Market Watch with Alan Brugler and Austin Schroeder
April 9, 2020
Take What You Can Get
Last week, as most of you know, was “some kind of ugly” if you look at the weekly changes. Everything (almost) was in the red, and by a lot! But let’s not dwell on the past. This week we saw things turn around, with (almost) everything showing some gains. Whether it was a penny or $10, we’re not complaining! From that standpoint we’ll take what we can get, because the market has not been too friendly to the bulls recently (unless you’re wheat). With that in mind, seeing some green on the screen this week was a sight for sore eyes. We mentioned the infamous axiom last week that, “low prices cure low prices.” While that was the case this week, we hope it can continue as we move into spring!
Corn futures posted a modest 1 cent gain over the course of the week, though we saw the lowest front months price since September 2016 at $3.25 ½. The apparent reason for the weakness was the loss of ethanol consumption, with EIA ethanol production at the lowest recorded total of 672,000 barrels per day. That was down another 168,000 bpd and the largest single weekly drop on record. Despite the suppressed supply, ethanol stocks rose to a new record 27.091 million barrels. Keeping on the subject, USDA reduced their 19/20 ethanol grind projection by 375 mbu on Thursday to a 6-year low 5.05 bbu. Feed and residual was raised by 150 mbu, helping to limit the jump in stocks to 200 mbu at 2.092 bbu. On a bright note, weekly corn export sales posted a MY high 1.848 MMT for old crop in the week of 4/2, with 608,770 MT booked for new crop, most of which was previously announced to China. Total old crop export commitments are now 77% of USDA’s 19/20 projection vs. the 83% average for this date. The recent buying has pushed unshipped sales to 11% larger than year ago. Low prices are trying to cure low prices.
We saw modest gains in the Chicago and Minneapolis markets this week, with KC the leader. Nearby HRW was up 4.24% on forecast worries, as HRS posted a 1.57% gain with Chicago SRW 1.32% higher. Forecasts show chances for temps to dip down to the low 20s and even teens in parts of KS and NE on Sunday night. With no cover and wheat exiting dormancy this could cause some crop loss. Monday’s Crop Progress report showed initial winter wheat ratings of 62% gd/ex, equating to 360 on the Brugler500 index. Fast-forward to Thursday’s WASDE update, USDA raised US wheat ending stocks by 30 mbu. They got there via a 15 mbu cut to both exports and feed & residual. That helped to push world wheat carryout 5.64 MMT higher to 292.78 MMT, along with additions to China and India’s stocks. Weekly Export Sales data showed bookings in the week of 4/2 rebounding form last week’s MY low to 258,598 MT. Another 117,400 MT were booked for new crop shipment. Total old crop commitments are now running only 1.8% ahead of year ago. They are 93.4% of USDA’s newly updated export projection of 985 mbu vs. the average of 102%.
Soybeans bounced from last week’s 3.1% loss, posting a 1.08% gain on the shortened 4-day week. Meal was the weight on the market, with a 3.53% decline. Soy oil bounced 3.71% since last Friday. The drop in meal comes despite lost DDG production from ethanol. In the monthly balance sheet update, USDA raised 19/20 soybean carryout by 55 mbu to 480 mbu. That increase came from a 50 mbu cut to exports and 25 reduction to seen and residual. Crush, however, was pushed 20 mbu higher as we’ve had several record months so far this MY. The world numbers were a little friendlier with Argentina (52 MMT) and Brazil (124.5 MMT) production trimmed a combined 3.5 MMT. That helped to cut 1.99 MMT from the ending stocks projection to 100.45 MMT. Old crop soybean export sales for the week ending April 2 slipped from the week prior at 523,476 MT, but were still 93.6% larger yr/yr. We also saw a MY high 353,401 MT booked for new crop. Export commitments are 14.9% below last year and 77.4% of the USDA projected total vs. the 93% average. Unshipped sales are the smallest since 2015/16 for this date, at 5.263 MMT.
Cotton futures broke a 4-week streak of lower weekly closes on Thursday, as May was up 6.79%. Loss of demand is still the concern, and USDA noted that in their monthly WASDE update. The US cotton balance sheet saw exports slashed by 1.5 million bales to 15 million bales (~13.95 million RB), even though total commitments sit at 15.287 RB. Thursday morning’s Export Sales report can help to explain some of that as we saw a total of 5,167 RB in net reductions for 19/20 sales, though shipments were a MY high 486,591 RB. New crop bookings were a solid 107,387 RB. Overall, the USDA raised the US carryout total 1.6 million bales to 6.7 million. World ending stocks were a sharp 7.86 million bales higher on lower use to 91.26 million bales. The AWP was up 166 points to 44.29 cents, bringing LDP to 7.71 cents.
Live cattle futures gained some traction this week, with April posting a 6.74% gain as we saw expanded limits in each of the 4 trade sessions. Futures and cash are working on converging ahead of April’s expiration at the end of the month, with cash trade hovering around $105 so far this week. Feeder futures recouped most of last week’s losses, with May back up 10% this week. The CME feeder cattle index was $114.97 as of 4/8, down $11.12 from last week. Wholesale beef prices were down again this week, adding to last week’s losses. Choice 600-900# boxes were 4.3% cheaper on Thursday/Thursday, with Select product down $14.55/cwt, or 6.6%. The Chc/Sel spread widened out to $15.10 by the end of the week. With the lower beef prices and outbreak of COVID-19 in a handful of packing plants, beef production has taken a hit. Weekly cattle slaughter through Thursday was down to 417,000 head, vs. the 467,000 head last week and 475,000 in 2019. USDA’s weekly Export Sales report showed bookings of 15,822 MT in the week ending 4/2. Total commitments are now 15.6% above a year ago.
April lean hog futures managed to claw back some of the previous week’s losses, with May futures up 5.34%. As with cattle, futures are discounting a substantial drop in cash hog prices over the next two weeks (until April futures expiration next Wednesday). The CME Lean Hog index was $52.97 as of 4/7, down $10.11. Basis was busy narrowing to less than $10 from the +$22.86 per hundred pounds last week. The pork carcass cutout value was down another 13.75% this week, following the 22.3% drop last week. All primals were lower, with the loin, picnic, and butt all down by double digits. Grocery stores were again very slow to reduce prices to reflect the surplus stocks now being seen in the pipeline. Weekly hog slaughter through Thursday was down 39,000 head at 1.909 million head. They were still up 49,000 head from a year ago. Weekly Export Sales data showed a 2020 high in bookings of 55,913 MT. China was 38,730 MT of that total, as they now have 363,021 MT in shipped and unshipped sales.
Following the extended Easter weekend, we get a somewhat normal week. Monday will have the Export Inspections report from USDA, with the Crop Progress report that afternoon. We will get our first look at corn and spring wheat planting progress as well as any updates to winter wheat ratings. As we switch to Wednesday, EIA will update weekly ethanol data and NOPA will show March soybean crush among its members. April lean hog futures and options also expire on Wednesday. Weekly Export Sales data will be released on Thursday morning.
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