Market Watch with Alan Brugler
November 15, 2019
“Never put off until tomorrow what you can do the day after tomorrow.” Mark Twain
Those of you who have followed me for a while will recall the rule of thumb that markets are trending about 20% of the time and wandering around in a trading range 80% of the time. I’m not sure anyone has run ‘big data’ tests to see if this is still true, or if it is true of agricultural commodity markets, but it likely isn’t far off. We get a lot of 1-2 month rallies and declines in ag prices, with sideways action in between. See last summer for grain examples. The cattle market has been trending strongly since September 1 but might be losing a bit of momentum. For the grains, procrastination appears to be the order of the day for the bulls. We still get a lot of anecdotal reports of light test weights in corn (which reduce final yield) and the ceaseless rumors and news items about coming huge Chinese purchases. The markets have been drifting lower, holding a Black Friday sale if you will. They are looking for more confirmed export business, and/or confirmation that yields in fact are lower.
Corn futures lost another 1.6% this week, mostly on Friday. Cash corn prices are still at a six year high for this date, but perhaps becoming less onerous for the buyers. Average daily ethanol production rose to a seven week high this week (higher corn use) and weekly corn export sales were up 19% week over week at 581,600 MT. Importantly, shipments were the largest since the marketing year began on September 1 at 602,600 MT. Export sales commitments YTD are still 47% smaller than last year at this time, with 27% of the full year WASDE forecast now on the books. In the week ending November 12, the large managed money spec funds got slightly more bearish, adding 6,075 contracts to their CFTC net short, expanding it to -110,921 contracts.
Wheat futures lost ground in all three markets this week. Minneapolis was the weakest, off 2.9% as chart support gave way and fed another round of hedge selling. Chicago was down 1.5%, and KC HRW was down 1.2%. Year to date US export commitments are still 6% ahead of last year, but losing their lead. USDA says 59% of the full year estimate has now been booked or is already shipped. We would typically be at 67% by now. Net sales for the week ending November 7 were only 238,600 MT. Friday’s Commitment of Traders report indicated that spec funds in Chicago wheat futures and options flipped back to a barely net long position of 391 contracts. They greatly reduced their net short in KC wheat last week by 11,240 contracts, taking it down to -22,689 contracts. The spec funds expanded their net short position in MGE wheat by 2,526 contracts. They were net short 11,570 contracts on November 12.
Soybean futures lost 1.4% for the week. Soybean meal was up 0.7%, with soy oil losing 3.4%. USDA reported weekly soybean export sales on Friday. They were down 31% from the previous week at 1.253 MMT. China was active in the market, buying 760,500 MT for the week in smaller 2-3 vessel increments as private firms utilized their tariff exemptions. Some firms are going slow on importing US beans due to issues unloading in China. US soybean export commitments YTD are 1% larger than last year at this time. They are only 46% of the full year USDA forecast (typically 61%), so the WASDE folks are either seeing another back loaded export year or too optimistic. CFTC data released on Friday showed spec fund money managers still in the bull camp, but a lot less convinced. They cut back 27,379 contracts from their net long position, taking it to +31,050 contracts as of Nov 12.
Cotton futures ended the week with a modest 16 point gain, i.e. 0.25%. Weekly export sales were excellent, with a combined 358,600 RB vs. 345,600 RB of upland and pima varieties the previous week. That is across two marketing years. Export commitments for the year to date are 64% of the full year USDA forecast, better than the 57% average pace. Unshipped sales on the books are 3% larger than last year at this time. The large managed money spec funds trimmed their CFTC net short position in cotton futures and options slightly, cutting 975 contracts the week of 11/12 to be net short 14,272 contracts as a group.
Live cattle futures were down 15 cents for the week, the third week in a row with a $119 handle. Cash cattle trade was $115 in the south this week, with $182 shown in the carcass market. Asks of $116-117 were not met. Feeder cattle futures were down 0.5% on the week. The CME feeder cattle index was $147.39, up 1% from last week. Wholesale beef prices were higher. Choice boxes were up $1.6 (0.7%) for the week, with Select product $1.07 higher or 0.5%. Weekly beef export sales jumped to 28,100 MT but included some delayed reporting. Weekly US beef production was up 0.9% this week, and 0.9% larger than the same week in 2018. Year to date beef production is 0.2% larger than year ago on 1.1% higher slaughter. CFTC data released on Friday showed spec fund money managers stampeding into cattle. They added 12,885 contracts to their net long position in a week, taking it to +73,714 contracts as of November 12. That is the largest eight week expansion of fund longs since the data series began.
Lean hog futures lost 1.4% for the week. Seasonally large pork production is weighing on the market, but rising export shipments are supportive. The CME Lean Hog index was $59.50, down 69 cents (1.1%) from a week ago. USDA showed 2019 pork export sales of 19,900 MT for the week ending November 7, with another 10,800 MT booked for 2020 shipment. China was the destination for 15,400 MT spread across the two years. China did bump up weekly shipments to 10,900 MT from 10,600 MT the previous week. The pork carcass cutout value was $4.91 higher (+5.9%) this week as packer margins improved nicely. The pork belly primal was up 8.1% this week. Weekly pork production was up 2.3% from the previous week, and 4.6% larger than the same week in 2018. Estimated slaughter of 2.749 million head would be 4.7% larger than the same week in 2018. YTD pork production is now 4.3% above year ago on 3.7% more hogs going through the plants. Obviously average carcass weights have been a little higher. The managed money spec funds trimmed 10 contracts from their CFTC net long position in hogs last week. That left them net long 13,248 contracts (futures + options) by close of business on November 12.
The Export Inspections and Crop Progress reports will be released on Monday. EIA ethanol data will be out on Wednesday, with the weekly Export Sales report out on Thursday morning. November feeder cattle futures expire on Thursday. USDA will release their monthly Cattle on Feed and Cold Storage reports on Friday afternoon. Friday will also mark first notice day for December cotton futures deliveries and the expiration of December grain options.
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