Market Watch with Alan Brugler and Austin Schroeder
February 24, 2023
Was It Live or Memorex?
Back in the 1970’s a cassette tape manufacturer called Memorex ran a commercial asking viewers if they could tell the difference between a live musical performance and the same music played from one of their tapes. The high pitched recorded notes from Ella Fitzgerald even broke a glass goblet for dramatic effect. This week, we saw some ostensibly bullish markets broken, with March corn down 4.09% for the week and the KC and Chicago wheat markets both down more than 7%. But was this live, or was it Memorex? A true fundamental valuation shift to the downside, or an artifact of March options expirations on Friday and a lack of liquidity when those likely to be impacted tried to get out? We do know that there was some real chart damage, with March CBT wheat dropping to the lowest price for that contract since July 2021. For corn, the post-holiday rally on Tuesday failed to take out or even reach the triple top, and it was downhill from there. The asset allocation folks will love these beaten up assets to buy in March, but the bulls need to find some fuel for their rocket, whether improved export sales because of the discount, or something else.
Corn futures finally broke out of their sideways pattern but to the downside, as March tumbled 4.09% or 27 ¾ cents this week. The weekly EIA report indicated a 15,000 barrel per day increase in daily ethanol production (and corn use) to 1.029 million bpd. Ethanol stocks jumped another 249,000 barrels to 25.588 million barrels, the largest stock total since last April. The delayed Friday edition of this week’s Export Sales report showed corn bookings back below the 1 MMT mark after a 3-week run to 823,177 MT during the week of February 16. Old crop corn export commitments (shipped and unshipped sales) are now at 28.640 MMT, which is down 40% vs. last year. That is also 59% of the USDA forecast, which compares to the 75% average pace. The CFTC resumed Commitment of Traders reporting, but the data is delayed three weeks. For the week ending January 31 the spec funds added 18,127 contracts to their corn net long.
Wheat bulls got bushwhacked, as contracts spent much of the week heading lower. Chicago was 57 ¼ cents in the red (-7.48%) on the week’s move. Kansas City was down 7.14%, for a 64 ¾ cent collapse. MPLS spring wheat was 4.81% lower. The Texas state Crop Progress report showed winter wheat ratings back up 3% to 14% gd/ex, with a Brugler500 index at 241, 10 points higher. More states will be out this coming week, with the National report out on a weekly basis beginning in April. The weekly Export Sales report tallied a 4-week high of just 338,828 MT. That pushed total wheat export commitments to 16.937 MMT as of February 16. That is still 7% below year ago and 80% of the USDA export projection. Normally we would have 93% of the projection sold/shipped by now. Actual shipments are 63% of the projected full-year total, 6% back of the average pace.
Soybeans got some early week strength and were up 0.11% or 1 ¾ cents since last Friday. Meal helped the bulls along, with March up 1.22%, as bean oil was down 0.65%. The market gapped higher out of the long weekend on reports of scattered frost damage in Argentina. Weekly Export Sales data indicated old crop soybean export bookings were a 3-week high of 544,915 MT in the week of 2/16. Commitments are now 48.578 MMT, or slightly below last year at this time. They are 90% of USDA’s forecast total, still 6% faster than the average pace. The window for sales and shipments is getting narrower as Brazil’s bean harvest accelerates, now at 25% complete, vs. 33% last year. CFTC reported that the large spec funds added 29,243 contracts to their net soybean long in the weekend ending January 31. That put them net long 175,504 contracts at that time. Reporting is delayed due to a ransomware attack on a exchange server that prevented some firms from adequately reporting positions.
Live cattle continue to tread on contract highs, with soon to expire February up 0.99% and April 0.44% higher on the week. Confirmed cash cattle trade was established near $164, with $258 - $260 in the beef. Feeders were helped by the losses in corn, with March up $2.55 since last Friday. The CME Feeder Cattle Index was $182.77, up 14 cents from last week. Wholesale boxed beef prices were sharply higher this week. Choice boxes were up 2.2% ($6.24/cwt) and Select boxes were 4.2% higher ($11.19/cwt). Weekly beef production was down 1.5% from the previous week and 6.8% lower than the same week in 2022. YTD totals are 4.2% lower vs. 2022 on 2.3% fewer head harvested. The weekly Export Sales report had 15,443 MT of beef sold for the week that ended 2/16. That was down from 28k MT last week but was still 6.6% above the same week last year. Export shipments were 16.7k MT, also up by 9% yr/yr, for an accumulated total of 108,545 MT. Friday’s USDA Cattle on Feed report showed placements 96.41% of year ago during January, vs. trade ideas of 97.2%. Marketings were larger than expected, at 104.17%. As a result, On Feed Feb 1 was 95.95% of year ago vs. trade ideas closer to 96.5%.
Hogs bounced around but closed the week with 0.88% gains for April thanks to the early week rally. The CME Lean Hog Index was up $1.88 from the week prior to $77.73. The pork carcass cutout was up this week by 4% ($3.26). Hams were the strongest component. Weekly pork production was down 5.4% vs. the previous week and down 5.3% vs. the same week in 2022. YTD pork production is up 0.7% vs. the same time in 2022. USDA’s weekly Export Sales report had pork bookings at 51,916 MT for the week that ended 2/16. That was a high for the year and the most since the week of 12/15. Mexico was the top buyer for the week with nearly half of the total. Weekly pork exports were 29,227 MT for an accumulated total of 203,151. The Friday afternoon USDA Cold Storage report showed the largest end of January supply of pork bellies since 2020. All pork in the cooler total 518 million pounds, up 19.18% from year ago but well below 2020’s 626 million.
Cotton futures shot up more than 6% this week, as March was up 488 points vs. a 502 point loss the previous week. To some degree this is a phantom number, as open interest in the March contract is rapidly approaching zero. May futures were up a respectable but more modest 340 points on the week. Friday morning’s Export Sales report indicated the largest weekly sale since September 2021 at 425,322 RB for old crop during the week that ended on 2/16. New crop sales totaled 11,900 RB. Cotton export shipments YTD are now 7% larger than last year, while unshipped sales commitments are 33% smaller. That is mainly indicative of the smaller crop. It puts total commitments down 18% in total vs. last year. They are still 92% of USDA’s forecast total, now 1% above normal for this date. The FSA lowered the Adjusted World Price for cotton by 327 points on Thursday, to 70.78 cents/lb.
Market Watch
Cattle traders will begin Monday reacting to the Cattle on Feed report. Monday morning starts with weekly Export Inspections data. Tuesday will mark the expiration of the February Live Cattle futures. As the calendar flips to March, the weekly EIA ethanol production and stocks report will be out on Wednesday morning. Monthly domestic use data vis the Grain Crushings, Fats & Oils, and Cotton Systems reports will be released by NASS on Wednesday afternoon. On Thursday morning we will see the release of the weekly Export Sales report.
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