Market Watch with Alan Brugler
May 29, 2020
If you compress solids, liquids or gasses into smaller spaces, you typically get higher heat and pressure. If there are any gaps or weak spots in the containing vessel, you get bubbles, jets and fountains of escaping material! The US and global economies have been slowing because of COVID-19 and various measures to slow the spread and limit the fatalities. That’s putting pressure on household budgets, and distorting distribution and demand channels. There is lots of money chasing food and toilet paper, less chasing airline tickets and stadium seats. It is also putting mental pressure on people, with calls to crisis prevention lines and drug overdoses rising. The central banks and Treasuries have also arguably been upping the heat by throwing more liquidity and stimulus into the pot. They are thinking of it as anti-freeze against the economy seizing up, but it does change the boiling point. What does this have to do with ag? We’re starting to see some of those bubbles and jets, days where prices lose containment and pop higher. At various points this week we saw double digit gains in corn, soybeans and wheat. Cattle and hogs had their episodes of multiple limit move days a few weeks back. As the stay at home restrictions are lifted and people get out and spend more, expect a little more heat in the economy and more of those jets and fountains. Of course, if it is cold out there, they dissipate quickly.
Corn futures rose 2.4% this week, thanks to a strong rally on Thursday. US EIA ethanol production rebounded to 724,000 bpd from 663,000 bpd the previous week. Ethanol stocks were lower by 450,000 barrels and just a little above year ago levels. Corn planting progressed to 88% complete, with 64% emerged. That is about 6% ahead of average. The first Bruger500 crop condition index rating was 376, a very average initial reading. US export commitments have reached 88% of the full year WASDE forecast, vs. the average pace of 95% for this date. Unshipped sales on the books are now 41% larger than year ago, suggesting a large summer shipping program. Spec fund traders were even more bearish on corn in the week ending May 26. The CFTC net short position for that group expanded another 30,817 contracts to -276,203. That is the largest spec short net position since mid-May 2019. The record for spec fund bearishness is -322,215 contracts set in April 2019. The large managed money spec funds have added 103,856 contracts to their outright short position in 4 weeks. Despite all the selling, spot corn futures have risen 17 cents during that same period.
All three wheat markets were higher this week, with KC HRW up 5.8% to lead the advance. Chicago SRW was up 2.5% in the holiday shortened week, and MPLS rose 2.2%. Monday’s Crop Progress report put winter wheat ratings @341 on the Brugler500 index. That was up 2 points from the previous week. Spring wheat plantings still lag the 5 year average pace at 80% complete. The weather will be better over the next two weeks if growers want to gamble on plantings (and reduced coverage) past the crop insurance date. Weekly Export Sales data showed bookings in the week ending 5/21 were a combined 706,300 MT, a nice jump from the week before. The spec funds pared 4,272 contracts from their net short in Chicago SRW during the week ending May 26. That left them net short 12,204. They expanded their net short in KC HRW, by 10,705 contracts of futures and options during the week, to -25,743. The record large speculative CFTC spec fund short in MPLS futures shrank 2,483 contracts for the week to -22,918 contracts.
Soybeans gained ¾ of 1 cent per bushel net for the week as they spent the rest of the week giving back a double-digit rally from Tuesday. Soy oil was up 2.8%, but meal was down again, by 0.3%. USDA reported that 65% of the US crop had been planted as of Sunday, well ahead of the 55% average pace. USDA’s Export Sales report had soybean sales nearly doubling the previous week, but they fell back 47% in the week ending May 21, to 644,300 MT. China was active in both old and new crop slots. Export commitments are 92% of the USDA projected total vs. the 98% average. The Commitment of Traders report showed the managed money spec funds losing faith in their long position in beans. They were net long 5,813 contracts on May 26, a reduction of 6,251 since May 19.
Cotton futures were down 0.6% on the week after slipping 1.2% the previous week. Cotton planting progress in the US advanced to 53% complete by May 24, up 9% for the week and matching the average pace. Weekly upland cotton export sales slowed to 44,600 RB for old crop, with another 171,900 RB for shipment August forward. The Adjusted World Price for cotton was up 65 points to 47.48 cents/lb, The LDP was raised to 4.52 cents/lb. Both are in effect through Thursday. Spec funds were reducing their CFTC net short in cotton futures during the week ending May 26, cutting another 2,825 from the bear side in the reporting week. That left them net short 6,859 contracts as of Tuesday evening.
Live cattle futures rose 2.5% in the June contract this week despite some backsliding on Friday. August feeder futures were up 4.7%. The CME feeder cattle index was $129.36, up $3.12 from last week. Cash cattle trade continues to be very disconnected, depending on packer operations and the condition of the cattle. Transactions were reported from $110 to $119 on Friday, with Texas the weakest. Dressed trade ran $178-190. Wholesale beef prices are falling back to earth. They were down another 8.4% in the Choice and 9.1% in the Select boxes this week. Weekly cattle slaughter was 524,000 head, down 5.6% from the previous week due to the holiday. Beef production was down 5.1% from the previous week and 7.6% below the same week in 2019. Beef production YTD is now down 4.7% from last year. Estimated carcass weights are 30# higher than last year. On Friday, USDA showed improved weekly beef export sales through May 21, with a net of 11,500 MT including lead buyers South Korea, Japan and China. The Commitment of Traders report showed the big managed money funds extending their net long in cattle futures by 1,773 contracts in the week ending May 26. That boosted the net long to 14,977.
Lean hogs rebounded 2% for the week despite a near limit down session. The CME Lean Hog index was $62.95, down $1,.64 from last week. It is heavily influenced by hogs priced via cutout value formulas. The pork carcass cutout value retreated 8.8%. Pork belly primals rose 19% after falling 36.2% the previous week. Weekly hog slaughter was down 8% (including Saturday estimate) from USDA’s previous week number and down 7.7% from last year. Pork production was down 7.6% vs. last week and trailed year ago by 6.1%. Pork production since Jan 1 is now down 0.6%, whereas it had been running +4-+5% BC (Before Coronavirus). USDA’s weekly update to Export Sales showed net export sales of 20,600 MT in the week ending May 21. Shipments slowed from 49,700 MT the previous week to 34,500 MT as supplies tightened and prices were still elevated. Of that total, 15,200 MT went to China. The COT report on Friday afternoon showed the managed money spec funds net long 10,273 hog contracts on May 26. That was up 903 contracts from the previous week.
We start June with several USDA reports. We get the usual Monday Export Inspections report and the weekly Crop Progress report. Since it is the first of the month, we’ll also see the Grain Crushings and Fats & Oils reports from USDA on Monday. The EIA will update weekly ethanol data on Wednesday, with expectations of further stocks shrinkage and larger daily corn use. Weekly Export Sales data will be released on Thursday morning. June cattle options will expire on Friday.
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