Market Watch with Alan Brugler
October 9, 2020
Step Into My Time Machine
The thing that struck me about this week’s market commentaries was the number of references to multi-year highs. Time travel isn’t a new concept. H.G. Wells published a novella called The Time Machine in 1895 centered on time travel. For those of a certain age, Professor Peabody and Sherman had the WAYBACK machine in the 1960’s Rocky and Bullwinkle cartoon series. Have we been visiting the past with current market action? Here is just a sampling using weekly continuation or front month futures charts, with the dates being end of week rather than exact day:
Hogs: Highest Trade Since August 16, 2019
Soybeans: Highest Trade Since January 31, 2017
Corn: Highest trade since August 30,2019
CBT Wheat: Highest trade since December 31,2014
Soybean Meal: June 29,2018
My purpose in bringing up the subject is that historical context is important. For some of those markets, this represents excellent selling opportunities, the best since X. However, in other cases we’re looking past the valley of depressed prices and merely back into “normal” ranges. Whether you blame those low prices on the global trade war, the huge acreage expansion worldwide over the past decade, or the coronavirus shutdowns is immaterial. Try to avoid the “been down so long, it looks like up to me” viewpoint. Ask yourself what has changed since the last time we were at this price level. Are the higher prices achieved even further back in time still attainable? What helped them happen?
Corn futures continue to rally, with help of a strong Friday move. December was up another 15 ¼ cents on the week. The monthly Crop Production report showed the NASS corn crop forecast at 14.722 bbu, down 278 mbu from the September report. That drop was mainly due to a 1 million acre cut in harvested acreage, as national yield was down 0.1 to 178.4 bpa. Mix that with lower carryover from 19/20 and 100 mbu lower use (feed and FSI) and USDA pegs the US ending stocks total at 2.167 bbu, down 336 mbu from last month. EIA showed a 42,000 bpd jump in ethanol production to 923,000 bpd, with stocks down 19,000 barrels to 19.672 million. The FAS Export Sales report from Thursday indicated another 1.226 MMT in 20/21 sales during the week ending 9/24. Export commitments are now 25.85 MMT, 44% of the full year WASDE export estimate vs, the 5-year average of 30% for this date. Monthly export data from Census showed 4.54 MMT in August shipments, with an all-time record of 1.177 MMT to China. CFTC data on Friday tallied spec traders in corn futures and options trading at a net long position of 134,466 contracts as of Tuesday, a 27,646 contract increase from last week.
The wheats were higher again this week, as KC continues to unwind the spreads between the other markets. Minneapolis HRS was up 12 cents, with Chicago SRW 20 ½ cents higher and KC HRW rallying 26 cents. The USDA cut in 2020 HRW production is feeding the spread change. After receiving production and first quarter use data last week, WASDE updated the 20/21 wheat balance sheet on Friday. They adjusted carryover and production lower accordingly and raised feed and residual by 10 mbu, taking carryout to 883 mbu, a 6-year low. The weekly Export Sales report showed 530,600 MT in wheat bookings during the week ending 10/1. Total commitments for 20/21 exports are now 14.64 MMT, 55% of the USDA forecast and matching the average pace. August export data from Census indicated 2.56 MMT of wheat was shipped. Friday’s Commitment of Traders report showed managed money specs increasing their net long position by 17,912 contracts in Chicago wheat futures and options on 10/6. They were net long 30,336 contracts. In KC wheat they help the largest recorded net long position in nearly 2 years at 27,379 contracts by Tuesday.
Soybean futures posted another 4.38% rally this week, with the nearby chart taking out the 2018 high. Friday’s $10.79 ¾ high was ¼ cent from the 2017 high as well. Product values added support, with nearby meal up 3.92% and bean oil rallying 6.92%. Similar to corn, the Crop Production report showed a cut to soybean output of 45 mbu to 4.268 bbu. That was solely from a 731,000 acre reduction in harvested acres, as yield was unch at 51.9 bpa. With the production and 19/20 carryout trimmed, ending stocks for 20/21 were down 170 mbu to 290 mbu (exports were up 75 mbu). Export sales data from Thursday indicated another large 2.591 MMT of 20/21 sales during the week of 10/1. That takes the total commitments for the new crop marketing year to a massive 40.72 MMT. That is 68% of the newly updated USDA forecast, vs the 43% average for this week. Census data for August showed 4.55 MMT in soybean shipments. Friday’s Commitment of Traders report showed spec traders increasing their bullish bet in soybean futures and options by another 9,351 contracts in the week ending 10/6. They were net long 238,394 contracts on that date, nearing the all-time record of 253,889 contracts. Commercials held a record recorded net short position of massive 381,141 contracts, affirming anecdotal reports of heavy producer selling off the combine.
