Market Watch with Alan Brugler
November 12, 2021
Sell the Rumor, Buy the Fact
Commodity traders have many axioms, phrases with street wisdom that can occasionally keep you from making a bad trade or marketing decision. Two that I have employed for many years are “If you trade the news you lose” and “Sell the rumor, buy the fact”. The latter has an inverse, which is of course “buy the rumor, sell the fact”. These axioms are particularly relevant for known risk events like USDA reports. Traders have to position for the anticipated outcome ahead of the event. That’s why you see all the trade average guess surveys ahead of WASDE reports, and even weekly Export Sales numbers. If enough traders guess right on the outcome, there is nobody left to be surprised and drive a big price reaction when the news comes out. Thus, you have situations like Tuesday. Traders were expecting USDA to cut projected exports and raise projected ending stocks for soybeans. Both of those bearish things happened. However, soybeans rallied immediately upon the report release, and closed 24 ¾ cents higher on Tuesday. By Friday night, January beans were up 38 ¾ cents for the week. Corn and wheat also saw somewhat bearish numbers turn into big gains by the weekend. It doesn’t always work, because your definition of bullish or bearish might not match the market’s, but ignore those phrases at your peril.
Corn futures gained 24 ¼ cents this week, more than the 15 ¼ cents they lost the previous week. Weekly corn export sales weren’t quite as good as the previous week, at 1.067 MMT. Chinese futures prices traded in the $10.70’s, which would make room for imports. However, they appear inclined to support the local market during harvest and slowly import corn purchased last spring. They also have about 7 MMT in Ukrainian corn purchases to go with the close to 12 MMT already committed out of the US. Ethanol production is a shining beacon for the bulls, with weekly corn consumption likely over 110 million bushels again. The grind was down slightly from the previous week. USDA raising projected corn use for ethanol 50 million bushels in Tuesday’s WASDE report, while also raising projected average yield 0.5 bpa to 177.0.
Wheat futures sprinted to new life of contract highs in KC, up 7% for the week. Chicago tried to keep up, gaining 6.6% on increased Russian export taxes and US reports of a Russian military buildup on the Ukrainian border. MPLS spring wheat was up 4% for the week but didn’t make it back to the previous highs. Weekly Export Sales were down 29 week/week, to 285,900 MT. US FOB HRW prices are above most of the world, and ocean freight is being monopolized by soybeans. That makes it tough to put up big wheat export numbers. USDA cut projected full year wheat exports 15 mbu on Tuesday, but also reduced likely imports. The change to US ending stocks was only 3 million bushels, rising to 583.
Soybeans joined the bull parade this week, rising 3.2%. They were given a bit of a shove on Friday, with soybean meal popping more than $12, and up $29.40/ton for the week. Soy oil was up 0.3% this week. USDA’s Export Sales report indicated exporters sold only 1.29 MMT of soys during the week of November 4. That was down 31% from the previous week. Shipments were a different matter, setting a single week record of 3.702 MMT. Total US export commitments are now 33.293 MMT, still 33% smaller than year ago. US Exporters have now booked 60% of the USDA estimate vs. the average 61% pace for this date. USDA trimmed projected US soybean exports on Tuesday, due to the slow pace YTD. Projected ending stocks rose 20 million bushels. That was smaller than the trade expected due to a 0.3 bpa drop in projected average yield.
Live cattle futures gained 0.25% for the week. The basis has firmed quite a bit. Cash cattle sales confirmed by USDA were mostly $131-132, up a full $3 from last week. Feeder cattle futures were down 1.6%, due to the sharp rise in feed costs and lack of corresponding rise in fat cattle futures. The CME feeder cattle index is $155.06, down 21 cents from the previous week. Wholesale beef prices were mixed this week. Choice boxes were down $5.24 (-1.8%) per 100 pounds, with Select up $2.01/cwt (+0.8%). The Choice/Select spread narrowed $7.25 for the week, to $14.77. Weekly beef production was up 0.7% for the week and down 1.4% vs. last year. YTD beef production is now 2.6% above year ago on 3% larger slaughter. Weekly Export Sales data showed a rise to 20,600 MT in beef bookings for the week ending 11/4.
Lean hog futures were down 0.9% for the week, with a rally on Friday limiting the damage. The CME Lean Hog index fell $0.37 to $77.95 this week. The pork carcass cutout value was down $1.62 (1.7%) this week to $94.71. Weekly pork production was up 0.7% from the previous week, and 4.5% lower vs. the same but COVID distorted week in 2020. The YTD pork production is 2.2% smaller YTD vs. last year, on 2% smaller slaughter. Weekly pork export sales for the week ending 11/4 were 36,900 MT for combined 2021 and 2022 sales. China was among the top buyers for the second week in a row. Pork shipments were a routine 32,000 MT, with China shipping only 3,600 MT.
Cotton futures were up 0.7% this week, threatening but not reaching life of contract highs. USDA increased projected US cotton ending stocks 200,000 bales in Tuesday’s WASDE report. Unshipped sales on the books are 14% larger than last year @ 6.49 million running bales. Exports year to date, however, are down 39%. Exporters have now sold 59% of the USDA projected total for the year, vs. the average pace of 61%. The week’s AWP for cotton was 101.56, effective through next Thursday.
Market Watch
We’ll see USDA Export Inspections on Monday morning and the Crop Progress report in the afternoon. NOPA crush for October is also scheduled for Monday release. On Wednesday EIA will also put out ethanol production and stocks data. On Thursday FAS will release their weekly Export Sales report. November feeder cattle futures and options also expire on Thursday. Friday will feature the monthly USDA Cattle on Feed 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.
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