Market Watch with Alan Brugler and Austin Schroeder
July 10, 2020
There are times when planets orbiting the sun appear to be moving backwards relative to the one you are standing on. This is retrograde motion. As NASA explains, “Retrograde motion is an APPARENT change in the movement of the planet through the sky. It is not REAL in that the planet does not physically start moving backwards in its orbit. It just appears to do so because of the relative positions of the planet and Earth and how they are moving around the Sun”. Source: https://starchild.gsfc.nasa.gov/docs/StarChild/questions/question46.html. It is all about different speeds and angles. You can be forgiven if it looked like some of our ag markets were exhibiting retrograde motion this week. Corn and beans were down for the week, but still in uptrends overall. Keeping with the planetary theme, wheat was a rocket shot, with Chicago SRW up 8.8% on the week.
Thanks to the Friday action in September corn futures the rally was held to just 1 week, as they were down 1.89% since last Friday. Via daily private export announcements, USDA reported a total of 765,000 MT of old crop and 923,920 MT of new crop corn sold this week. All but 121,920 MT (to Mexico) of 20/21 was to China. The weekly Crop Progress report showed conditions back down 2 points on the Bruger500 index to 381. Much of the deteriorating conditions were in the ECB. Weekly EIA data showed 914,000 bpd of ethanol produced for the week of July 2, up 14,000 bpd wk/wk. Stocks, meanwhile took a turn higher, to 20.620 million barrels. Thursday’s Export Sales report tallied total corn sales at an 8-week high 1.009 MMT. The 599,242 MT old crop brought total 19/20 export commitments to 94% of the USDA projection, vs. the 101% avg. The monthly WASDE update showed 19/20 US carryout 145 mbu higher. They cut FSI by 45 mbu and feed & residual by 100 mbu. New crop ending stocks were down 675 mbu to 2.648 bbu on the cut to production (thanks to the lower acreage). With the lower US numbers, new crop world stocks were cut by 22.83 MMT to 315.04 MMT. The weekly Commitment of Traders report showed specs in corn futures and options covering another 59,907 contracts from their net short position. They were still net short -141,741 contracts on July 7.
Wheat futures caught the bull fever this week with each of the three exchanges double digits higher in September. CBT led the rally with a 43 ¼ cent gain (+8.79%). KC was up 19 ¼ cents (+4.44%), with MPLS taking home a 16 ¼ cent rally (+3.18%). Monday’s Crop Progress report showed winter wheat at 56% harvested, with ratings down 3 points @ 338 on the Brugler500 index. Spring wheat ratings were back up 3 points to 374 on the Brugler500. Combined 20/21 and 21/22 sales were tallied at 251,140 MT (75,000 MT reduction for 21/22), the lowest since the week of Jan 2. Export commitments for 20/21 wheat are now 30% of the USDA forecast, vs. the 31% average for this time of year. Friday’s WASDE update indicated new crop wheat carryout now at 942, up 17 mbu from June. Most of that came from a 61 mbu increase in carryover. A 53 mbu cut to production helped to limit the increase in stocks. On the world side, Russian wheat production was cut to 76.5 MMT, with EU down 1.5 MMT. That helped to trim the 20/21 world wheat carryout 1.25 to 314.84 MMT. Managed money spec traders pared back 5,283 contracts from their net short position in CBT wheat as of Tuesday to 33,529 contracts.
Soybeans also decided 1 week was enough for a rally, as August was down 4 ¼ cents on the week. Meal didn’t help the bull argument, down 1.17%, with soy oil up just 8 points. Condition ratings for soybeans were up 1 point last week to 379 on the Brugler500 index. Thursday’s Export Sales report indicated that 952,193 MT of old crop bean were purchased in the week of July 2. New crop was at 382,139 MT. Export commitments for 19/20 are now up to 102% of the USDA projection, matching the average. WOAB made several adjustments to their US balance sheet on Friday, taking 19/20 ending stocks 35 mbu higher to 620 mbu. Thanks to a 10 mbu increase in production and larger carryover, new crop US carryout was raised 30 mbu to 425 mbu. Among the world changes, Brazil production was raised 2 MMT to 126 MMT. A 2 MMT jump to Chinese imports helped to limit the ending stocks increase to only 0.48 MMT to 99.67 MMT. The new crop stocks projection was cut by 1.28 MMT to 95.08 MMT. This week’s COT update showed spec traders increasing their bullish bet in soybean futures and options by 31,407 contracts to 99,243 contracts. That’s their largest reported CFTC net long in over 2 years.
