Weather Talk

Published on: 20:19PM Jun 10, 2016


Market Watch with Alan Brugler

 June 10, 2016

Weather Talk

There is no such thing as bad weather, only different kinds of good weather –John Ruskin

Don’t knock the weather;nine tenths of the people couldn’t start a conversation if it didn’t change once in a while –Kin Hubbard

Some years we are talking about a drought by now, like in 1988. In other years, the rains keep coming and the crop keeps improving, like 1994 or 2014. And some years we have great early season weather but fret about what might be around the corner. That is 2016. The crop condition ratings show no widespread issues, USDA just released record high wheat yield estimates, and the QPF has up to 4” of rain across the heart of the Corn Belt next week. But the only weather talk you get is about the heat, and speculation that if it is this hot in June, can you just imagine how hot it will be in July?  This focus is a function of leverage, I think. World soybean stocks in particular are shrinking, and the consumer wants a record US crop to avoid having to ante up into the South American pot this fall.

Soybeans were up almost 4% this week, despite slippage in nearby soybean meal values. July meal was down for the week, but soy oil advanced 1.3% to support product value. USDA raised projected US soybean exports for both the old crop and new crop time slots on Friday, citing smaller crops in Brazil and Argentina. They trimmed the Brazilian estimate to 97 MMT on Friday from 99 MMT, and are now in agreement with the CONAB estimate.  The world stocks/use ratio dropped to 20.22% for 2016/17 in the WASDE forecast, which would be the tightest since 2008/09 if it turns out that way.  Keep in mind that this is only the second of 36 potential monthly revisions for that crop, and that USDA could not show increased US soybean acres (widely assumed) until they get the June 30 acreage data.

Corn futures were up 1.1% this week, on top of a 1.3% gain the previous week.  Strong corn export sales continue to be a feature, with unshipped sales on the books 34% larger than last year at this time. Total commitments were 102% of the full year USDA estimate before the WASDE hike on Friday raised the bar. US ethanol stocks dropped a sharp 500,000 barrels due to more miles driven and larger exports. Corn use for ethanol went north of 104 million bushels last week as several plants in Nebraska came back online. USDA also noted in the Friday S&D report that more sorghum is being used for ethanol production, tightening old crop stocks. Speaking of the Friday report, old crop corn ending stocks are now seen at 1.708 billion bushels, and USDA tightened the outlook for 2017 to 2.008 billion bushels.  No change was made in the production forecast because they are waiting on the June 30 acreage numbers. The CFTC report confirmed that the spec funds added another 77,169 contracts to their net long corn position in the reporting week ending June 7.














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 Wheat futures were lower in all three markets this week, with KC the weakest. The fundamental reason behind this was revealed on Friday, when USDA shocked the trade with a 937 million bushel HRW production estimate. NASS raised projected state average yields in every Plains state from TX to ND, resulting in a record 50.5 bpa. Global trade was the only area of interest in the old crop supply/demand, with USDA cutting expected imports by 3 million bushels and cutting exports by 5 million. Most of the jump in expected 2016/17 US production was made to disappear via feed use and exports, with ending stocks at 1.050 billion bushels. To get those slow movers off the shelf, the Washington folks are assuming the cash average price for US wheat at the farm will drop to a $4.00 per bushel midpoint. That’s a warning shot, with Chicago trading as high as $5.12 this morning.

July cotton futures were up 1/3% this week. US planting delays are a supportive factor, although USDA made no change to the crop figure on Friday. A weak dollar boosted prices early in the week, and then the bulls had to hang on through a dollar rebound. USDA made only minor tweaks to the cotton balance sheet, cutting 50,000 bales out of domestic mill use and flowing that all the way into the 2016/17 ending stocks. On a more bullish note, projected world cotton ending stocks continue to shrink. They were 112 million bales in 2014/15, and the 2016/17 projection is down to 94.73 million. USDA cut their Chinese production estimate to 21.5 million bales while keeping mill use at 33.5 million. The USDA AWP rose again this week, leaving the LDP/MLG at zero.

Live cattle futures inched up 0.37% this week. They were doing well until Friday. Beef production this week was up 13.4% from the previous holiday week. It was up 8.9% from last year.  YTD beef production is up 3.2% from last year on 2.1% larger slaughter. Carcass weights have come down and appear to be 2-4# below year ago. Wholesale prices were sharply higher this week. Choice boxes were up $5.06 (2.3^) and Select product bounced $5.94 (3%).  Cash cattle trade was thin on Friday, with bids at $128 and asks at $132. Packers were pointing at the futures, and feeders were pointing at wholesale prices. USDA cut projected 2016 US beef production 135 million pounds in the WASDE report for 2016 vs. the May estimate. The midpoint of the cash average price for the year is $127, up 50 cents from last month.

Lean hog prices were down a mere 0.3% this week. The CME Lean Hog Index at 79.76 was up $3.08 for the week and affirming the faith of the futures market in higher cash hog prices to come.  The average pork carcass cutout value was up $0.40 for the week, or 0.47%.  Maybe BLT season is finally underway, with the pork belly primal up 7.6% for the week. Weekly hog slaughter is estimated at 2.086 million head, down 35,000 from the same week in 2015. Pork production YTD is down 0.6% from last year at this time on a 0.1% smaller slaughter.  If the industry is still expanding, it isn’t showing up in the FI slaughter data yet.  As a reminder, we’ll get a quarterly USDA Hogs & Pigs report on the 24th. The weekly Commitment of Traders report showed the spec funds adding 9,682 contracts to their net long in hogs. They were long 57,205 contracts as of June 7.

Market Watch

We go back to the typical USDA report sequence this week, with Export Inspections on Monday morning and weekly Crop Progress in the afternoon.  Weekly Export Sales will be on Thursday morning. Monday is first notice day for June cattle deliveries, but you aren’t going to see any with the board deeply below cash.  Tuesday marks the expiration of the June hog futures, and the start of the Fed meeting. The market has decided the Fed won’t dare hike rates in June between the Brexit vote and the iffy hiring number from last week.  NOPA monthly crush is expected to be released on Wednesday.  Father’s Day is June 19th if you are keeping track, and summer officially begins on the 20th. By the thermometer it is already here!

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