Some Kind of Ugly

Published on: 17:02PM Apr 03, 2020

Market Watch with Alan Brugler
April 3, 2020
Some Kind of Ugly

 “Beauty is only skin deep, but ugly goes clean to the bone.”
― Dorothy Parker
“If you think something is ugly, look harder. Ugliness is just a failure of seeing.”
― Matt Haig, The Humans

I can only describe this week’s price action in the ag commodity markets as ugly.  It doesn’t get much uglier than front month hog futures dipping down to October 2002 prices or cotton futures hitting the lowest readings since 2009. Old crop corn futures were the lowest since 2016. Crude oil had dipped to 2001 levels the previous week and then was rescued by the potential for a production cut deal. At times like these we need to remember the famous market axiom that “low prices cure low prices”. They kill off production and stimulate consumption, and eventually prices revert to the mean.

Corn futures sank 4.4% this week after what we accurately termed last week as a “temporary bottom”.  The US average cash corn price dropped to the lowest reading for this calendar week since 2006. Loss of ethanol consumption is the culprit, causing between 20-30% of US manufacturing capacity to go offline and thus use less corn. Weekly EIA ethanol production averaged only 840,000 barrels, the largest single weekly drop on record.  Ethanol stocks rose despite the smaller production, as gasoline use is way down. Weekly corn export sales slowed to 1.075 MMT in the week of 3/26. On the plus side, USDA announced a new 567,000 MT sale to China under the daily reporting system on Friday. On the minus side, most of that (504k) was for new crop delivery, i.e. after September 1. Total old crop export commitments are now 73% of USDA’s full year projection vs. the 81% average for this date. Unshipped sales on the books are 3% larger than year ago.  The CFTC Commitment of Traders report showed shrinkage in the bearish spec fund positions for corn. They pared back 8,217 contracts in the reporting week ending March 31, dropping it to -100,332 contracts.

All three wheat futures markets posted losses this week. CBT wheat was down 3.8%, shedding some of its premium to the other classes.  KC HRW was down 2/8% for the week and MPLS was off 1.8%.  US weekly export sales slowed to a trickle at 72,900 MT (less than 3 million bushels). Another 185,900 MT were booked for new crop shipment. Total old crop commitments are now running only 1% ahead of year ago. Managed money spec funds added 18,301 contracts to their new CFTC net long in Chicago wheat during the week ending March 31. They were net long 35,971 contracts as of Tuesday evening. In KC wheat futures and options they bout a net 7,803 contracts for the week, flipping a net short position toa net long of 2,447 contracts. Specs in MPLS futures and options reduced their net short position by 2,862 contracts (-13,445 as of March 31). 

Soybeans lost 3.1% this week, with plunging product values driving the decline.  Meal lost 6.2% for the week, and soy oil was down 1.6%. Export sales for the week ending March 26 were up 6% at 957,400 MT.  Soy oil sales were a marketing year high 67,000 MT thanks to a big South Korean buy. Export commitments are 15% below last year and 74% of the USDA projected total vs. the 92% average. Unshipped sales are the smallest since 2015/16 for this date, at 5.102 MMT. Friday’s CFTC report indicated managed money spec traders were net long 23,230 soybean contracts as of March 3.  It took net buying of 25,674 contracts during the week to get them there just in time for the sell off. 

Cotton futures held their ground well, compared to the other markets. They were down 0.6% or 31 points for the week. Loss of demand is still the concern, with both the US, Asia and Europe tipping into likely steep recessions due to efforts to slow the COVID-19 pandemic. Thursday’s Export Sales report showed a slow down in cotton interest, with net sales of 147,500 RB for old crop upland cotton. Another 111,400 RB were booked for new crop delivery slots. The US cotton export commitments are now 19% larger than last year and have reached 100% of the full-year WASDE estimate vs. the 94% average pace. The marketing year ends July 31. Unshipped upland sales on the books are 16% larger than year ago. CFTC’s Commitment of Traders report showed managed money spec traders expanding their net short position by 2,019 contracts in the week ending March 31, boosting it to 17,274 contracts.

Live cattle futures plunged more than 12% this week, anticipating sharp declines in both wholesale beef and cash cattle prices over the next 27 days (until April futures expiration). Cash trade dropped from $115 the previous week to mostly $105 at the end of the week. but April futures are calling for a drop to $88 by the end of the month. Is this speculative excess? Panic liquidation by fund longs running out of money? Or an accurate assessment of a coming decline in beef prices due to all the restaurants being forcibly closed? The market is still trying to sort that out. Feeder futures were down 10.6% this week as they just plain don’t “pencil” at the futures prices being observed. The CME feeder cattle index was $126.09, down $4.35 after rising $9.06 the previous week. Wholesale beef prices were down sharply, offsetting much of the 19% rise from two weeks earlier. Choice 600-900# boxes were 8.9% cheaper on Friday than a week ago. Select product was down $26.54/cwt, or 10.9%. The Chc/Sel spread ended the week at $14.60. Weekly beef production dropped 7.4% from last week on 7.4% smaller slaughter. It was still 3.2% larger than the same week in 2019. The YTD beef production is 4.8% larger than 2019.  USDA’s weekly Export Sales report showed a jump in sales, to 18,200 MT. Friday’s Commitment of Traders report showed managed money funds in live cattle futures and options net short only 278 contracts as of March 31.  The funds were liquidating more shorts than longs during that steep price decline. Hedger shorts did increase for the week. 

April lean hog futures plunged 31.2% in a single week, reaching the lowest level for nearby futures since 2002. As with cattle, futures are discounting a substantial drop in cash hog prices over the next two weeks (until April futures expiration). The CME Lean Hog index was $63.08 this week, down $3.09. That 4.7% drop pales in comparison to the 31% futures decline. The basis is very strong at +$22.86 per hundred pounds. The pork carcass cutout value was down 22.3% in a single week. Hams, bellies, ribs and butts all lost at least 1/3 of their wholesale value in a single week. Grocery stores were VERY slow to reduce prices to reflect the surplus stocks now being seen in the pipeline. Weekly pork production was down 6.8% from the previous week and still 4.4% above the same week a year ago. Estimated pork production for the year is up 5.4% YTD on 5% more slaughter. Thursday’s Export Sales report showed net weekly sales of 38,200 MT. China ramped up purchases at 18,900 MT but backed off from weekly shipments near 23,000 MT to 16,200 MT this past week. CFTC data indicated managed money spec funds added 236 contracts to their net long position in the week ending March 31, growing it to 23,366 contracts of futures and options.

Market Watch
Next week will start out  with the Export Inspections report on Monday morning. NASS will also begin weekly crop progress and condition ratings for winter wheat across the full 18 state area. Wednesday will feature the weekly EIA ethanol and energy inventory report. Weekly Export Sales data will be published on Thursday morning, along with the monthly WASDE supply/demand estimates from USDA.  March cotton options also expire on Thursday. Markets are closed on Good Friday for the Easter weekend.

Visit our Brugler web site at or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.  

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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