Market Watch

Monsoon Season

Market Watch with Alan Brugler

May 24, 2019

Monsoon Season

We usually think of monsoon season as something that happens in India beginning around June 1 and running into September. It is accompanied by heavy and often daily rains, and is generally welcomed as it breaks the dry season.  It is a big deal there if it comes late.  The US also has a monsoon season, with Arizona typically in monsoon season from June 15 to September.  Midwest producers can be forgiven for thinking that the monsoon season began 3 months early, and over the wrong part of the continent!

It has been raining or snowing constantly . According to NOAA, “The April precipitation total for the contiguous U.S. was 3.17 inches, 0.65 inch above average, and ranked in the top 10 percent of the 125-year period of record. The year-to-date precipitation total was 11.24 inches, 1.76 inch above average, ranking seventh wettest.” We’ve had more of the same in May, with some grain growers in just about every state still staring at machinery parked in the shed due to a lack of suitable field conditions.

There was a lot of news this week about tariffs and offset payments, but the bottom line is that the US needs to get crops planted or stocks will tighten both here and globally. Prices have firmed out of concern that either acreage will be down or yields will suffer.  Late planting is sometimes associated with lower average yields, but there are many other factors at work between here and harvest.  Let the market do its work, but be ready to take advantage of any ‘irrational exuberance’ as Alan Greenspan once put it,  where prices go beyond economic value.

 

	Commodity				Weekly	Weekly
Mon		05/10/19	05/17/19	05/24/19	Change	% Chg
Jul	Corn	$3.5175	$3.8325	$4.0425	$0.210	5.48%
Jul	CBOT Wheat	$4.2475	$4.6500	$4.8950	$0.245	5.27%
Jul	KCBT Wheat	$3.87	$4.20	$4.42	$0.218	5.18%
Jul	MGEX Wheat	$5.170	$5.278	$5.480	$0.203	3.84%
Jul	Soybeans	$8.09	$8.22	$8.30	$0.080	0.97%
Jul	Soy Meal	$287.30	$294.30	$300.50	$6.200	2.11%
Jul	Soybean Oil	$26.79	$27.22	$27.01	($0.210)	-0.77%
Jun	Live Cattle	$112.45	$111.28	$111.18	($0.100)	-0.09%
Aug	Feeder Cattle	$146.83	$145.50	$143.23	($2.275)	-1.56%
Jun	Lean Hogs	$89.68	$92.38	$86.43	($5.950)	-6.44%
Jul	Cotton	$68.45	$65.99	$68.39	$2.400	3.64%
Jul	Oats	$2.8625	$2.9400	$3.0850	$0.145	4.93%

 

Corn futures jumped another 5.5% this week, following the 9% rally in the previous week. The front month continuation contract punched through the $4 mark for the first time in nearly a year. The main attraction has been the major planting delays across the country that left just 49% of the corn crop planted as of last Sunday, the slowest pace on record. Export sales commitments are 81% of USDA’s projected total, 12% back of the 5-year average. Unshipped sales are a large part of that, with accumulated exports 65% of the projection (average 66%). EIA also showed the largest ethanol production number this MY at 1.071 million barrels/day for the week of May 17. Friday’s Commitment of Traders report showed the managed money spec funds bailing out of their net short position at the fastest pace on record. They slashed 166,189 contracts from their net short position as of Tuesday to take it to -116,729 contracts.

Wheat futures fed off the previous week’s gains in the three exchanges, with Minneapolis up another 3.84%. Chicago rose 5.27% on top of last week’s 9.5% gain. KC HRW was up 5.18%, as the CBT/KC spread rose to 47 ½ cents. Planting progress still lags for spring wheat but picked up on the average pace, now at 70% planted as of last Sunday vs. 80% average for that date. The Winter wheat crop was shown at 54% headed, behind the 66% average. The Brugler500 Index for crop condition rose 3 points to 372, the highest for that week since 1999. Monday’s Export Inspections report showed wheat shipments continuing to move well, at 767,704 MT, more than double the same week last year. The Commitment of Traders report showed that the large spec funds were net short 41,760 contracts of Chicago SRW as of May 21. They continued to back off their large net short in KC futures and options, now at 48,084 contracts. Russian analyst SovEcon is projecting Russian wheat exports will grow in 2019/20 “In the new season thanks to higher crop we expect Russian wheat exports to grow to 38.2 mln t (USDA: 36 mln t), the second highest level after 41 mln t shipped in 2017/18.”. They are using 34.9 MMT for the 2018/19 marketin year. For the full report, check this link: The Sizov Report (link: https://sizov.report/?utm_source=brugler&utm_content=wheatexportcampaign)

