Refried Confusion

Published on: 15:48PM Oct 18, 2019

Market Watch with Alan Brugler
October 18, 2019
Refried Confusion

Way back in 1973, that philosopher Dr. John had a hit song titled Right Place, Wrong Time.  It started out with these lines:

I been in the right place but it must have been the wrong time
I'd have said the right thing but I must have used the wrong line
I been in the right trip but I must have used the wrong car
My head was in a bad place and I'm wondering what it's good for

And Later….
Refried confusion is making itself clear (oooh)
Wonder which way do I go to get on out of here?

That just goes to show you that some things never change! Ag traders were whipsawed again this week, with December hogs limit up and then giving it all back.  Soybeans were bullish on expectations for large Chinese purchases following the Washington meeting, and then both sides walked back the expectations of a quick deal or asked for more concessions. That made the beans back off. On Friday, USDA reported huge pork export sales of 292,200 MT, including an improbable weekly total of 132,400 MT to Mexico and 94,000 MT to China. And those were just for Oct-Dec shipment. There were more sales for 2020. There was some refried confusion on that one, and the Department later clarified that the totals included some previous sales that hadn’t been reported to USDA until now. The hog market’s head was in a bad place, and this good news failed to make the market move higher.

Corn futures retreated 1.7% this week, with better than expected yields in some areas, lack of clarity on freeze damage, and definite price rationing on the demand side. On Monday NASS showed 73% of the US corn crop mature by last Sunday, with harvest 22% complete (lagging the normal 36%). Condition ratings also slipped 1 point on the Brugler500 index to 347. EIA data showed a third consecutive week with sub-1 million bpd production, but a larger grind than the previous week. Ethanol stocks built back up 817,000 barrels after reaching a 2 year low of 21.224 million barrels the previous week. Corn export sales remain depressed, with US cash corn prices at a 6 year high for the month of October.  Net sales were 368,600 MT for the week ending October 10. Commitments are now 37% of the full year USDA forecast. They would typically be 51% by now, so USDA is either too high or expecting the shipping season to be back loaded. In the week ending October 15, the large managed money spec funds cut 24,527 contracts from their net short position in corn futures and options putting them at -66,141 contracts.

Wheat futures saw gains in two of the three classes this week, with CBT leading the way up 4.77%. KCBT HRW was 3.1% higher since last Friday, with MPLS down 1% due to a sell off on Friday. Crop Progress data on Monday showed the spring wheat harvest was 94% complete, a 3% move on the week. It also indicated the winter wheat crop was 65% seeded, right on the five year average pace. Weekly export sales for the week ending October 10 dropped to 395,100 MT.  Year to date commitments are still 14% ahead of last year at this time. Friday’s Commitment of Traders report indicated that spec funds in Chicago wheat futures and options cut 8,574 contracts from their net short position last week, shrinking it to -10,564 as of October 15. They reduced their net short in KC wheat last week by 11,723 contracts, taking it down to -23,353 contracts.

Soybean futures lost 0.2% for the week after failing to crack resistance at $9.48 in nearby November futures on Monday. They did hit the highest price since June 2018 on the front month continuation chart this week. Soybean meal was down 0.7%, with soy oil gaining 1.3%. Harvest was moving slowly, with the 25% harvested by October 13 lagging the normal 49%. Activity was picking up sharply as the week went on. USDA’s weekly Export Sales report indicated 1.60 MMT soybeans sold in the week ending 10/10, down from 2.092 MMT for the week ending 10/3, but exceeding trade estimates. China purchased 850,500 MT of that total, but also purchased at least 8 cargos from Brazil. Soybean export commitments (shipped and unshipped) are 13% smaller than last year at this time. CFTC data released on Friday showed spec fund money managers fully back in the bull camp. They added 42,528 contracts to their net long position, taking it to +49,029 contracts as of October 15.

Cotton futures ended the week with December up 2%. The weekly Crop Progress report showed 87% of the US cotton had bolls open by Sunday, with harvest progressing 5% faster than average at 32%. Weekly export sales expanded again, to 206,500 RB of upland and 4,500 RB of pima. Export commitments for the year to date are 59% of the full year USDA forecast, better than the 52% average pace. The large managed money spec funds continue to trim their net short position in cotton futures and options, cutting it by 7,929 contracts the week of 10/15 and whittling the net bearish position down to 11,377 contracts. As a point of interest, the US dollar index was down all week and the funds were net buyers of all the grains, livestock and cotton we track in our CFTC sheet. There may be exceptions in the ones we don’t follow.

Live cattle futures were up another 0.9% for the week. October retreated on Friday because the basis got too negative. Cash cattle trade was $107-108 live and $173 in the North on Friday. USDA had picked up a few sales at $111 early in the week. Feeder cattle futures were down 0.4% on the week. The CME feeder cattle index was $145.60, up $1.97 for the week. Wholesale beef prices continued to firm. Choice boxes were up $2.38, or 1.1% for the week, with Select product $4.36 higher or 2.3%. Beef export sales totaled 13,000 MT for 4Q19 shipment and 500 MT for 2020. After the big cancellation the previous week, Hong Kong was a small net buyer. Weekly US beef production was down 0.4% this week, but 2.0% 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 fully back in the bull camp. They added 9,531 contracts to their net long position, taking it to +21,543 contracts as of October 15.

Lean hog futures lost 2.4% for the week despite the huge export sales figures but were still higher than two weeks ago. The CME Lean Hog index was up $4.25 for the week at $64.90. USDA showed massive 2019 pork export sales of 292,200 MT for the week ending October 10. That included 132,400 MT for Mexico and 94,000 MT for China. Another 58,900 MT were confirmed for 2020.  They did issue a statement that some of these sales were for previous weeks but just now being reported by the vendors. Overall, it creates a much stronger export demand picture, but futures traders didn’t trust the numbers enough (suspecting a reporting error) to buy into the report on Friday. The pork carcass cutout value was $0.49 lower this week (-0.6%). The pork belly primal was down 9.7% to drag the carcass value lower. The belly primal hit the lowest price level since October 1. Weekly pork production was up 1.2% from the previous week, and 4.8% larger than the same week in 2018. Estimated slaughter of 2.726 million head was up 1.2% from the downward revised total from last week. YTD pork production is now 4.2% above year ago on 3.7% more hogs going through the plants. The managed money spec funds added 6,835 contracts to their CFTC net long position in hogs last week, taking it to 25,251 contracts (futures + options) by close of business on 10/15.

Market Watch

We go back to a normal non-holiday reporting schedule this week. The Export Inspections and Crop Progress reports will be released on Monday. The monthly USDA Cold Storage report is scheduled for Tuesday afternoon release.  EIA ethanol data will be released on Wednesday morning, with the weekly Export Sales report out on Thursday morning. November grain options, notably soybeans, will expire on the 25th (Friday). USDA will also release the monthly Cattle on Feed report that afternoon.

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