Market Watch with Alan Brugler
Jan 7, 2022
Getting Ready For the Main Event
USDA’s January crop reports aren’t always a volatile as the quarterly stocks reports, which tend to get more money movement because of the calendar. That said, the January 12 edition has plenty of room for surprises. Trade estimates for old crop corn and soybean production aren’t looking for big changes, but some firms insist production is 100 to 200 million bushels different than USDA showed in December. That can have a big impact on your Dec 1 Grain Stocks number, and by extension how tight you think ending stocks will be later in the year. USDA does survey a LOT more producers (at least 3X) for this set of reports than they do during the fall crop reports, thus potentially picking up some statistical drift. On the demand side, there appears to be a race to the bottom for South American production estimates. We suspect USDA will not make large adjustments, as much of the crop under consideration is still 30-60 days from harvest. Late season corn in Argentina is just being planted, and double crop corn in Brazil is waiting for the beans to come off. We can’t say at this point that the La Nina dryness will impact those crops. Anyway, take a look at your revenues at current prices and your likely 2022 production costs, and decide how much old crop you want to risk on the new numbers!
Corn futures rose 13 1/2 cents this week, a 2.3% gain from the previous Friday. Census ethanol exports were 149.4m gallons during November, up 43% on the month and 40% above November 2020. For DDGS, the U.S. shipped 1.019 MMT in November. That was down 7% on the month but was just 46k MT under Nov 2013 for the 2nd largest November export on record. USDA showed a sharp drop in weekly corn export sales for the December 23-30 period, dropping to 256,100 MT. Marketing year export commitments (shipped plus outstanding sales) are 40.997 MMT, 7% smaller than last year at this time. That is 65% of the full year WASDE forecast, and on average we would be only at 58% by the end of December. Accumulated export shipments are 23% of the USDA projection, 3% behind normal and 2% below year ago. The average trade estimate for December 1 corn stocks in next Wednesday’ report is 11.602 billion bushels, with a range of 11.2 to 11.95 billion. Much of that variability is in the corn production number, with a range of 14.932 billion to 15.347 billion bushels (USDA 15.062 billion in November). On Friday, CFTC showed the large spec funds had reduced their net long in corn by 7,440 contracts in the week ending 1/4/22, dipping to 365,905 contracts of futures and options.
Wheat futures were sharply lower in all three markets again this week, moderated by dead cat bounces in Chicago and KC futures on Friday. MPLS spring wheat was the biggest loser this week, down 6%. Chicago SRW lost 1.6% for the week, with KC HRW down 3.3%. Weekly Export Sales dropped toa marketing year low 48,600 MT in the holiday week ending 12/30/21. That figure took export commitments to 70% of USDA’s full year forecast. They would typically be 80% by now, with export shipments 48% of the USDA number vs the 56% average pace. The trade average guess for December 1 Wheat stocks in the US is 1.421 billion bushels, down from 1.703 billion last year. Friday’s Commitment of Traders report showed the large managed money spec funds were getting more bearish on Chicago wheat, adding another 8,072 contracts to their net short position during the week. They were net short 19,845 contracts at close of business on January 4. They were still net long 51,813 contracts in KC HRW on that date, and net long 9,481 contracts in MPLS spring wheat.
Soybeans shot up 71 cents per bushel this week, a 5.3% single week gain. Both meal and oil were higher on the week, by 6.5% and 4% respectively. Dryness and anticipation of crop losses drove the buying interest from a fundamental viewpoint. Fresh first of year cash seeking to participate in commodities also flooded in. Thursday’s Export Sales report indicated exporters sold only 382,700 MT of old crop soybeans during the week ending December 30. Another 67,100 MT were sold for 2022/23 shipment. Total US old crop export commitments are now 41.702 MMT, 24% smaller than year ago. On the plus side, US Exporters have now booked 75% of the USDA full year estimate vs. the average 77% pace for this date. Shipments have reached 55% of the USDA forecast, 3% points above the normal pace. Meal sales were a marketing year low 31,500 MT for the week. Soy oil sales dropped to 2,900 MT. Friday afternoon’s CFTC Commitment of Traders report showed the spec funds adding only 839 contracts to their net long in soybeans. That put them at a still modest 98,919 contracts on January 4.
Live cattle futures were down 1.7% on the week. USDA reported cash cattle sales of $138-140 for the week, still higher than 2 weeks ago, but down from last week. Feeder cattle futures were down 2.9% this week, squeezed by the lower cattle board and higher corn prices. The CME Feeder Cattle Index dropped $3.42 from last week, to $161.79. Wholesale beef prices were higher this week. Choice boxes were a net $6.56 higher (+2.5%), while Select was $2.87 per cwt. higher (1.1%). Weekly beef production was 5.3% smaller than the same week a year ago, but Yr/Yr comparisons are awkward at the beginning of the year due to different holiday timing. Weekly Export Sales data showed combined 2021 and 2022 sales of 7,900 metric tonnes for the reporting week ending December 30. The large managed money spec funds added another 2,744 contracts to their net long in cattle during the week ending 1/4/22, taking it to 72,346 contracts.
Lean hog futures lost 2.2% for the week after retreating 2.1% the previous week. All of the loss occurred on Friday. The CME Lean Hog index was up $1.37 for the week at $73.57. Weekly pork production was up 17.9% larger than for the holiday week, but 10.9% smaller than a year ago due to different holiday timing. The pork carcass cutout value was down $5.45/cwt or 6.0% from Friday to Friday. The ham primal was down 23.3% for the week. Weekly pork export sales for the week ending 12/30 were 38,000 MT for combined 2021 and 2022 business. Shipments slowed because of the holidays to 22,800 MT. The Commitment of Traders report showed the large managed money spec funds reducing their net long in hogs by 2,046 contracts during the week, to 55,674 net long as of January 4.
Cotton futures rose 2.2% this week, with new crop December setting a fresh life of contract high. USDA showed upland cotton export sales backing off for another week to 143,200 running bales as of 12/30. New crop sales for the week totaled 44,000 RB. Exporters have now sold 72% of the USDA projected total for the year, vs. the average pace of 75% for this date. Export shipments YTD total are 45% behind last year. Those accumulated shipments are just 21% of the USDA number vs. a more typical 28%. The AWP for cotton is 103.85 c/lb after a 473 point bump from the previous week. The Commitment of Traders report showed the large managed money spec funds increasing their net long in cotton by another 5,452 contracts during the week, taking it to 80,277 contracts of futures and options as of 1/4/22.
Market Watch
USDA Export Inspections data will be released on Monday morning. Fast forward to Wednesday and we will see the EIA report on weekly ethanol production and stocks. That is also a mega report day from USDA, including final Crop Production, Dec 1 Grain Stocks, WASDE S&D updates and Winter Wheat planted acreage. USDA’s Export Sales report will be out on Thursday.
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