Soybean futures were up 1% this week. Soybean meal was up 2.1% this week following a 2.4% gain the previous week.  Soy oil was down 0.8%.  Total soybean export commitments are 95% of the full year WASDE forecast. They would typically be 99% by now. Unshipped sales on the books are up 21% vs. last year, and the largest in at least 5 years.  The market focus was on the expected MFP payments for 2019. Initial reports had a $2 per bushel payment for soybeans. The actual program announced on Thursday results in a payment per acre that will be a composite of crops.  Payments for counties with lots of soybeans and lousy basis are likely to run high, but there is no explicit per bushel payment. The managed money spec funds pared back 15,704 contracts from their record large CFTC net short position as of May 21. The specs were still net short 153,131 contracts on that date.

Cotton was up 3.6% this week, erasing the 3.6% loss from the previous week in the July contract. There was limited news on the China front, but Chinese firms continued to buy and ship US cotton. The weekly export sales report showed that low prices attracted a lot of new business. Old crop upland sales were a strong 381,400 running bales, with another 241,500 RB sold for 2019/20 delivery. Pima business was a little slow at 6,600 RB for both years combined. Total US export commitments are 107% of the WASDE forecast. They would typically only be 104% by now, so have an excellent chance of making the number. The CFTC Commitments report released on Friday indicated the large specs in cotton futures and options increasing their net short position by 12,258 contracts. That put them net short a record reported 37,086 contracts in the week ending May 21.

Live cattle futures dropped 0.1% this week, turning cautious ahead of the 3-day holiday weekend and the Friday Cattle on Feed report. The large managed money spec funds continue to liquidate their long position, with the Commitment of Traders report showing their net short position at 72,705 contracts on Tuesday. Most cash cattle trade was steady to $1 lower this week, with trades at $114-116.  Feeder cattle futures were down 1.6% for the week, with higher feed costs dominating the discussion. The CME feeder cattle index was $136.81, up $4.05 from the previous week. Wholesale beef prices were higher. Choice boxes were up 0.6% for the week, with Select was only 0.1% higher. Weekly beef production was down 2.9% from the previous week and down 1.1% from the same week in 2018. Year to date beef production has been just 3.6 million pounds larger than year ago, due to lower carcass weights earlier in the spring. Wednesday’s Cold Storage report showed 430.35 million pounds of beef in the cooler at the end of April, a 5 year low. Friday’s Cattle on Feed report indicated May 1 on feed numbers 2.25% larger yr/yr at 11.818 million head. April Placements were up 8.67% vs. last year at 1.842 million head, with Marketings 6.93% larger than in 2018 at 1.928 million head.

Lean hog futures dropped 6.4% this week, more than erasing the 3% gain from the previous week. Weekly pork export sales surged to 46,300 MT, with China buying 31,400 MT. China continues to ship 4,500 to 4,600 MT per week. The CME Lean Hog index was $84.36 on Friday, up 15 cents from the previous week. The pork carcass cutout value was down $2 (2.3%) this week. That put it at $83.27. Pork bellies fell 8.1%, with the Butt down 5.3% and the rib 3.7% lower. Weekly pork production was 2% smaller than the previous week but 2.8% larger than the same week in 2018. YTD production is up 2.4% on 2.1% more hogs.  The large managed money spec funds added 783 contracts to their CFTC net long position in hog futures and options in the week ending May 21, taking it down to 56,984 contracts. Pork in Cold Storage on April 30 was shown at 621.869 million pounds, a 2.22% seasonal jump from March and 2.02% below the year prior. Belly stocks were reported at 61.123 million pounds.

Market Watch

We start next week a day late, with the Memorial Day holiday on Monday. The grain markets will resume trading on Monday night, with the livestock opening back up on Tuesday morning. On Tuesday, USDA will release their weekly Export Inspections report in the morning, along with the Crop Progress report that afternoon. The weekly EIA ethanol report will be delayed until Thursday. USDA’s weekly Export Sales report will also be delayed, with a Friday morning release scheduled.

Visit our Brugler web site at http://www.bruglermarketing.com or call 402-289-2330 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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