Market Watch with Alan Brugler and Austin Schroeder
September 24, 2021
Do Oats Know?
There is a very old trade axiom that “oats knows where corn goes”. The thought behind the saying is that oats are a more commercial market, with less speculative participation and thus a truer indication of commercial buying interest/shortage in feed grains. While both are used in breakfast cereal, US oats production in 2020 was only .0045 (4/10ths of 1%) of US corn production. Due to the Dakotas drought, that fraction will be even smaller in 2021. The oats that don’t go to food use are usually fed to horses or sometimes other livestock, but they aren’t any sort of competitive threat to corn as a substitute. Corn bulls want to believe that the relationship still holds true, with oats up 6% on the week and prices correlated strongly with 2002 and 1995. December oats would be expected to top out in late October or early November if they continue to follow those analog years. A look at a 15-year OZ/ZC spread shows the spread topping around the October crop report, and then going back close to zero by the first of November. That could be due to oats selling off, or due to corn rallying. Our correlation studies show a very weak correlation between the two commodities, but maybe oats have gotten smarter?
Corn futures managed to hold steady this week, as December was down just ½ cent. On Monday, USDA tallied the US corn crop at 57% mature (47% average) and 10% harvested (9% average), as of 9/19. Crop condition ratings improved 1 point on the Brugler500 index, to 353. They were 356 a year ago. Weekly corn export sales continue to remain low at 373,000 MT for the week ending 9/16. Outstanding sales are still 17% larger than year ago, due to the large amount of forward sales last MY. Total commitments are now 40% of the USDA projection, 12% above the 5-year average buying pace. The Commitment of Traders report showed managed money spec funds added 2, 121 contracts to their net long in corn futures and options during the week ending September 21. That took them to a net long 214,350 contracts by Tuesday.
Wheat futures added to last week’s rally, with a rally or their own this week. Chicago SRW wheat futures were 15 cents higher for the week, with MGE HRS up 15 ½ cents and KC HRW climbing 6 ¾ cents. According to a Bloomberg survey, the trade on average is expecting NASS to cut All Wheat production by 15 million bushels on Thursday, spread across white and HRS classes. Thursday’s Export Sales report indicated wheat bookings backing off from last week’s MY high to 355,900 MT for the week ending September 16. Total commitments for wheat exports are now 10.905 MMT, which is 46% of the USDA forecast vs. the 51% average pace for this date. Friday’s CFTC Commitment of Traders report showed money managers in CBT wheat flipped their net position from short back to long by 5,491 contracts for the week ending 9/17. That took them to net long 514. In KC HRW, they added 1,388 contracts to their net long for the week, to 39,034 contracts.
The Soybean complex was mixed this week, as beans were up just a penny. Soymeal was the factor this limited beans’ gains, as December was down $2.40/ton. Bean oil held the market up, with a 168 point rally. NASS Crop Progress data showed 58% of the crop dropping leaves, 10% above the average pace. Condition ratings as of September 19 were unch on the Brugler500 index @ 351. Soybean export sales through September 16 were tallied at 902,900 MT according the Export Sales data. That was down from the week prior and tool total export commitments to 23.192 MMT. US Exporters have now booked 41% of the USDA projected 21/22 total which matches the average pace. Outstanding sales are 29% below LY, which had a large forward book coming into the MY. CFTC Commitment of Traders data showed spec traders slicing another 5,679 contracts from their soybean net long positions in the week ending 9/21. They took that position down to 49,701 contracts as of Tuesday, the lowest point since August 2020.
Live cattle futures managed to eek out a 0.1% gain this week. Cash cattle trade this week was steady at $123-124. Feeder futures were down just 25 cents on the week. The CME feeder cattle index is $154.04, down $0.56 from the previous week. Wholesale beef prices were the lowest since early August. Choice boxes were down $11.15 (-3.5%), with Select down $5.52/cwt (-1.9%). Weekly beef production was down 2.2% for the week and 4.3% lower than last year. YTD beef production is now 3.2% above year ago on 3.5% larger slaughter. Cold Storage data from Wednesday showed 414.94 million lbs of beef in freezers as of August 31. That was a 7-year low and 7.66% below last year. The Commitment of Traders report indicated managed money spec funds cut another 11,339 contracts from their net long during the week ending 9/21. That took them to a net long of 34,704 futures and options contracts as of Tuesday night. They were net long 92,649 contracts just a month ago. The Friday afternoon USDA Cattle on Feed report showed more placements and fewer marketings than expected during August. The September 1 On Feed was 98.6% of year ago, while trade ideas had been below 98%.
Lean hog futures added to last week’s gains, with October up another $1.55 this week. The CME Lean Hog index was down $2.56 for the week @$91.89. The pork carcass cutout value was up $5.36 this week at $110.77, for a 5.1% increase. The belly and ham primals were up for a second consecutive week. Weekly pork production was up 1.9% from the previous week, and 2.9% lower vs. the same but COVID distorted week in 2020. The YTD pork production is 1.8% smaller YTD vs. last year. Pork in Cold Storage totaled 460.06 million lbs at the end of August according to NASS. That was a 10-year low and just 1.05% below 2020. Weekly pork export sales for the week ending 9/16 were up 29% from the previous week at 32,600 MT. Shipments to China ticked up to 4,700 MT that week. Commitment of Traders data showed managed money removing more long positions from their portfolios. They cut 8,063 contracts from their net long during the week ending 9/21. They were net long 55,858 contracts on that date. The position peaked on August 3 at 89,131 net long. Friday afternoon’s USDA Hogs & Pigs report showed an even sharper decline in hog numbers than the trade expected. Market hog inventory was down 4.08% from year ago on September 1. The breeding herd was down 2.26% year over year. Shrinking Chinese buying interest and high feed costs are limiting expansion plans, with Sep-Nov farrowing intentions only 95.79% of year ago.
Cotton futures clawed back for a 3.96% gain this week after posting sharp losses on Monday. December closed above 95 cents for the first time since February 2012 on the weekly continuation chart. Weekly NASS Crop Progress data has cotton a little behind pace with 48% of the crop with bolls open. Harvest was 9% complete vs. the 11% average pace. Cotton crop condition ratings were down 3 points to 368 on the Brugler500 index. The weekly Commitment of Traders report indicated the large managed money spec funds were net long 81,292 contracts on September 21. They liquidated 10,645 contracts on the week, and then the market promptly rallied.
Market Watch
Next week is likely to be a volatile one. We start off per normal with the weekly Export Inspections report on Monday morning and the Crop Progress report that afternoon. Wednesday morning, EIA will release their weekly update on ethanol production and stocks. Trader will be busy on Thursday with the day starting out with the weekly Export Sales report. Later that morning at 11:00 CDT, NASS will put out their quarterly Grain Stocks report, as well as the annual Small Grains Summary. Thursday is also the last trade day for September Feeder Cattle futures and options and first notice day for October bean meal and oil. Friday marks the first day of October and the release of the monthly Grain Crushing, Fats & Oils, and Cotton Systems reports, as well as the last trade day for October Live Cattle options.
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