Where Did THAT Come From?

Published on: 21:15PM May 15, 2015


Market Watch with Alan Brugler

May 15, 2015


There is an old saying that “Been down so long, it looks like up to me”. While hogs have been rallying smartly since March, and cattle are holding their own, the perception has been one of ag markets grinding lower because of expanded global production and an overhang of supply. There was nothing in the Tuesday USDA reports to refute the overhang idea, but we saw a refreshing number of plus signs on the computer screens on Thursday. Wheat led the charge, but nearly everyone was involved. Friday was just the opposite, with a lot of minus signs, but they were smaller than the Thursday gains. Where did all that buying come from?  It was fashionable to attribute it to speculative short covering, buying back previous bearish positions. There was some of that (and we could certainly see more) but the open interest data showed fewer shorts exiting than expected and more new buyers entering in the wheat market. The weakness in the US dollar clearly encouraged speculative buying of commodities priced in dollars. You could also point to various local freezes, floods and planting delays. Mostly, though, it just looked like money needing a home and seeking some underpriced assets to buy.  

Corn rose 0.68% for the week, with all of the gain on Thursday.  Planting progress was more rapid than expected at 75% complete, followed by widespread rain to get the crop germinated and up. Progress is expected to be close to 80% this week, with gains in the ECB but the west slowed by rain. There have been a few scattered reports of flooding losses in Arkansas and freeze damage in NE, but not enough to get the bears nervous. The Tuesday WASDE report was seen as bearish, with USDA hiking projected old crop ending stocks to 1.851 billion bushels. On the other hand, the first new crop forecast of the year left stocks at 1.746 billion bushels, a drawdown. Poor weekly US Export Sales kept a lid on prices as USDA raised expected shipments for the year and then reported a marketing year low for bookings two days later. Weekly corn use for ethanol production rose from the previous week, with ethanol stocks also declining by 500,000 barrels.

Wheat rallied sharply, with the largest daily gains in more than two years on Thursday. KC was the leader, up more than 6% for the week. Chicago was up 5.8%. USDA hiked projected old crop ending stocks to 709 million bushels, reducing expected exports 20 million bushels because they just weren’t being shipped. World ending stocks are seen rising to over 200 MMT, with big production again in 2015 in the northern hemisphere. On May 15, Russia eliminated the export tariffs on wheat for the remainder of the old crop marketing year (until June 30) in an effort to placate farmers experiencing a sharp price drop after the tariffs dried up exports. This is expected to result in renewed Russian competition for Mediterranean region sales.

Soybeans were down 2.4% for the week, with new crop November coming within a penny of the of contract low on Wednesday. USDA increased projected exports by 10 million bushels on Tuesday, while also increasing crush use the same amount. The new ending stocks figure of 350 million bushels is still adequate, and they lowered the average cash price estimate to $10.05 (midpoint) for the year. Global old crop ending stocks were trimmed due to revisions to prior year Argentine consumption, but the 2015/16 stocks/use ratio is expected to balloon to 31%, an all time high in abundance.  On Friday, NOPA reported monthly crush of 150.363 million bushels during April. That was down from 162 million in March, but still a record for April by more than 10 million bushels.














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 Live cattle futures were up 0.67% for the week, despite a triple digit sell off on Friday. Weekly beef production was up 0.3% from the previous week but down 1.5% from the same week in 2014. Beef production YTD is still down 4.9% from last year but has been closing the deficit. Estimated carcass weights are 25# bigger than year ago. Wholesale prices were down on Friday but up big on the week. Choice boxed beef was up 1.5% for the week, and Select was up 1.7%.  Choice 600-900 pound carcasses set a new all time record high of $264.74/cwt on Thursday. Select was still more than $9 below the all time high. Cash cattle did trade above $160 on Friday, with dressed prices expected to be $257-260.

Lean hog futures were up 3% to add to the 6% rise the previous week. We are beginning to see the seasonal drop in market numbers. Carcass weights are now an estimated 2# below year ago. Pork production YTD is up 5.6% from last year at this point. Weekly pork production was up 0.6% from the previous week. However, it was still up 5.4%  from the previous year. The USDA pork carcass cutout value was up another 4.91% on a Friday/Friday basis. Loin primal were under pressure but the other cuts were higher including the seasonally important pork bellies.

Cotton was up 1.02% for the week, thanks to a sliding US dollar and a midweek rally. The WASDE report on Tuesday left both 2014/15 and 2015/16 ending stocks at 4.4 million bales, about 1.5 million too loose to feed a bull market. Exports were seen holding steady at 10.7 million bales despite a reduced appetite for major customer China. The US dollar index dropped to the weakest reading since January on Thursday. USDA put the weekly AWP at 51.84 and thus increased the LDP/MLG to 0.16 through May 21.

Market Watch

USDA will issue the usual growing season reports this week, with Export Inspections and Crop Progress on Monday, and weekly Export Sales on Thursday. The main monthly reports from USDA will be the Cattle on Feed and Cold Storage reports on Friday.  May feeder cattle futures will expire on Thursday.  The June serial grain options will expire on Friday.  Trading activity is also likely to be light at the end of the week, with Memorial Day a US holiday on the following Monday (25th).

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