Market Watch with Alan Brugler & Austin Schroeder
January 28, 2022
Success Has Many Fathers
President Kennedy said, after the Bay of Pigs fiasco, that “Victory has a thousand fathers, but defeat is an orphan.” This is a variant on an earlier version “Success has many fathers, failure only one” and according to some sources the concept goes all the way back to Tacitus in AD 98, who wrote (translated from Latin) “This is an unfair thing about war: victory is claimed by all, failure to one alone.” With two exceptions, the ag commodity bulls were successful this week, highlighted by the 8.3% gain in oats. As is often the case in trending markets, there were several contributors claiming paternity for the rising prices. Rains have improved crop conditions in South America, but production estimates continue to come down in a race to the bottom. Open interest was rising, with additional money coming into the commodity markets. Whether these were inflation bets or just stock market money looking for a friendly place to park is of some debate. The potential for trade disruptions in the Black Sea region (will the Russians invade or not?) injected risk premiums into bids and persuaded some buyers to look for presumably more reliable origins like France, Australia or the US.
Corn futures closed out the week with nearly another 20 cent gain (19 ¾ to be exact), up 3.20%. That is a 39 ¾ cent gain over the past 2 weeks. The sharp gains in corn have put pressure on ethanol margins. That, along with a rise in ethanol stocks to a 21 month high, pressured ethanol production 18,000 barrels per day lower to 1.035 million bpd. Weekly Export Sales data put corn bookings at a 6-week high 1.402 MMT. The 21/22 marketing year export commitments (shipped plus outstanding sales) have risen to 43.948 MMT, down 10% vs. last year at this time. But that is 71% of the full year WASDE forecast, compared to the average 63% by late-January. Accumulated exports are 30% of the USDA projection, matching the average pace. Friday’s Commitment of Traders data showed specs in corn futures and options adding back 39,082 contracts to their net long position in the week ending 1/25. They took that net long to 365,605 contracts as of Tuesday.
Wheat futures ended the week mixed. The winter wheats held up nicely, with KC wheat up another 9 and CBT rallying 6 ¼ since last Friday. MPLS spring wheat was the weak spot, down 15 ¾ cents on the week. Russian and Ukrainian tensions continue to be the topic of the trade, though traders seemed to be of the opinion on Friday that things had calmed down some. With those tensions affecting two of the largest wheat exporters in the world, some business found its way to the US. During the week of 1/20, export sales posted a MY high 676,700 MT. That pushed export commitments to 17.423 MMT, or 78% of USDA’s full year forecast, still lagging the average pace of 84% by now. Shipments to date are 22% smaller than year ago, at 12.212 MMT. That is 54% of the USDA projection vs the average of 60% by now. CFTC data from Friday indicated managed money in CBT wheat future and options slicing their net short position last week by nearly half (11,474 contracts) to a net short 13,427 contracts as of Tuesday. In KC wheat, they added back their net long position by 4,515 contracts during the week of 1/25 to 40,634 contracts.
Soybeans added another 3.94% gains on the week. That took the 2 week move for March to $1.00 ¼ higher! Soybean meal joined the party this week, up $18.50/ton or 4.71%, with soy oil climbing another 3.60%. The help from product values, by way of better crush margins, proved to be a supportive factor. Malaysian palm oil posted a new all-time high, with crude oil pushing to the highest prices since October 2014. Export Sales data showed a 6-week high for soybean bookings to 1.026 MMT of soybeans during the week ending January 20. Total US export commitments are now 44.134 MMT, 24% smaller than last year’s record buying pace. On the plus side, US Exporters have now booked 79% of the USDA full year estimate vs. the average 80% pace for this date. Shipments have hit 63% of the full year WASDE forecast, running ahead of the 59% average pace. The window of opportunity is getting smaller with Brazil already harvesting their crop. The weekly Commitment of Traders report showed spec traders in soybean futures and options increasing their net long position by 15,256 contracts for the week ending 1/25. They took that net position to 114,895 contracts. Nearby futures have added another 63 cents since that Tuesday close.
Live cattle futures squeezed out a 77 cent gain on the week despite a bearish Monday reaction to last week’s CoF report. The bulk of the cash cattle trade for the week was at $136-137, mainly steady to $1 weaker vs. the prior week. Feeder cattle futures did not come out of the week as lucky, as corn prices pressured the market lower by 2.25%. The CME Feeder Cattle Index was $159.05, down $2.05 from the previous week. Wholesale beef prices were mixed this week. Choice boxes were down $1.99 (-0.7%) per 100 pounds, with Select rising $1.08/cwt (+0.4%). Weekly beef production was up 1% for the week and down 2.2% vs. the same week last year. YTD beef production is off 7.1% vs. year ago, but with a different number of holidays in the reporting window. Weekly Export Sales totaled just 14,300 MT in the week ending January 20. Sales have been slower to start off the new year, but commitments are 6.2% above 2021 on a larger carryover from forward sales. Friday’s Commitment of Traders data showed spec funds cutting 12,856 contracts from their net long position in live cattle futures and options as of 1/25. They held a net long position of 49,321 contracts on that date, the smallest in 11 weeks.
Lean hog futures climbed another 2% on the week, a $1.72 increase from the week prior. USDA reported that on December 31 we had the tightest monthly Cold Storage pork stocks since August 2010. The CME Lean Hog index was $79.75, up $2.96 from the previous week and backing up the futures rally. The pork carcass cutout value was up $3.10 (+3.3%) this week to $96.39. Pork butts and bellies were the strongest of the primal cuts. Weekly pork production was up 4.8% from last week, but still 14.2% lower vs. the same week in 2021. YTD that number is down 12.2% vs last year on 11.4% fewer hogs slaughtered. Weekly pork export sales for the week ending 1/20 were 49,100 MT, an improvement over last week. Mexico bought 17,300 MT of that, with China coming in at 16,900 MT, the largest weekly total for them since July. Weekly Commitment of Traders data indicated money mangers in lean hog futures and options making their largest bull Tuesday/Tuesday move since the data started in 2006. They added 18,112 contracts to their net long position by 1/25 to 66,907 contracts.
Cotton futures rallied another 301 points (2.49%) on the week to 123.76, the highest weekly close since July 2011. March and other months posted new life of contract highs and March breached $1.25 for a short time on Friday. Thursday’s Export Sales improved over the previous week, with upland cotton at 391,300 RB for the week. New crop sales were 106,800 RB, bringing the combined total to just under 500k RB. Unshipped cotton export sales on the books are 32% larger than last year @ 8.058 million running bales. Export shipments year to date, however, are down 44% at 3.601 RB. Exporters have now sold 80% of the USDA projected total for the year, matching with the average pace for this date. The FAS updated the adjusted world price (AWP) for cotton to 112.43 cents. That was up 1.99 cents from the previous week. Friday’s Commitment of Traders report showed the managed money spec funds trimming 1,212 contracts from their net long during the week ending 1/25. By Tuesday they held a net long position of 76,396 contracts.
Market Watch
The markets will have quite a bit of data to chew through next week. Per the normal weekly schedule, the Export Inspections data will be released on Monday morning. That afternoon, cattle traders will have the semi-annual Cattle Inventory report to dissect. Grain traders will get the monthly Grain Crushing and Fats & Oils report on Tuesday afternoon. Weekly EIA data will be released on Wednesday morning. The weekly Export Sales report is expected on Thursday.
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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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