Market Watch with Alan Brugler
December 17, 2021
Beans in the Teens – Almost
For 35 years, the rallying cry for soybean bulls was “beans in the teens”. Every time, prices got above $10, somebody would be on TV or the newspaper convinced that this was the year the milestone would be reached. Five times we were above $10, and five times we missed. On the 6th try, in 2008, the milestone was finally achieved. Of course, inflation makes it easier to achieve as time goes on! Counting this year, we’ve exceeded that mark in 8 years, but not since August. January futures made a valiant attempt on Friday to get back there, reaching $12.97 ½ before succumbing to pre-weekend profit taking and the dreaded technical combination of a Fibonacci retracement and “round number resistance”. Still, the number is back in play, with rising soybean meal, biodiesel expansion and rampant inflation nudging prices in that direction. May and July futures did trade over $13 but wouldn’t leave a closing print there. We also started to see widespread cash soybean bids over $13 by the end of the week.
Corn futures were up 3 ¼ cents per bushel this week, setting the highest price for front month futures since the week of July 14 (when July went off at a big inverse to September). Weekly corn export sales were a marketing year high 1.949 MMT through December 9, with another 754,400 MT sold for 2022/23 delivery. Marketing year export commitments (shipped plus outstanding sales) are 38.511 MMT, about 7% smaller than last year at this time. That is 61% of the full year WASDE forecast, and on average we would be only at 53% by early December. Friday’s Commitment of Traders report showed the large managed money spec funds added another 13,479 contracts to their net long in the week ending 12/14, taking it to 345,980 contracts as of Tuesday COB.
Wheat futures were higher for the week in the KC and MPLS markets this week, while Chicago settled 1.3% lower than it was the previous Friday. Weekly Export Sales improved significantly after the end of November price break. Sales for the week ending 12/9 were a marketing year high 650,600 MT. Export commitments are down 22% from last year at this time, and 67% of USDA’s recently reduced full year forecast. They would typically be 75% by now. The CFTC Commitment of Traders report on Friday showed the large spec funds flipping to the bear side, net short 7,303 contracts as of December 14. They trimmed the large net long in KC HRW by 2,411 contracts during the week but were still net long 57,164 contracts.
Soybeans rose 1.4% for the week. Soybean meal was again the backbone of the rally, up 3.5% for the week. Soy oil was down 0.35%. USDA’s Export Sales report indicated exporters sold 1.309 MMT of soys during the week ending December 9. Meal sales were a marketing year low @ 95,600 MT, while soy oil bookings were improved at 10,600 MT. Total US export commitments are now 38.511 MMT, 7% smaller than year ago. On the plus side, US Exporters have now booked 72% of the USDA full year estimate vs. the average 71% pace for this date. CFTC data on Friday showed the managed money spec funds adding 3,093 contracts to their net long futures position in the week ending December 14. That put them net long 40,975 contracts of futures and options.
Live cattle futures lost 1.5% on the week. The basis continues to firm, with cash cattle sales mostly $138 (down $2 from last week) while futures dipped to $134.75. That’s a bonus for hedgers. Feeder cattle futures sank $4.62 (2.8%) this week, squeezed between higher feed costs and lower finished cattle prices. The CME Feeder Cattle Index is $161.04, down 47 cents from the previous week. That’s not bad compared to the futures drop, and in fact futures are now discounting further weakness in the Index. Wholesale beef prices were lower this week. Choice boxes were down $1.53 (-0.6%) per 100 pounds, with Select down $3.96/cwt (-1.6%). Weekly beef production was down 1.4% for the week and up 0.1% vs. the same week last year. YTD beef production is now 2.4% above year ago on 2.8% larger slaughter. Weekly Export Sales data showed combined 2021 and 2022 sales of 22,800 metric tonnes, up from 14,600 MT the previous week. On Friday, the Commitment of Traders report showed the large spec funds adding another 2,404 contracts to their net long in cattle during the reporting week. That took it to 82,245 contracts of futures and options as of 12/14.
Lean hog futures lost 22 cents this week in the Feb contract. The CME Lean Hog index was $72.41, up $1.46 from the previous week. The pork carcass cutout value was down $.37 (-0.4%) this week to $85.82, due to a $5.67 decline on Friday. Hams and bellies were the weak links. Weekly pork production was up 3.2% from last week, and 5.9% lower vs. the same COVID distorted week in 2020. The YTD pork production is 2.5% smaller vs. last year, on 2.3% smaller slaughter. Weekly pork export sales for the week ending 12/9 were 36,900 MT for combined 2021 and 2022 sales. They were only 20,500 MT the previous week. China was still shipping 4,200 MT per week but announced that it will be raising the MFN tariff on pork to 12% from 8% on Jan 1, with the US rate of 33% going up to 37%. Their goal is to slow overall imports and thus help domestic hog producers who are unable to compete. CFTC on Friday showed the large spec funds taking on a more bullish attitude. The net long position held by that group of traders increased 1,288 contracts for the week. That put them net long 48,492 on December 14.
Cotton futures rose 1% this week. Unshipped cotton export sales on the books are 23% larger than last year @ 7.375 million running bales. Exports year to date, however, are down 44%. Exporters have now sold 68% of the USDA projected total for the year, vs. the average pace of 70% for this date. A US dollar breakdown on Thursday provided a one-day bounce of more than 300 points (3 cents per pound. The week’s new AWP for cotton is 94.81 cents/lb, which was 126 points higher than the previous week. Cash cotton is moving, with the Seam reporting 37,153 bales sold via the platform on 12/16. That was a two year high for single day sales. The Commitment of Traders report on Friday showed a drop of 673 contracts in the managed money net long position during the reporting week, taking it down to 69,636 contracts as of December 14.
Market Watch
We’re getting into holiday mode here, with a rush of last-minute business activities before the Christmas break. We start with USDA Export Inspections on Monday morning. Wednesday we will see the EIA report on weekly ethanol production and stocks. Thursday morning, we will see the weekly Export Sales report from USDA. USDA will also release the quarterly Hogs & Pigs report and the monthly Cattle on Feed report. Thursday will also mark the expiration of the January soybean complex and grain options. US markets will be closed on Friday for Christmas Eve, and Saturday is Christmas.
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