Sanity
Market Watch with Alan Brugler
May 20, 2022
Sanity
I became insane, with long intervals of horrible sanity. Edger Allan Poe
You know, a long time ago being crazy meant something. Nowadays everybody’s crazy. Charles Manson
This week’s theme is about maintaining your sanity when all about you appear to be losing theirs. There are several studies out that suggest that the COVID outbreaks and government measures to try to contain them have resulted in increased mental illness. If you feel the urge to kill people in a NY subway, grocery store, or just on a Chicago street because they disrespected you, please seek help. I’m not trying to minimize the problem, but this column isn’t about you. We’re talking about sanity in the markets. Panic, fear and greed drive market action. Throw in systemic shocks like inflation, a pandemic, trade wars and a real war and things can get a little dicey.
Prices of a lot of assets were higher or sharply higher in 2021, in some aspects resembling the dot com boom circa 1999. We remember how that one turned out. This time around we have a stock market that is now almost 20% below it’s peak, and commodity markets that are trying to decide whether they should follow suit or serve as the popular alternative place to shelter cash. This is resulting in some big price swings that can mess with your mind. Look at wheat. Chicago July rose $1.84 in a week, from the 5/10 close to the 5/17 close. That was almost a 17% increase in a week! For a producer with 50,000 bushels out in the field, that was a $92,000 change in potential income for the year. And then, in 3 days, it was worth $1.09 less. Bye, Bye $54,500. It’s like the TV ad about the cryptocurrency guy (I’m a millionaire, now I’m not a millionaire). With those types of swings, your brain’s assessment of what is possible becomes stretched, playing right into the hands of panic and greed.
Our advice? Step back and look at long term charts, like monthly continuation charts going back a dozen years or more. That will give you a better perspective of what is truly a big move, as opposed to just a swing. If you’re not using a veteran advisor who has been through those earlier bouts of madness, it might be a good investment to get hooked up with one until the insanity stops!
Corn futures slipped just 2 1/2 cents or 0.32% since last Friday, despite wild movement during the week. Corn planting progress through the end of 15th of May was 49%, well below the 67% average but picking up pace. Weekly EIA data showed ethanol production unch at 991,000 bpd. Stocks fell to a 17-week low of 23.791 million barrels, a 349,000 barrel drop. Thursday’s export sales data showed bookings were up from the previous week at 435,300 MT. New crop bookings were at 588,500 MT. US old crop corn export commitments (shipped plus outstanding sales) are now at 58.926 MMT, 13% below last year at this time. That takes them to 93% of the full year WASDE forecast, slightly behind the average pace of 95%. Accumulated exports are 68% of the full year projection, matching the normal pace. The Friday Commitment of Traders report showed the commercial net short expanding by 21,881 contracts. The managed money spec funds added on ly 1,149 contracts to their net long, however, taking it to 339,711 contracts of futures and options.
Wheat bulls feasted on India news and then starved on the same. For the week, Chicago SRW was down 0.7%. KC wheat was down a sharper 2.3%, and MPLS was down 3.5% with a 51 cent drop on Friday doing most of the damage. What was initially described as an Indian export “ban” that helped the wheats to gap higher on Sunday night, quickly turned to just restrictions. The gaps were closed by week’s end as vessels with already approved paperwork were cleared, and some of the 5000 trucks waiting in line to unload at the port were able to do so. The Kansas Hard Winter Wheat Quality Tour tallied the KS yield at 39.7 bpa this week, below the 5-year average of 47.4 bpa. Crop Progress data from Monday showed just 27% of the winter wheat crop in good/excellent status, down 2% from last week. The Brugler500 index (includes all 5 condition categories) was back down 7 points to 265. Thursday’s Export Sales report showed only 8,500 MT of old crop wheat sales, normal for this late in the MY. New crop bookings were talked at 325,600 MT. Old crop wheat export commitments are now 19.712 MMT. That is just 90% of USDA’s full year forecast of 805 mbu. They would normally be 106% by now. CFTC showed the managed money spec funds adding 11,039 contracts to their net long in the week ending 5/17, taking it to a still modest 26,586 contracts.