Cotton futures continued last week’s rally, with October up 2.09% since last Friday. On Monday, NASS tallied condition ratings up 2 to 43% gd/ex with the Brugler500 up 6 points 323. Old crop export sales of just 43,772 RB of 19/20 upland cotton was sold in the week ending 7/25, with just 6,688 RB for new crop. Old crop US upland cotton export commitments are now 120.3% of the newly updated full-year USDA forecast vs. the 108% average. We do have an abnormally large 4.16 million RB in unshipped sales for the 19/20 crop year, with just 4 reporting weeks left in the MY. Speaking of exports, USDA raised the old crop projection to 15.2 million bales, which cut ending stocks 200,000 bales to 7.1 million bales. The new crop numbers were a little friendlier, as both yield and acreage was cut for a 2 million bale drop in production. US 20/21 carryout was down 1.2 million bales to 6.8 million. On the world side, new crop ending stocks were down 1.9 million bales to 102.77 million, mainly on the US cut. The Adjusted World Price for cotton was up 135 points to 51.48 cents/lb, shrinking the LDP to just 0.52 cents/lb. Both are in effect through next Thursday. The large managed money spec traders in cotton futures and options increasing their net long as of Tuesday by 12,664 contracts to 21,520 contracts.
Live cattle futures added to the gains from the previous week, with August up 0.78% from last Friday. Cash trade was around $96-99 in the North this, with a range of $155-160 in the beef. The South saw action at $95-96 on a live basis. Feeder futures also held strong on the week, with August 0.65% higher. The CME feeder cattle index was back up a sharp $5.79 from last week to $134.92. Weekly beef production was tallied at 550.3 million lbs, a 12.2% jump from last week’s holiday and 4.2% larger yr/yr. Slaughter was up just 0.9% from last year, with carcass weights estimated 29 lbs larger. Total YTD beef production is now just 3% lower yr/yr on 5.6% fewer cattle head slaughtered. Wholesale beef prices were lower again this week, as Choice boxes slipped 0.5% since last Friday. Select boxes down 2.2% in that same time frame, as the Chc/Sel spread widened $3.53 to $10.21. USDA raised their 2020 beef production projection by 260 mil lbs to 26.934 bil lbs, mainly on increases to third and fourth quarter production. Specs in live cattle futures and options added 5,287 contracts to their CFTC net long position in live cattle futures and options to 22,908 contracts as of Tuesday.
August lean hogs followed through from last week’s pop, as they saw another 1.12% gain this week. The CME Lean Hog index was down just 10 cents from last week at $45.18. Pork production for the week was estimated at 558.7 million lbs, a 9.7% jump from last year. YTD, production is now up 0.8% on just 9,000 head fewer killed. Slaughter this week was up 7.7% from the same week in 2019. The pork carcass cutout value was up $2.49 (3.7%) this week. The hams led the way, up 21.3%, with the belly also 9% higher. The USDA Quarterly meat production tables showed a 770 mil lb increase to 2020 pork production. Friday’s Commitment of Traders report indicated managed money held a net long position pf 6,635 contracts by Tuesday, increasing it 1,937 contracts from the week prior.
Outside of the typical summer weather talk, next week should be normal in terms of reports. We will get the normal Export Inspections rundown on Monday morning, as well as the Crop Progress reports that afternoon. Tuesday is the last trading day for July futures of corn, soybeans, meal and oil, and the three wheat exchanges. Wednesday will show the monthly NOPA crush report with June data. July lean hog futures and options also expire on Wednesday. The weekly Export Sales report will be out on Thursday morning.
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There is a risk of loss in futures and options trading. Similar risks exist for cash commodity producers. Past performance is not necessarily indicative of future results.
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