Market Watch

New Day Dawning

Market Watch with Alan Brugler

January 4, 2018

A New Day Dawning

We have a new calendar year, and potentially a new set of market behaviors! Keep in mind that commodities are somewhat inversely related to equities. History says they will outperform equities if equities are sliding. If the stock market isn’t doing so well, investment funds will tend to steer more dough into commodities that are clearly underpriced.  They don’t necessarily care about the fundamentals, they are just betting on prices being mean reverting (rallying back to average). It looks like we’re seeing some of that fund buying in commodities to start the new year. There are a lot of black numbers on our tracking table this week. Because the government shutdown is limiting the flow of fundamental data, knowing an experienced technical analyst (hint, hint) becomes even more important. The technicians are driving the price changes until we know better fundamentally.

Corn futures were up 2% this week. If China is buying corn or milo we can’t confirm it. However, we’re still getting shipments data through the Export Inspections report.  Corn shipments since September 1 have been 69% larger than the previous year through December 27. Business should remain strong until Argentine new crop or Brazilian double crop corn become available this spring. Weekly ethanol production/corn use dropped off again as more plants were shuttered. All those EPA hardship waivers to wealthy oil companies like Exxon are starting to hurt ethanol consumption and not just RIN values.  Even the increased holiday driving couldn’t absorb the production. Ethanol stocks rose 509,000 barrels.

	Commodity				Weekly	Weekly
Mon		12/21/18	12/28/18	01/04/19	Change	% Chg
Mar	Corn	$3.7850	$3.7550	$3.8300	$0.075	2.00%
Mar	CBOT Wheat	$5.1400	$5.1150	$5.1700	$0.055	1.08%
Mar	KCBT Wheat	$5.03	$4.96	$5.06	$0.100	2.02%
Mar	MGEX Wheat	$5.613	$5.505	$5.703	$0.198	3.59%
Jan	Soybeans	$8.85	$8.83	$9.10	$0.268	3.03%
Jan	Soy Meal	$305.60	$308.90	$315.10	$6.200	2.01%
Jan	Soybean Oil	$27.89	$27.52	$28.41	$0.890	3.23%
Feb	Live Cattle	$122.70	$124.18	$121.93	($2.250)	-1.81%
Jan	Feeder Cattle	$147.35	$149.08	$144.90	($4.175)	-2.80%
Feb	Lean Hogs	$61.13	$60.65	$61.95	$1.300	2.14%
Mar	Cotton	$73.18	$72.19	$72.52	$0.330	0.46%
Mar	Oats	$2.7725	$2.7350	$2.8000	$0.065	2.38%

 

Wheat futures rallied in all three markets after all three sold off the previous week. Minneapolis HRS was the weakest before Christmas and the strongest afterward at 3.6% for the week. Chicago SRW was up 1.1% on the week, with KC HRW 2% higher. Weekly export sales data was not available from USDA. The export inspections report on Monday put YTD wheat shipments at 465 million bushels vs. 535 million the previous year.  USDA continues to expect shipments will surpass last year by almost 100 million bushels. The BAGE reported Argentina’s wheat harvest at 90.6% complete as of Jan 2, matching the normal pace.

Soybean futures rallied 3% this week on a mix of fresh 2019 spec money and convenient drops in Brazilian yield and production forecasts. Soybean meal was up 2%, and soy oil was up 3.2% for the week. Weekly export inspections were 24.9 million bushels for the week. released, and 607 million bushels have been exported since September 1. Spain was the largest destination for the week, with Mexico #2. Brazilian crop reports are suggesting that a period of high temps and dry weather trimmed 3-4 MMT from likely production. Private estimates for production have dropped into the 116-119 MMT range, with a few “IF it continues” ideas in the 110-115 MMT area.

Cotton futures set a 12 month low early in the week, but a Friday rally resulted in a net gain of 0.46% for the full week. The weekly Export sales report from USDA was not issued but was expected to show little to no Chinese old crop buying.   The Commitment of Traders, Cotton On Call and Average World Price (AWP) calculations were also considered non-essential services and not issued. The ICAC lowered their projected world average price for the year from 89 to 86.45.   They still see Chinese cotton ending stocks the lowest since 2011 by the end of the marketing year. The Cotlook A Index was 79.65 on January 3. That was down 2.3 cents per pound for the week.  

Live cattle futures were down 1.8% in the February contract, which dropped below $122 on Friday. Cash cattle trade was mostly $122.50-123 on Thursday and Friday. Feeder cattle futures were down 2.8% as both live cattle and grain prices were working against the walking inputs. The CME feeder cattle index was $145.60 on Jan 3, down $1.66 for the week. Wholesale beef prices were higher this week, although you needed a magnifying glass to see the change on the chart. Choice boxes were up $.10, while Select 600-900# carcass value was up 14 cents. The Choice/Select spread narrowed 4 cents to $6.85. The current market doesn’t want to pay you to put extra finish on them. Weekly beef production was up 18% from the previous holiday week but 5.4% lower than the same week a year ago.

Lean hog futures gained 2.14% this week. The February futures contract still has a big premium to cash, but basis has been firming. The CME Lean Hog index was at $53.25 on Friday, up $.13 from the previous week. The pork carcass cutout value was down $0.76 or 1.1% during the past week. For the second consecutive week, the picnic primal had the biggest selling pressure, while pork bellies were the strongest. Pork production this week was up 20% from Christmas week.  It was also 6.3% larger than the same week a year ago. Pork production for the year to date was 396.8 million pounds.  Year over year comparisons won’t be valid for a few weeks due to differences in slaughter days.

Market Watch

We get back to a quasi-normal schedule with a full week of trading. We’ll still be missing a lot data, however, due to the partial government shutdown. There will be no Commitment of Traders reports until the shutdown is over.  Ditto for Census monthly exports, USDA weekly Export Sales and a raft of other reports. The NASS reports scheduled for January 11 will not be released as they are not finished. Those include Crop Production, Grain Stocks, Winter Wheat seeding and WASDE. We will see Export Inspections on Monday and EIA ethanol production on Wednesday.  CONAB is expected to release their Brazilian estimates 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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