Soybeans were up 3.6% this week in the old crop contracts. Meal hit the downside chart counts and promptly rallied $20/ton. Soy oil lost 3.4% on the week as Indonesia indicated it would resume palm oil export shipments this coming Monday. Monday’s NOPA report showed 169.79 mbu of beans crushed in April 5.91% above last year but still off the 2020 record. Crop Progress data showed 30% of the US bean crop planted as of last Sunday, 9% behind normal. The weekly Export Sales report showed old crop bean bookings in the week that ended on May 12 at a strong 752,700 MT, with new crop booking only 149,500 MT. US soybean exporters have either sold or shipped 59.208 MMT of the 21/22 crop, now just 4% below last year’s record pace. Total export commitments are 102% of the USDA full year estimate, outpacing the 98% average for this date. Shipments are 84% of that projection, 1% above the average pace. Friday’s CFTC report showed the managed money spec funds expanding their net long position in soybeans by another 16,674 contracts in the week ending May 17, putting them net long 147,335 at that point.
Live cattle finished out the week with June futures 50 cents lower than the previous Friday. Cash trade was $2-3 lower than the previous week, with the south $136-138 and the north mostly $226. Feeder cattle sank 2.8% for the week. The CME Feeder Cattle Index was down $3.31 from the previous week @$153.05. Wholesale beef prices were mixed this week, widening the Chc/Sel spread to $19.15. Choice boxes were up $1.39 (+0.5%) per 100 pounds, with Select $0.62/cwt lower (-0.2%) from Friday to Thursday. Weekly beef production was up 3.2% from the previous week, and 1.7% larger than the same week in 2021. Beef production YTD is up 0.9% on 0.7% larger slaughter. Friday’s USDA COF report put May 1 Cattle on Feed at 102% of year ago. April marketings were about as expected at 97.8%, but placements were above the high of pre-report estimates at 99.12% of year ago. The Commitment of Traders report on Friday afternoon showed spec funds reducing their net long by 4,321 contracts in the week ending May 17, dropping it to 25,628 contracts.
Lean hogs shot 8.1% higher on the week, up $8.12 per cwt. The CME Lean Hog index was down 67 cents to $100.37. The pork carcass cutout value was up $5.90 (+5.9%) this week. Ham and bellies were the strongest components. US weekly pork production was up 1.8% from the previous week and up 2.9% vs. the same week in 2021. YTD production is down 4.5%, which is one reason stocks are tight. USDA’s Export Sales report showed bookings at 24,100 MT of pork for the week ending May 12. The Commitment of Traders report showed a huge contraction in the spec fund net long, shrinking 50% in the week ending 5/17 to 10,563 contracts.
July Cotton futures had another wild and woolly week, with several triple digit days but a net loss of 2% for the week. USDA tallied export sales of cotton in the week ending 5/12 at 110,900 RB for old crop. New crop bookings were fair at 25,400 RB, discouraged by life of contract highs in futures. Outstanding cotton sales are 60% larger than year ago at 5.562 million RB. Total commitments are 107% of the full year WASDE projection, matching the average. Catch up is still needed on shipments with 67% of the expected full year number shipped, vs. the 75% average pace. Planting progress is running very close to the average pace, but in drier than usual conditions. The Commitment of Traders report showed managed money spec funds were net long 67,686 cotton futures and options contracts as of May 17, down 3,041 from the previous week.
Market Watch
Next week starts off with the weekly Export Inspections report on Monday morning and the NASS Crop Progress report in the afternoon. NASS will also release their monthly Cold Storage report that afternoon. Skip ahead to Wednesday and EIA will release ethanol production and stocks data. Thursday will feature the weekly Export Sales report in the morning, as well as the expiration of May Feeder Cattle futures and options.
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.
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