The Muscular Buck

Published on: 22:20PM Nov 06, 2015


Market Watch with Alan Brugler

November 7, 2015


It is deer season someplace, depending on which state you are in and which weapon type you use (bow, primitive, shotgun, rifle seasons), and hunters are looking for that big muscular buck with the Boone and Crockett rack. The buck we are talking about, however, is the US dollar. The US dollar index shot up 2.3% this week as measured by the December DX futures contract. That was the highest close since April, fed by slightly more hawkish comments from Janet Yellen, no change in BOE interest rates, and a strong US jobs report on Friday that took the unemployment rate down to 5%. In commodities, which are priced in dollars, a muscular buck leads to a muscular bear. Of the 12 commodities we track, 6 of them were down by 2.3% or more.

Corn futures retreated 2.5% this week, losing more than either wheat or soybeans. Weekly ethanol production jumped 25,000 bpd from the previous week to 969,000 barrels per day. Ethanol stocks rose by about 500,000 barrels to a still snug 18.8 million barrels. Estimated corn use for the week for ethanol was 102 million bushels although some new cellulosic production is coming on line and complicating the calculation. Weekly corn export sales totaled 556,000 MT of old crop and 18,900 MT for new crop. Total commitments lag year ago by 6.1 MMT (240 million bushels). According to the Commitment of Traders (COT) report from the CFTC released this afternoon, the managed money spec accounts were 8,835 contracts less-long than they were a week earlier.

Wheat futures were up 1 1/4 in Chicago on the week, but down in the other two markets. Mills were loading out some of the SRW delivery wheat in ensure enough milling quality wheat for operations. Wet weather hurt SRW quality, and acreage was down in 2015. Chicago is moving to a premium to MPLS spring wheat, which is deliverable against Chicago if you can get past freight costs. Winter wheat ratings did improve in the weekly USDA crop ratings. US export sales were lousy at 105,600 MT last week, with the trade expecting a slight increase in the USDA ending stocks estimate on Tuesday. The Commitment of Traders report showed the spec funds getting less short in Chicago SRW, but they were still net short 18,241 lots as of November 3.

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November soybeans were 3 1/4 higher on Friday, but down 12 1/2 on the week.  Weekly net soybean sales were only 655,900 MT after being larger than 2 MMT five times in the previous eight weeks. US export shipments are 7% above last year at this time, but outstanding sales not shipped now lag year ago by 7.7 MMT (283 million bushels). CNGOIC predicts Chinese soybean imports will climb to 22 MMT during the fourth quarter, up 18% from the fourth quarter in 2014. However, combined shipments from all origins are flooding Chinese ports and companies took steps to slow deliveries for late November and December. Managed money accounts were net short -22,852 contracts as of the Tuesday close according to the COT report from the CFTC.  That group collectively added 12,878 shorts and dumped 9,974 long positions. The commercial accounts reported 19,239 fewer short positions than a week earlier: This is consistent with elevators moving out the beans faster than they are replacing them. The average trade estimate for 2015/16 US ending stocks is 435 million bushels, up 10 million from the October report.

December cotton futures were down 2.7% this week.  US export commitments are 39% of the full year forecast, well below the 63% average pace for this date. That usually means WASDE is overstating the full year total.  Unshipped sales commitments on the books are only 50% of year ago. USDA put the AWP for this week at 47.16 and the new LDP/MLG is 4.84 cents. The change was only .02 from the previous week. The new rate is good through November 12.    The Commitment of Traders report on Friday afternoon showed managed money speculative accounts adding 1,004 contracts to their net long position in cotton compared to the previous week.













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Cattle futures took a pounding, losing 5% for the week on more evidence of poor export demand and seasonal competition from hams and turkeys. Estimated weekly beef production was up 1.9% vs. last week and up 2.0% vs. year ago. Year to date production continues to gain ground on 2014, but is still down 3.2%. Wholesale prices were lower this week, with choice boxes down 2% and Select product down 2.3% from Friday to Friday. Cash cattle trade was light this week, with a wide range of prices stretching from $130 to $135.  Dressed sales averaged $202. Some higher trade was being reported late on Friday.  Feeder cattle futures were down 5.1%.

Lean hogs were sharply lower this week, losing 7.6% in a competitive downward spiral with beef and chicken.  Weekly pork production was up 5.1% from the previous week according to USDA, and 4.5% larger than the same week in 2014. Year to date pork production is up 7.1%. Estimated weekly slaughter was 2.36 million head and the largest since December 2013.  Pork carcass cutouts were down $2.86/cwt for the week (3.7%). The average price for bellies was down 12.2% after a 20.12% drop the previous week. The seasonal decline is definitely underway! Hams did bounce back 6.3% from the previous week.  FI hog slaughter including Saturday was estimated to be up 4.7% from the depressed total last week.

Market Watch

The main event for the week will be the USDA Crop Production report on Tuesday at 11 am CST, accompanied by the updated WASDE supply/demand estimates.  We will see the regular Crop Progress and Export Inspections reports on Monday, with USDA Weekly Export Sales scheduled for Friday morning due to the federal holiday on Wednesday (Veteran’s Day). Friday the 13th will also mark expiration of the November futures contracts and the December cotton options.  The only futures markets affected by Veterans Day are interest rates and currencies. All other markets will have normal market hours.

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

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