Temporal Disintegration

Published on: 16:32PM May 22, 2020

Market Watch with Alan Brugler
May 22, 2020
Temporal Disintegration

Have you struggled to know what day it is this spring? Has sheltering at home, cancellation of public activities (like school or sports) or social distancing in your state really thrown your mental clock off kilter? Are you surprised to find out that Memorial Day is this weekend, already? There is a scientific term for this, temporal disintegration. Under typical conditions, your daily and weekly schedule have enough repeating elements that you kind of “know” where you are on the clock and on the calendar. For many people, this year is just plain “off”. While for more benign reasons, corn and soybean planting are also ahead of schedule, while cattle and hogs that should be long gone are still on the farm because of the packing plant issues with coronavirus. Take a moment or a few hours this holiday weekend to re-set your internal clock to the end of May and look ahead to all the things that still happen during the summer!
Corn futures are still trading in a very narrow range, down 0.55% this week. It reminds me of the old axiom “Never sell a sleeping market”.  On the other hand, buying hasn’t done much good either! US EIA ethanol production rebounded to 663,000 bpd from 617,000 bpd the previous week. Ethanol stocks were lower by 564,000 barrels and are nearing year ago levels. Corn planting progressed to 80% complete, with 43% emerged. US export commitments have reached 72% of the recently increased full year WASDE forecast, vs. the average pace of 93% for this date.  Unshipped sales on the books are now 35% larger than year ago, suggesting a large summer shipping program. Spec fund traders were even more bearish on corn in the week ending May 19. The CFTC net short position for that group expanded another 31,332 contracts to -245,386. That’s the largest spec short net position since mid-May 2019. The record for spec fund bearishness is -322,215 contracts set in April 2019.

Two of the three wheat markets were higher this week. Chicago SRW added premium to KC HRW, with the spread widening to 64 cents from 47 cents last week.   KC HRW was down 1.7% for the week, due entirely to a 10 cent drop on Friday. MPLS was up 1.1% due to planting delays and likely US acreage reduction. Chicago was up 1.7%.  The Virtual Wheat Tour put KS winter wheat production at 284 million bushels, below NASS’s 306 million. Monday’s Crop Progress report showed winter wheat ratings @339 on the Brugler500 index. That was down 1 point from the previous week and 21 points below the initial April rating. Spring wheat plantings still lag the 5 year average pace at 60% complete. Weekly Export Sales data showed bookings in the week ending 5/7 were a combined 428,200 MT, up from 353,300 MT the previous week. The spec funds flipped from net long 2,982 contracts in Chicago SRW to net short 16,476 contracts as of May 19. They also flipped to net short in KC HRW, by 15,038 contracts of futures and options. The record large speculative CFTC spec fund short in MPLS futures grew another 758 contracts for the week to -25,401 contracts.  

Soybeans lost 0.6% this week due to weakness in meal. Soy oil was up 0.34% as palm oil firmed, but meal lost 1.2%. USDA reported that 53% of the US crop had been planted as of Sunday, well ahead of the 38% average pace but matching the five year average progress for that week.  USDA’s Export Sales report showed a 99% jump in weekly export sales through May 14, at 1.2 MMT. New crop sales were 464,000 MT, up a little from the previous week. China was active in both slots. Export commitments are 74% of the USDA projected total vs. the 97% average. Unshipped sales are the smallest since 2015/16 for this date, at 6.4 MMT. That is still an uptick from 5.702 MMT last week. The Commitment of Traders report showed the managed money spec funds losing faith in their long position in beans. They were net long 12,064 contracts on May 19, a reduction of 20,401 since May 12.

Cotton futures were down 1.2% for the week. Cotton planting progress in the US advanced to 44% complete by May 17, up 12% for the week. Weekly upland cotton export sales slowed to 128,900 RB for old crop, with another 120,200 RB for shipment August forward. The Adjusted World Price for cotton was up 65 points to 48.01 cents/lb, The LDP was reduced to 3.99 cents/lb. Both are in effect through Thursday. Spec funds were reducing their CFTC net short in cotton futures during the week ending May 19, cutting another 5,324 from the bear side in the reporting week. That left them net short 9,684 contracts as of Tuesday evening. 

Live cattle futures were up 0.5% this week in the June contract. August feeder futures were down 2%. May expired on Thursday. The CME feeder cattle index was $126.24, up $2.29 from last week. Cash cattle trade continues to be very disconnected, depending on packer operations. Transactions were reported from $115 to $120. Wholesale beef prices are falling back to earth. They were down 8.7% in the Choice and 10.7% in the Select boxes this week. Weekly cattle slaughter was 555,000 head, up 11.2% from the previous week. Beef production was up 11.4% from the previous week but still 11.6% below the same week in 2019. Beef production YTD is now down 4.8% from last year. The Commitment of Traders report showed the big managed money funds extending their net long in cattle futures by 1,388 contracts in the week ending May 19. That boosted the net long to 13,204.  The Friday night USDA Cattle on Feed report showed April placements plunging 22.3% and April marketings down 24.3%. That left the May 1 On Feed down 5.14% from year ago.

Lean hogs lost another 3% this week, but at least the momentum slowed down from the 6% loss the previous week. The CME Lean Hog index was $64.59, down $4.28 from last week. It is heavily influenced by hogs priced via the cutout value. The pork carcass cutout value retreated 12.1% after sliding 5.5% the previous week. Pork belly primals plunged 36.2% after losing 45.4% the previous week. Translation: the raw material for bacon was $2.19/lb on May 11 and only 72 cents per pound on Friday. Weekly hog slaughter was up 1.5% (including Saturday estimate) from USDA’s previous week number and down 7.8% from last year. Pork production rose 2.1% vs. last week but still trailed year ago by 5.9%. Pork production since Jan 1 is now down 0.5%, whereas it had been running +4-+5% BC (Before Coronavirus). USDA’s weekly update to Export Sales showed net negative export sales as high prices caused cancellations and resulted in sales going backwards by 5,800 MT in the week ending May 14.  Shipments, however, accelerated to 49,700 MT as buyers grabbed the meat before it was gone. Of that total, 19,800 MT went to China. The COT report on Friday afternoon showed the managed money spec funds net long 9,370 hog contracts on May 19. That was down 2,861 contracts from the previous week.

Market Watch
We begin the week with the Memorial Day holiday on Monday. That will back up the USDA Export Inspections report and the weekly Crop Progress report until Tuesday. Tuesday will also be the first time cattle traders can react to the USDA COF report released on Friday afternoon. Tuesday will also be the first day that producers can apply for CFAP payments through their FSA office. The EIA will update weekly ethanol data on Thursday, with expectations of further stocks shrinkage. Weekly Export Sales data will be released on Friday morning.

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