Under Pressure

Published on: 20:46PM Sep 18, 2015

Market Watch with Alan Brugler

September 18, 2015

Under Pressure


There are a lot of different kinds of  pressure. There are deadlines, waits for test results, defenders making life difficult for the offense. In an enclosed vessel, pressure typically rises as heat is applied. The ag markets are under pressure at the present time. The main heat is coming from surplus supply. World economic growth is slow enough the Fed didn’t want to raise interest rates for fear of creating drag. Slow growth also doesn’t readily absorb increased production, whether that is crude oil or wheat. Declining crude oil is deflationary, but we do need to remember that it puts additional dollars into consumer pockets all around the world (excluding the major oil exporters). Ag prices need to get cheap enough to capture those dollars, or we face an extended wait for some kind of weather event to break the pressure cooker. As a reminder, pressure also converts common carbon into diamonds!


Corn futures fell back 2.6% this week, due to sluggish export sales. Weekly sales were only 533,000 MT. Total 2015/16 commitments are 20% of the full year WASDE forecast, but would typically be 34% by now, suggesting a reduction in the export forecast in the October report if things don’t improve. Keep in mind that we also have a Grain Stocks report on September 30 which could change our understanding of old crop ending stocks. The FSA acrage report for September showed 51,000 additional prevented planting acres, a small enough number that it could be erased by survey adjustments. NASS is expected to true up acreage numbers with “administrative data” in the October crop report. Ukraine did suggest at the end of the week that there crop was hurt more by the heat and dryness than previously expected. The number floated was 4 MMT below the previous US estimate.


Wheat futures were closed to unchanged this week. The projected 2015/16 world ending stocks number at 226.56 MMT would be the largest in history.  On a stocks/use ratio, it is the most abundant supply since 2001/02 if realized. European sources have been bumping up production estimates there, and Stats Canada increased projected 2015 spring wheat production another 400,000 MT from their previous release. Egypt bought 230,000 MT of wheat from Ukraine, Russia and France on Friday. The US was not competitive into that destination. The Commitment of Traders report showed the large speculative traders getting a net 8,078 contracts less bearish on Chicago SRW, with a net short position of -39,382 as of Tuesday night.  Their net position in HRW was a net 653 contracts less-bearish than a week earlier.      


Soybeans were 7 cents lower for the week, off 0.81% in the November lead month. USDA tightened old crop carryover to 210 million bushels last Friday. The official number will come on September 30 in the Grain Stocks report. New crop supplies are seen ample, with carryover at 450 million bushels. Weekly export sales slowed to 912,000 MT, on the low end of trade expectations. There are rumors of a Chinese buying team coming to the US next week as part of the talks between Xi and Obama. On the bear side, weather forecasts show almost no frost risk for the rest of the month. The Commitment of Traders report confirmed that the large spec funds increased their  bearish bets. They added a net 6,506 new short positions in the week ending 9/15 and were net short -25,022 contracts on that date. 














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October cotton futures plunged 7.1% for the week vs. a 1.6% gain the previous week. October delivery notices begin on the 24th and longs wanted out. There were 51,610 certified bales in stock on September 17, with 2,188 decertified, as old crop load out continues. USDA weekly Export Sales for the week ending 9/10 totaled 115,100 RB. Export commitments are 31% of the full year forecast, lagging the 49% average pace for this date. The AWP for this week is 46.37, with the LDP/MLG at 5.63 cents per pound through September 24. As of Tuesday night, managed money accounts were shown to be a net -2,073 contracts less-long than the previous week in the Commitment of Traders report from the CFTC.


 Live cattle futures dropped a sharp 3.4% this week ahead of the monthly USDA Cattle on Feed report. Choice boxed beef was down $9.79/cwt (4.1%) for the week, with Select product down 3.3%. Choice beef was down $4.20 per hundred pounds on Friday. Weekly US beef production was up 15.3% from the Labor Day week, and up 3.1% from the same week in 2014. Year to date beef production is down 4.3% on 6.6% fewer cattle slaughtered.  We continue to show slightly larger slaughter runs, multiplied by record high carcass weights to reduce the year/year deficit in beef production. The USDA Cattle on Feed report showed September On Feed numbers at 102.75% of year ago. August placements were 94.6% of year ago and marketings were 93.8% of last year. Feedlot numbers are smaller than expected, so the report should be supportive.

Lean hog futures jumped 5.2% this week as the cash hog market stabilized and futures rallied to close the basis gap. The CME Lean Hog Index was $70.97, down $2.11 from the previous week. The basis weakened from $5.725V last week to $.08 this week. Weekly FI slaughter was estimated at 2.278 million head, up 18.2% from last week. Pork production YTD is 7.4% larger than last year at this time, on 8.1% larger slaughter. Average carcass weights are 3# below year ago. Wholesale pork prices were down -2.08% for the week. Weekly data on the commitment of Traders report from the CFTC showed the managed money accounts increasing their net long in lean hogs by 805 contracts (~3.2%) from the previous week.

Market Watch


Cattle traders will begin the week adjusting to any surprises out of the Friday evening Cattle on Feed report. Monday is also Respect for the Aged Day in Japan. Suppose we could do anything for that decrepit old wheat bear? USDA will issue updated Crop Progress and Export Inspections data on Monday. The monthly Cold Storage report is due for release on Tuesday after the market close.  Weekly EIA ethanol data is expected on Wednesday, with the usual weekly Export Sales numbers from FAS on Thursday morning. Thursday also markets FND for October cotton deliveries, and expiration for September feeder cattle futures and options. October serial grain options expire on Friday. USDA will also release a quarterly Hogs & Pigs report on Friday afternoon.


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