Market Watch with Alan Brugler
October 16, 2020
Contrary Opinion
Long time readers of this column know that I am a devotee of quotes by Mark Twain and by H.L. Mencken. Several have appeared in this column. If you are looking to skewer the political class or recognize them, check out the Mencken quotes at www.brainyquote.com. Since this is a marketing column, we’ll leave the domestic politics for after the election. One Twain quote that is evergreen in its application to the markets is this one: “Whenever you find yourself on the side of the majority, it is time to pause and reflect”. The corollary to that quote is the Law of Contrary Opinion. When nearly everyone agrees on market direction, the only direction for it to go is the other one. The first one is priced in. We saw this in spades last April, when the COVID gloom and doom was so thick you could cut it with a knife, and corn prices hit four year lows. We’re getting close to the reverse situation now, with talk about beans in the teens IF Brazil has a problem and IF the Chinese keep buying. A lot of the buying has already been done. We’re fine tuning the valuation for this rally at this point in time. Of course, Twain also said, “There are lies, damned lies, and statistics.”
Corn futures continue to rally, up 1.8% for the week despite a little profit taking on Friday. EIA showed ethanol production was up 1.5% wk/wk to 937k bpd, and ethanol stocks were 1.7% higher to 20 million barrels. They are still low historically, but that might be OK given expanding COVID restrictions. The FAS Export Sales report showed a slow down to 655,200 MT in weekly export sales for the week ending October 8. Export commitments are now 26.5 MMT, 45% of the full year WASDE export estimate vs, the 5-year average of 31% for this date. Unshipped sales on the books total 866 million bushels vs. only 304 million a year ago. CFTC data on Friday showed spec fund traders in corn futures and options added another 36,403 contracts to their net long position, taking it to 170,869 contracts as of October 14.
The three wheat markets were sharply higher this week. Chicago was up 5.3% for the week, with KC HRW up 4.3% and MPLS up 2.9%. The weekly Export Sales report showed 528,500 MT in wheat bookings during the week ending 10/8. Total commitments for 20/21 exports are now 15.175 MMT, 57% of the USDA forecast and matching the average pace. Friday’s Commitment of Traders report showed managed money specs increasing their net long position by 8,254 contracts in Chicago wheat futures and options as of 10/14. They were net long 38,590 contracts. In KC wheat they help the largest recorded net long position in nearly 2 years at 32,197 contracts by Tuesday. The managed money short in MPLS wheat dwindled to 1,774 contracts. They have been net short spring wheat futures since September 2018, and that is the smallest net short since March 2019!
Soybean futures were down 15 ½ cents for the week, bookended by down days on Monday and Friday and rally days in between. Nearby meal was up 1%, keeping up with the feed grains. However, bean oil dropped 3% this week after rallying 6.92% the previous week. Export sales data released Friday showed another large sales total at 2.631 MMT (96.67 million bushels) for the week ending October 8. That takes the total commitments for the new crop marketing year to a massive 43.235 MMT. That is 72% of the recently increased USDA forecast, vs the 45% average for this week. The export program is definitely front loaded. Friday’s Commitment of Traders report showed spec traders paring back their bullish bet in soybean futures and options by 11,950 contracts in the week ending 10/14. They were net long 226,444 contracts on that date. The all-time record spec fund net long is 253,889 contracts.
Cotton futures added another 3.4% gain to the December advance of 2.8% the previous week. Some support came from Hurricane Delta, which resulted in some of the previously “fair” rated crops now being poor or very poor in the USDA rating system. Monday’s Crop Progress report from NASS showed condition ratings down another 3 points in the Brugler500 index. The weekly Export Sales report showed current year upland cotton export bookings at 98,900 RB during the week ending on 10/8. Total commitments are now 8.233 million RB, down 10% from last year. They are 61% of the full year WASDE forecast, well above the 54% average. Managed Money in cotton futures and options added 6,862 contracts to their net long position during the reporting week, expanding it to 59,942 contracts as of COB on October 14.
Live cattle futures were under pressure this week, shedding 2.5%. Cash trade was steady to $1 lower vs. the previous week. Sagging wholesale prices were also a concern. Feeders felt some pressure from the higher feed costs but were down only 0.1% in nearby October. The CME feeder cattle index was $140.22, down $1.70. November futures were not constrained by convergence, and down 0.6%. Weekly beef production was up 2.7% from the previous week, and 4.2% larger vs. the same week last year. Total YTD beef production is now 1.3% lower yr/yr on 3.9% fewer cattle slaughtered. Slaughter weights remain more than 20# above year ago as the industry is still dealing with fallout from the spring COVID shutdowns. Wholesale beef prices lost more ground this week. Choice boxes lost $4.03 or 1.9% from the previous Friday. Select boxes were down $6.30/cwt on the week for a 3.2% loss. The Export Sales report had weekly beef sales down 35% week/week at 13,400 MT. The weekly Commitment of Traders report showed spec funds in live cattle futures and options at a net long position of 56,038 contracts as of Tuesday, a reduction of 2,978 from the week prior.
Lean hog futures continued to rally, with December up 4% for the week. The CME Lean Hog index was up another $0.87 from the previous week at $78.49. Pork production was down 1.1% from the previous week, and down 0.8% from year ago. YTD production is now 1.8% higher on 1% more animals harvested. The pork carcass cutout value was up another 4.6% this week, thanks to a 17.8% rise in bellies. USDA showed a sharp drop in weekly pork export sales ton 26,800 MT from over 60 thousand the previous week. Mexico and China continued to be the two largest buyers. China has stepped up weekly shipments to 10,700 MT, second only to Mexico at 11,700 MT. Friday’s CFTC Commitment of Traders report indicated spec traders at a net long position of 37,154 futures and options contracts on 10/14, expanding the net long position by 1,480 contracts for the week.
Market Watch
The USDA reports get back on the regular schedule for the week, with Export Inspections released on Monday morning. Crop Progress data will be out Monday afternoon. Wednesday will include the weekly EIA ethanol production/stocks data for this week. The USDA Cold Storage report will be released on Thursday afternoon. USDA will release their weekly Export Sales report on Thursday morning, with the monthly Cattle on Feed report scheduled for Friday afternoon. Friday will also mark the expiration of the November soybean and various serial options.
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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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