Not Without A Fight

Weekly Changes 3/3
Weekly Changes 3/3
(Brugler Marketing & Management)

Market Watch with Alan Brugler and Austin Schroeder
March 3, 2023

Not Without A Fight

In conversations with clients over the last several months, one thing we have reminded them on several occasions is to be aware of the short crop, long tail price pattern. Going back to 2020, the bull run started and prices subsequently rallied. What happens when corn gets to $6/$7 and beans are in the upper teens, is price attracts production at a faster rate. Other countries (i.e. South America in this case) tell themselves that they can grow a crop for that price. Pretty soon the world market is flooded with corn, beans, whatever commodity it is and it kills price. So far, prices have attracted production, record and expanding Brazilian acreage for instance, and the South American supply is likely a record depending on how much smaller Argentina gets. This is where the long tail comes into play. At some point we are going to get to where the world's demand can't keep up with production, price collapses, and we spend the next few years dealing with an oversupplied market. The one thing we don't know for certain is when this is going to happen. Throw in a dryness story for Brazil's second crop corn or a drought for the US this year (hypothetical!) and it can be extended. However, at some point we will likely be heading for that long tail. The recent drop in prices could be an indication that it may be starting. But late week movement in the grains this week suggested that the bulls are not going down without a fight! 

Corn futures found some late week strength to ease the pain after hitting fresh 6 ½ month lows. When the final bell rang, May was still down 9 ½ cents since last Friday. The weekly EIA report indicated a 26,000 barrel per day reduction in ethanol production (and corn use) to 1.003 million bpd. Ethanol stocks were down 813,000 barrels to 27.775 million barrels as of February 24, with the Gulf dropping 824,000 barrels, implying a large export move. The USDA Grain Crushing report showed January corn used for ethanol at 443.55 mbu, a 4.31% drop vs. a year ago but up 4.3% from December. Weekly Export Sales data tallied corn bookings at a 7-week low of 598,109 MT in the week that ended on Feb 23. Old crop corn export commitments (shipped and unshipped sales) are now at 29.238 MMT, which is down 39% vs. last year. That is also 60% of the USDA forecast, which compares to the 77% average pace. Commitment of Traders data is reporting, but the data is delayed three weeks. For the week ending February 7 the spec funds trimmed 17,906 contracts from their corn net long.

Wheat bulls spent the last half of the week trying to recover early losses, but futures were still lower heading into the weekend. Chicago was down 13 cents when all was said and done, a 1.8% drop. Kansas City led the way to the downside, with losses 2.27% for May. MPLS spring wheat slipped just 1.1% lower on the week. State Crop Progress reports showed winter wheat conditions in KS down to 19% gd/ex or 245 on the Brugler500 index (11 points below the end of Jan), with TX ratings also 19% gd/ex at 249. SRW ratings have been much better, with IL at 82% gd/ex or 391 on the Brugler500 index. The National report will be out on a weekly basis beginning in April. Weekly Export Sales data indicated bookings slipping below last week at 284,115 MT. That pushed total wheat export commitments to 17.221 MMT as of February 23. That is still 7% below year ago and 82% of the USDA export projection. Normally we would have 94% of the projection sold/shipped by now. Actual shipments are 66% of the projected full-year total, 5% back of the average pace. CFTC data had Chicago wheat specs adding another 7,763 contracts to their net short as of 2/7. Money managers were adding 2,443 contracts to their net long in KC wheat.

Soybeans had sharp weakness early and were in recovery mode from Wednesday on, with May down just ½ cent on the week. Meal helped again with May $1.30 higher. Bean oil was down just 3 points. On Wednesday, NASS released the Fats & Oils report showing 191.13 mbu of soybeans crushed in January. That was down 1.62% vs. last year but up 1.99% from December. Export Sales data tallied old crop soybean export bookings at a MY low of 360,700 MT in the week of 2/23. Commitments are now 48.814 MMT, or 3% below last year at this time. They are 90% of USDA’s forecast total, still 4% faster than the average pace. The window for sales and shipments is getting narrower as Brazil’s bean harvest gets closer to the normal pace. CFTC reported that the large spec funds trimmed 10,429 contracts from their net soybean long in the week ending February 7. That put them net long 165,075 contracts at that time. Reporting is still delayed.

Live cattle couldn’t quite get past last week’s contract highs but were still up a nickel since last Friday’s close. Confirmed cash cattle trade was established near $165 across the country, up $1 on the week. The North had sales of $265 in the beef. Feeders were helped by the weakness in corn, with March up another 92 cents. The CME Feeder Cattle Index was $184.02, up $1.25 from last week. Wholesale boxed beef prices were higher again this week. Choice boxes were up 1% ($2.32/cwt) and Select boxes were 2% higher ($5.28/cwt). Weekly beef production was up 1.7% from the previous week but 6.3% lower than the same week in 2022. YTD totals are 4.6% lower vs. 2022 on 2.6% fewer head harvested, with dressed weights down from a year ago. Thursday’s weekly Export Sales report had just 8,100 MT of beef sold for the week that ended 2/23. The lowest weekly total for any week this calendar year. Export shipments were 16,100 MT, down 4% from last week. Spec traders were net long 95,610 contracts in live cattle futures and options as of February 7.

Hogs retreated lower this week, with April down 1.71% since last Friday. The CME Lean Hog Index was up 92 cents from the week prior to $78.65. The pork carcass cutout was up 0.3% this week ($0.22). Bellies were the weak spot, down $9.15, with all other primals reported higher. Weekly pork production was back up 6% vs. the previous week and 3.5% higher vs. the same week in 2022. YTD pork production is up 0.9% vs. the same time in 2022. USDA’s weekly Export Sales report had pork bookings dropping from last week’s large total at 31,000 MT for the week that ended 2/23. Mexico was the top buyer for the week with 13,400 MT. Weekly pork exports were 30,400 MT, with 13,800 MT to Mexico and 4,100 MT shipped to China. Friday’s delayed (by 3 weeks) CFTC Commitment of Traders report showed specs in lean hog futures and options nearing their record net short position, adding another 4,053 contracts to 11,918 contracts as of 2/7.

Cotton futures slipped back this week, with May futures down 73 points or 0.86%. As of March 2, 13.62 million bales of upland cotton had been classed this year, with the total 14.069 million including Pima. Thursday morning’s Export Sales report indicated bookings backing off from last week’s largest sale since September 2021 to 170,600 RB for old crop during the week that ended on 2/23. New crop sales totaled 97,200 RB. Cotton export shipments YTD are now 5.387 million RB, 4% larger than last year, while unshipped sales commitments are 33% smaller. That is mainly indicative of the smaller crop. It puts total commitments down 19% in total vs. last year. They are still 93% of USDA’s forecast total, matching the average pace for this date. The FSA raised the Adjusted World Price for cotton by 195 points on Thursday, to 72.73 cents/lb. Commitment of Traders data showed money managers in cotton futures and options trimming their net long by 5,869 contracts to 2,354 as of February 7.

Market Watch

Monday morning of next week starts with weekly Export Inspections data. Wednesday will be a little busier than normal, as the weekly EIA ethanol production and stocks report will be out per normal. The WAOB will also release the monthly WASDE report with NASS publishing the Cotton Ginnings report. Census Trade data will also be out that morning. On Thursday morning we will see the release of the weekly Export Sales report.

Visit our Brugler web site at https://www.bruglermarketing.com or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses. 

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. 

Copyright 2023 Brugler Marketing & Management, LLC.  All rights reserved.

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