Cotton futures bucked the sideways trend this week, with December up 2.77%. Some support came from Hurricane Delta, which made land fall in LA late on Friday. Monday’s Crop Progress report from NASS showed condition ratings down another 5 points in the Brugler500 index to 311. The October WASDE report indicated few adjustments in the 20/21 US S&D table, showing production down just 10,000 bales on a 1 lb reduction in yield to 909 lbs/ac. Carryout for the US was left unch at 7.2 million bales. World cotton stocks were cut 2.71 million bales to 101.13 million on lower production and increased mill use in China and India. Cotton Ginnings data showed that 915,450 RB had been ginned by October 1, a 5-year low. The weekly Export Sales report showed upland cotton export bookings at 178,400 RB during the week ending on 10/1. Total commitments are now 8.134 RB, down 9% from last year. They are 60% of the full year WASDE forecast, well above the 59% average. August Cotton exports total ed 1.423 million bales according to Census data. Managed Money in cotton futures and options added back 1,852 contracts to their net long position as of Tuesday to 53,080 contracts.
Live cattle futures were up 1.6% this week, as the market continues the slow uptrend started back in early September. Cash trade was higher again this week, up $1 across the country with a bulk at $108 and some trades at $109. Feeders felt some pressure from the higher feed costs, with Oct down 1.2%. The CME feeder cattle index was $141.92, down 46 cents this week. Weekly beef production was down 4.1% from the previous week, and 0.4% larger vs. the same week last year. Total YTD beef production is now 1.4% lower yr/yr on 4.1% fewer cattle slaughtered. Slaughter weights remain elevated. Wholesale beef prices lost some ground this week. Choice boxes lost $4.82 or 2.2% from the previous Friday. Select boxes were down $7.79/cwt on the week for a 3.8% loss. The Export Sales report had weekly beef sales down slightly at 20,691 MT. Total beef export commitments for 2020 are 4% above last year’s pace at 784k MT. The weekly Commitment of Traders report from showed spec funds in live cattle futures and options at a net long position of 59,016 contracts as of Tuesday, a reduction of 3,908 from the week prior.
Lean hog futures continue to rally higher, as October was up 4.9% on the week. The CME Lean Hog index was up another $0.88 from the previous week at $77.62. Pork production was up 5.4% from the previous week, and up 1.4% from year ago. YTD production is now 1.8% higher on 1.1% more animals harvested. Carcass weights were estimated at 212#, the same as year ago. The pork carcass cutout value was up another 2.9% this week, thanks to a 9.7% rise in bellies. USDA showed 60,195 MT of pork bookings in the weekly Export Sales report. That was the largest single week sales since the week ending 4/4 last year. Of the pork sales, China and Mexico were the top buyers with 48% and 27% of the total respectively. YTD pork exports were reported at 1.448 MMT, which is 49% above the record pace set last year. Friday’s CFTC Commitment of Traders report indicated spec traders at a net long position of 35,674 futures and options contracts on 10/6, trimming the net position by 5,133 contracts.
Market Watch
Next week starts out with a day off for most government agencies for Columbus Day. That will push back the USDA reports a day for the week, with Export Inspections released on Tuesday morning. Crop Progress data will be delayed until that Tuesday afternoon as well. Wednesday is the last trading day for October Lean Hog futures and options. On Thursday, EIA will publish ethanol production/stocks data for this week, with NOPA also releasing their monthly crush report at 11:00 AM CDT. Finally, USDA will release their delayed weekly Export Sales report on Friday morning.
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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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