183

$4.230

$4.378

$0.148

3.37%

Jul

CBOT Wheat

$4.973

$4.950

$4.813

($0.138)

-2.86%

Jul

KCBT Wheat

$4.740

$4.685

$4.608

($0.077)

-1.68%

Jul

MGEX Wheat

$5.395

$5.385

$5.398

$0.013

0.23%

Jul

Soybeans

$11.320

$11.783

$11.595

($0.188)

-1.62%

Jul

Soy Meal

$414.30

$414.00

$407.40

($6.60)

-1.62%

Jul

Soybean Oil

$32.26

$32.76

$31.93

($0.830)

-2.60%

Jun

Live Cattle

$122.000

$122.450

$116.725

($5.725)

-4.90%

Aug

Feeder Cattle

$146.68

$145.55

$137.43

($8.13)

-5.91%

Jul

Lean Hogs

$85.975

$85.700

$86.175

$0.475

0.55%

Jul

Cotton

63.92

64.75

64.57

(0.180)

-0.28%

Jul

Oats

$1.880

$2.018

$2.083

$0.065

3.12%

 

Wheat futures posted solid gains on Friday with help from a bearish US Dollar chart, and a solid recovery in the corn and soybean markets. HRS futures actually squeeked out a 1 ¼ cent gain on the week, while July HRW futures were down 7 ¾ cents and SRW lost 13 ¾ cents.  Growing world production and larger forecasts for ending stocks are like gravity on the wheat charts; as are hefty yields from winter  wheat harvest reports.  Weekly export sales were better than most were expecting to see, with the first week of the new marketing year logging 762,900 MT.  The Commitment of Traders report published on Friday afternoon showed the spec/managed money crowd was on the net-long side of the fence for KC/HRW futures and options as of the Tuesday close.  That group had not reported a net long position since July of 2015.  They are still showing net-short for Chicago/SRW wheat with a net position of -48,235 contracts; it was -53,320 a week earlier.

July cotton futures posted a trading range of 395 points this week.  Prices rallied hard on Thursday and Friday, but ended the week 18 points lower, losing about 0.28%.  Planting progress behind normal in Texas provides a layer of underlying support, as are high temps and dry forecasts across the southern US. Renewed weakness in the US dollar after the Fed did not raise interest rates this week helped fuel optimism for US cotton prices.  Weekly export data for old crop reported by USDA this week was down 42% from the previous week.  Pima sales were solid, with India in the market for both old and new crop.  The USDA AWP in effect until next Thursday is 54.40, down 48 points from last week. The LDP/MLG is again zero. 

Live cattle futures dropped $5.725 in the July contract since last Friday, and August feeders were down $8.13.  That is 4.90% and 5.91% respectively.  The trade watched futures slip lower while waiting for the cash market to develop all week, and it was mostly quiet.  USDA says 556 head reportedly changed hands with live sales averaging $120.11 on Friday, and dressed sales reported from $191 to $194.  Wholesale prices were also lower on the week with choice down 2.6% and select losing 2.3%. The choice/select spread was as wide as $25.57 on Monday, and finished the week at $22.22. Weekly beef export sales were up about 20% from the previous week.  Weekly beef production was estimated at 487.6 million pounds, up 9.2% from the same week in 2015, but 2% smaller than the previous 5 year average.  FI slaughter including Saturday estimates was estimated at 603,000 head, up 12,000 head from last week, and 54,000 head larger than the same week a year ago. As of the Tuesday close, managed money accounts held a net long position that was 2,342 contracts larger than it was a week earlier.  This group also increased their net short position in feeder cattle by 924 contracts from the previous report.

 

Lean hog futres ended the week in the black after the June contract expired.  July picked up 47.5 cents from last Friday, gaining a little more than half of one percent to settle at $86.175. The CME Lean Hog Index for 6/15 was $82.19. The USDA weighted average carcass cutout value was up $1.38 since last Friday.  Weekly export data from USDA showed pork exports off 21% from the previous week.  Pork production this week was estimated at 458.7 million pounds, 1.7% larger than the same week last year, and 10.4% larger than the previous 5 year average for this week.  FI slaughter, including Saturday estimates, was pegged at 2.160 million head, up 74,000 head from last week, and 28,000 head bigger than the same period in 2015. Per the CFTC, managed money held a net long position of 64,241 contracts as of the close on Tuesday. This was a week over week increase of 7,036 contracts to the net long position.

 

Market Watch

 

Summer officially begins on the 20th.  Judging by the thermometer it was already here! While financial traders had a lot of options expiring or exercising on the 17th, the ag commodities were not involved. We have a “typical” weekly report lineup, with USDA Grain Inspections and Crop Progress reports on Monday, USDA Milk Prodution on Tuesday, and the EIA weekly ethanol production number on Wednesday.  Thursday will feature the USDA weekly Export Sales report, and also the highly anticipated Brexit vote in Great Britain. An exit vote would have significant long term implications for the EU, trade treaties all over the place, and for currency values. Friday will feature the USDA Monthly Cattle on Feed report, Cold Storage report, and quarterly Hogs & Pigs report. The 24th will also be first notice day for July cotton futures deliveries, and mark the expiration of July grain options.

 

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