Market Watch with Alan Brugler
Nov 6, 2020
Why Wait?
Psychologists tell us that people fall into two basic camps when faced with uncertainty. One group delays action, waiting for more data. The other is tormented by the uncertainty. They prefer to take action despite limited information and suffer (or enjoy) the consequences. The futures markets aren’t famous for their patience. Despite the lack of resolution to either the Presidential or Senate races, the bulls plunged in on Wednesday and Thursday. Stock market futures were up sharply, gold soared, the dollar tanked, and most of the ag commodities on our list had big mid-week gains before going meekly into the weekend. Most of our readers prefer soaring markets, but only time will tell if the premises for the mass buying were solid, or just driven by that intolerance of uncertainty. We might not know until the January 5 Senate runoff in Georgia.
Corn futures rallied 2.1% this week, partially offsetting the 5% loss from the previous week. USDA’s weekly Export Sales report showed that 2.611 MMT (~103 million bushels) were sold in the week ending 10/29, well above expectations. The FAS showed total export commitments are now 33.189 MMT (1.306 billion bushels), 56% of the full year WASDE export estimate vs, the 5-year average of 35% for this date. Unshipped sales on the books on October 22 totaled 26.335 MMT vs. the five year average for that date of 11.11 million. Trade estimates for Tuesday’s USDA report call for a 45 million bushel cut in US production, with world ending stocks tightening ~4 MMT from last month. CFTC data on Friday showed spec fund traders in corn futures and options added another 13,845 contracts to their net long position, taking it to 290,080 contracts as of Nov 3. The commercial outright short position ballooned to 1.16 million contracts, their largest hedge position ever @ 5.8 billion bushels. The idea that farmers have been selling beans and hanging onto corn is a myth. Official Census DDGS exports in September were the largest since 2015.
The three wheat markets were all higher this week despite a Friday fade. Minneapolis spring wheat was up 0.9%. KC HRW gained 2.6% and Chicago SRW was up 0.6% as it lost some more of the spread premium vs. the other classes. The weekly Export Sales report showed a 20% drop in wheat bookings during the week ending 10/29, to 597,100 MT. Total commitments for 20/21 exports are now 16.894 MMT, 64% of the USDA full year forecast. Friday’s Commitment of Traders report showed managed money specs trimming their net long position by 291 contracts in Chicago wheat futures and options in the week ending 11/3. The spec funds in MPLS spring wheat trimmed their net long by 1,709 contracts last week, leaving it at 7,168 contracts on November 3.
Soybean futures shot up 4% or 42 cents per bushel this week, mostly on Wednesday and Thursday. Nearby meal was up 1%. Soybean oil rose 5.2%, helped by the highest Malaysian palm oil futures since 2012. The USDA weekly Export Sales report showed a drop to 1.53 MMT for the week ending October 29. China was still buying, but most of it was shifts from “unknown” and not new business. That takes the total commitments for the new crop marketing year to a massive 48.501 MMT (1.782 billion bushels). That is 81% of the full year USDA forecast, vs the 53% average for this week. Friday’s Commitment of Traders report showed spec traders cutting their net long 21,760 contracts in the week ending November 3 (just ahead of the 40 cent rally!). They were net long 210,957 contracts on that date. The all-time record spec fund net long is 253,889 contracts. The average trade guess for Tuesday’s USDA Soybean Production is 4.251 billion bushels on a 51.6 bpa national average yield. That would be down 0.3 bpa from the October figure.
Cotton futures dropped 0.4% for the week. December recently posted the highest spot month futures price since May 2019, but options expiration and delivery notices are just over the horizon. Exports from India could also crimp US activity into some markets. The weekly Export Sales report showed current year upland cotton export bookings slowed to 115,600 RB during the week ending on 10/29. Total commitments are now 8.865 million RB, down 7% from last year at this time. They are 65% of the full year WASDE forecast, well above the 57% average pace. Managed Money spec funds in cotton futures and options cut 6,030 contracts from their CFTC net long position during the reporting week, taking it to 64,171 at the end of the day on Tuesday.
Live cattle futures were up a cautious 0.3% for the week. Feeders were up 0.2% from Friday to Friday. Higher corn mostly offset higher fats in the feeder price equation. The CME feeder cattle index was $136.63, down 13 cents from last week. Weekly beef production was up 1.5% from the previous week, and 0.4% larger than the same week last year. Total YTD beef production is still 1.1% lower than 2019 on 3.7% fewer cattle slaughtered. Average carcass weights are still running high. Wholesale beef prices were stronger this week. Choice boxes were up $6.22 or 3.0%. Select boxes were up $7/25/cwt or 3.8% on the week. The Export Sales report had weekly beef sales up 8% for the week at 20,400 MT. China bought 3,400 MT, which was down from last week but still big for them. Mexico was the largest buyer. The weekly Commitment of Traders report showed spec funds in live cattle futures and options at a net long position of 16,068 contracts as of Tuesday, an increase of 1,257 from the week prior.
Lean hog futures lost 1% for the week. The CME Lean Hog index dropped $3.97 from the previous week, to $71.52. US pork production was up 1.5% from the previous week, and up 1.5% from year ago. YTD production is 1.9% higher on 0.9% more animals harvested. The pork carcass cutout value rebounded 0.3% this week after a steep decline the previous week. The pork belly primals were still under pressure, but the other cuts were higher for the week. USDA showed weekly pork export sales up 46% at 42,200 MT. China has stepped up weekly shipments to ~14,600 MT. Friday’s CFTC Commitment of Traders report reduced their net long in hogs by 4,868 contracts in the week ending Nov 3. That put them long 35,714 contracts of futures and options.
Market Watch
USDA Export Inspections will be released on Monday morning. Crop Progress data will be out Monday afternoon. Tuesday will be USDA report day, with Crop Production and WASDE Supply/Demand estimates. Federal offices will be closed Wednesday for Veteran’s Day. Thursday will include the weekly EIA ethanol production/stocks data for this week. USDA will release their weekly Export Sales report on Friday morning due to the Wednesday holiday.
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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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