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That Old Familiar Feeling

Published on: 20:07PM Jul 02, 2015

 Brugler

Market Watch with Alan Brugler

July 2, 2015

That Old Familiar Feeling

It has been a while, but the grain markets have a touch of that old summer weather bull feeling. The too wet logic is rare (see 1993) but the behavior pattern is familiar. The spec funds press the short side into the June Acreage and Grain Stocks reports. USDA shows a tighter supply scenario than expected, and the weather patterns cause some concern about new crop yield in the US, overseas or both. Then the market chases the shorts out and builds in some risk premium against subpar yields while simultaneously signaling to Southern Hemisphere producers to expand acreage next fall just in case. If that extra production isn’t needed, we’ll just have to have the price collapse later.

Corn futures jumped more than 8% this week. The market is in a bullish virtous circle right now. Higher prices feed more cash corn sales which feed commercial short hedges which feed spec fund purchases. Prices follow the funds. USDA helped confirm the need for higher prices with the Tuesday crop reports. June 1 corn stocks were smaller than trade expectations st 4.447 billion bushels. WASDE is likely to increase corn feed & residual use on Thursday to reflect the lower stocks. The US corn acreage was also below the March intentions at 88.897 million. In the monthly Grain Crushings report USDA confirmed a jump to 450 million bushels in monthly corn use for energy production. Weekly ethanol stocks also dropped another 300,000 barrels to 19.5 million barrels, with gasoline consumption up sharply.  Crop condition ratings typically decline each week until late August, even in years with trendline yields.  The ongoing wet weather in the ECB is causing traders to take some of the price discount from above trend yield ideas out of the price.

 

Commodity

 

 

 

Weekly

Weekly

Mon

06/19/15

06/26/15

07/02/15

Change

% Chg

July

Corn

$3.533

$3.850

$4.198

$0.348

8.28%

July

CBOT Wheat

$4.885

$5.623

$5.858

$0.235

4.01%

July

KCBT Wheat

$5.033

$5.593

$5.760

$0.168

2.91%

July

MGEX Wheat

$5.430

$5.958

$6.063

$0.105

1.73%

July

Soybeans

$9.715

$10.020

$10.453

$0.433

4.14%

July

Soy Meal

$323.100

$341.300

$357.400

$16.10

4.50%

July

Soybean Oil

$32.550

$33.220

$33.360

$0.140

0.42%

Aug

Live Cattle

$150.675

$148.525

$151.225

$2.700

1.79%

Aug

Feeder Cattle

$223.43

$217.25

$217.45

$0.20

0.09%

July

Lean Hogs

$75.750

$75.450

$78.775

$3.325

4.22%

July

Cotton

63.320

67.160

66.360

(0.800)

-1.21%

July

Oats

$2.440

$2.595

$2.500

($0.095)

-3.80%

Wheat futures lived up to their dual reputations of 1) “Wheat takes no prisoners” and 2) “Trade wheat and sleep in the street”.  Futures were up 4% for the week in Chicago on top of a 13% advance the previous week.  MPLS was up less than 2% because of larger acreage reported by USDA on Tuesday. Price action since April has been extremely choppy. The USDA wheat stocks report on Tuesday was bearish at 753 million bushels. They will have to cut feed use and likely export use in the S&D tables to explain the extra inventory. Spring wheat and durum wheat acreage were also larger than expected, but winter wheat shrank from March intentions. The US ag attaché increased estimated Chinese wheat ending stocks due to downward revisions in estimated feed use from the past several years.

Soybeans were up 4.1% for the week in the July contract. July hit an intra-day high of $10.60 1/4 before dropping back to close the week at $10.45 1/4. USDA data fueled the rally, with June 1 soybean stocks of 625 million bushels suggesting that either meal production is larger or the 2014 crop was overstated. Weekly export sales were disappointing at 117, 200 MT, with China cancelling business in both old and new crop slots. The record soybean exports out of Brazil (9.8 MMT) are resulting in a backlog at some ports and are also illustrative of infrastructure improvements made in Brazil to allow larger annual shipments as production grows. This week’s rally was defnititely signaling Argentine and Brazilian producers to plan on planting more beans in October.

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July Cotton was down 1.2% this week, giving back some of the 5 gain from the previous week as we got into July futures deliveries. Weekly export sales reported by the USDA on Thursday were 143,200 RB, up from 117,100 RB the previous week. The USDA Acreage report on Tuesday showed the smallest US plantings in decades, at 8.998 million acres. The wet weather in the south played havoc with intentions. Prices responded, but the response is limited by record high global cotton surpluses and Chinese limitations on imports as they try to work down the pile. ICAC made modest upward revisions to their world ending stocks for 2014, 2015 and 2016, but still sees 2016 stocks about 1 MMT below the record set in 2015.

Live cattle futures rose 1.8% this week.  Cash cattle trade was active ahead of the holiday, with trades of $152-153 common in the south and packers still bidding $2-3 over last week in the North @ $240 and up. Week to date FI cattle slaughter was 451,000 head through Thursday, about 17,000 head below the same period in 2014.  Weekly US beef export sales were a disappointing 6,600 MT for the week ending June 25.

Lean hog futures were down 0.4% this week. Nearby futures were hurt by the larger than previously expected market hog numbers shown in the Hogs & Pigs report, while back months saw support from the reduced farrowing intentions. The weekly USDA pork production report will be delayed until July 6 by the government holiday on Fridya. The USDA pork carcass cutout value was down 2.0% on a Thursday/Thursday basis. Week to date slaughter through Thursday was 65,000 head larger than the same period in 2014.  Weekly pork export sales reported by USDA on Thursday morning were the largest of 2015 at 39,000 MT, with 38,800 MT shipped for the week and also a high for the year.  This is contra-seasonal activity for pork exports, which typically slow in the summer due to  limited pork availability in the US.

Market Watch

Grain traders will begin the week reacting to any weather forecast changes occurring over the long July 4th holiday weekend. Travelers likely will have seen a glass half full, glass half empty picture of crops, depending on which direction they went. On the grain side, the regular USDA Export Inspections and Crop Progress reports are due on Monday, with weekly Export Sales on Thursday. The monthly USDA Supply/Demand and Crop Production reports will cap the week on Friday. Some of the S&D changes are known, but there is still potential for surprises in US wheat production and in the global numbers.

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