Market Watch with Alan Brugler
Dec 6, 2019
Work to Do
In Economics 100, they usually teach you that price is the intersection of supply and demand, and price moves in response to shifts in either the demand curve or the supply curve. That is a rather simplistic model, however, as pricing really moves in more than one dimension. Time is often ignored. Due to money flow, prices can become too low or too high at any one time relative to where the full year numbers suggest they should end up. Market information is also imperfect. We still don’t know the size of the US corn crop within 3-4 bushels per acre (some say more), and that has implications for price. In many of the ag markets, we still have work to do on the demand side. Temporarily low prices don’t technically change demand, but they do increase consumption. Corn, soybeans and hogs in particular are suggesting they would like to see more export business.
Corn futures lost another 4 ½ cents bushel in the first week of December, and are now down 95 from their mid-October high. USDA reported net weekly export sales of 548,500 MT. The old crop portion of that was down 12% from the previous week. Keep in mind that the reporting period included Thanksgiving Day, when little was done. Corn export shipments since September 1 are down 57% from year ago, due to a combination of higher US average cash prices and increased South American availability. The latter are beginning to tighten. Friday’s Commitment of Traders report showed the managed money spec funds trimming their net short position by 30,935 contracts in the week ending December 3. They were still net short 85,137 contracts, however.
Wheat futures were lower in all three markets this week, suffering a bit of a hangover after triple digit gains in winter wheat contracts the previous week. Chicago futures gave back some of their premium to MPLS spring wheat, but the CHI/MPLS spread was still +12 at the end of the week. The CHI/KC spread shrank to 94 cents after peaking in triple digit territory. Weekly Export Sales report slowed to 228,100 MT, due in part to the timing of the holiday. Export commitments for US wheat are now 64% of the USDA projection nearly halfway through the MY, which is ahead of last year but lagging the 73% average. Actual shipments are 22% larger yr/yr, with unshipped sales lagging 2018/19 by 27%. The Commitment of Traders report on Friday afternoon showed the large spec funds nearly doubling their net long position in Chicago wheat last week, adding 10,092 contracts to a net long that totaled 20,567 contracts on December 3.
Soybean futures posted a 12 3/4 cent gain this week, for a two week decline of 7 cents. Soybean meal was up 2.1% to add product value. Soybean oil was also up 2.1%. Friday’s Export Sales report revealed a 59% drop in bookings to 683,800 MT for the week ending on 11/28. Export commitments for soybeans are 8% above last year, although unshipped sales are down 9%. Accumulated exports to date are 33% larger than last year. The CFTC report showed the large speculator funds loading up on short futures and options positions in the week ending December 3. They were net short 99,019 contracts after adding 56,078 contracts for the week.
Cotton futures were up 0.9% for the week. Weekly export sales for Upland cotton were down 42% from a very strong previous week. Combined old crop and 2020/21 sales were 165,900 RB. Pima sales were 4,500 RB. Upland export commitments YTD are 69% of the full year USDA projected total, outpacing the 63% average. Unshipped sales on the books are 5% larger than last year at this time. The new AWP is 55.97 cents/lb, which was a 23 point reduction from the previous week. Spec funds are keeping their newly hatched net short in cotton, adding another 2,615 contracts to the position in the week ending 12/3. That left them short 7,661 contracts as of Tuesday night.
Live cattle futures lost $1 for the week. Nearby feeders were down 72 cents (0.5%). Cash cattle trade saw most of the volume at $119 and $188 in the carcass-based market. Both were up 50 cents or so from the previous week. The CME feeder cattle index was $144.49, down 62 cents from last week. Wholesale beef prices were sharply lower this week. Choice boxes were down $7.56/cwt (-3.3%) for the week, with Select product $3.04 lower or -1.4%. Weekly US beef production was up 23.1% this week due to low production over Thanksgiving, and up 2% from year ago. Year to date beef production is 0.4% larger than year ago on 1.1% higher slaughter. USDA Export sales data 12,200 MT for the week ending 11/28, with all but 500 tonnes to be shipped in 2020. The large spec funds trimmed 3,443 contracts from their net long position in cattle during the week ending December 3. That left them net long 78,214 contracts when CFTC collected the data. Official Census beef exports for October were 9% smaller than year ago. However, shipments for the first 10 months of 2019 have already reached 95.8% of the 2018 final number. They stand a decent chance of reaching 3 billion pounds for the year for the first time ever.
Lean hog futures lost 0.9% for the week. December futures continued to anticipate a rally in cash hogs between now and expiration on December 13. Cash wasn’t rallying, so the board shed a little premium. The CME Lean Hog index was $58.34, down 26 cents from last week. The pork carcass cutout value was $0.91 higher (+1.1%) on the week. Ribs were the strongest component. Weekly pork production was up 20.2% vs. the previous holiday depressed week, and 9.4% larger than a year ago. Estimated weekly slaughter surged to 2.799 million head. YTD pork production is now 4.6% above year ago on 4.0% more hogs going through the plants. The USDA weekly export sales data for the week ending 11/28 showed 32,000 MT sold. With 5 weeks still left in the year pork commitments are already the highest they’ve ever been for a single year. China continues to ramp up shipments, taking 11,500 MT for the week. Official Census pork exports were 3.6% larger than year ago in October. The 10 month total of 4.496 billion pounds is a new record, thanks to both record availability (US production) and need (Asian ASF losses). The CFTC report showed the spec funds adding another 2,914 contracts to their net short in hogs, taking it to -3,774 as of December 3.
Traders will begin the week dealing with any surprise positions inherited after the December cattle options expiration on Friday. Monday will be first notice day for December live cattle deliveries. Monday will show the normal Export Inspections report and a Crop Progress report in the afternoon (due to harvest delays they are still collecting data). Tuesday, USDA will release their monthly Crop Production and WASDE numbers. Little to no change is expected in US grain production, but the demand side numbers could move. EIA ethanol data will be released on Wednesday per usual. The Fed will also announce whether they are making any interest rate changes following the FOMC meeting. None are expected. The weekly Export Sales reports will be out on Thursday morning. Friday will mark the expiration of the December grain futures and lean hog contracts.
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