By: Alan Brugler
It was another great week to be a livestock feeder, with grain prices showing nothing but red ink, while exports and July 4 demand boosted both present and future prices for cattle and hogs. While prices might have gone hog wild in those pits, they had no claim on the wildest price action. Crude oil futures saw an early week rally snuffed out by the IEA, which coordinated a plan to flood the world market with 60 million barrels of strategic reserve oil. While representing just a few hours of global use, the action was widely viewed as a warning shot to crude oil longs about further potential intervention if prices don’t come down. Currencies were also wild, with Papandreou surviving a confidence vote in Greece, and striking an austerity deal with the EU and IMF. Now he just has to get Parliament to pass it and Greece gets a little more time to fix the bigger problems.
Corn futures dropped 30 cents per bushel for the week, which was a relief because it wasn’t the 87 cent loss of the week before. The new crop December was down 28 cents. The main story continued to be long liquidation in the July contract. As of a couple weeks ago there were still over 2 billion bushels of futures contracts open. There just isn’t that much corn available, and the exchange has rules for maintaining an orderly market. Longs were forced to reduce their ownership. Ethanol production increased thanks to the cheaper corn costs, and export bookings also picked up. Livestock margins improved dramatically, which will make it hard to cut feed use estimates. Low prices cure low prices, but one can also argue that low wheat prices are curing high corn prices via substitution buying.
Soybeans dropped less than 1% for the week. The Census Crush report was bull friendly, showing more grind and smaller ending stocks than the trade expected. However, the export market remains soft, and China again deferred more 2010/11 old crop purchases into new crop 2011/12 shipping slots. That has a number of analysts expecting USDA to show higher ending stocks in July unless the June 30 Grain Stocks report shows that the bushels are already gone via some other means.
Wheat showed all the characteristics of a bear market, dropping hard on bearish news and pretty much ignoring bullish items like the strong weekly export sales report on Thursday and the report that 5 to 5.5 million acres of North Dakota crops would not be planted due to wet conditions. Up to 2 million of those acres are believed to be wheat. The bear news included better than expected yields for US HRW and SRW wheat, upward revisions for German and French production, and low ball pricing of Russian wheat in a Tunisian tender. The EU wheat futures dropped 7.5% in a single day due to currency issues and this low price competition.
Cotton saw divergent paths for old crop (there isn’t any) and new crop (the crop won’t be as large as originally expected but neither is likely global consumption). Nearby July was up 13.8% in a week as mills fixed on call purchases ahead of first notice day. Cert stocks are tight, so the bears didn’t have much leverage and may still be vulnerable to a short squeeze. US export sales continue to be dismal in both old crop and new crop slots. December was down 1.7% for the week. Cotton crop insurance claims are already at an all time high according to Texas sources.
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Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:
| | Commodity | | | | | Weekly | Weekly |
| Month | 06/03/11 | 06/10/11 | 06/17/11 | 06/24/11 | Change | % Change | |
| July | Corn | 7.54 | 7.87 | 7.0025 | 6.7 | 0.3025 | 4.32% |
| July | CBOT Wheat | 7.7375 | 7.5925 | 6.7225 | 6.3575 | 0.3650 | 5.43% |
| July | KCBT Wheat | 9.1425 | 8.68 | 8.045 | 7.485 | 0.5600 | 6.96% |
| July | MGEX Wheat | 10.605 | 10 | 8.9725 | 8.26 | 0.7125 | 7.94% |
| July | Soybeans | 14.145 | 13.8725 | 13.33 | 13.2025 | 0.1275 | 0.96% |
| July | Soybean Meal | 368.4 | 373.3 | 349 | 339.9 | 9.1000 | 2.61% |
| July | Soybean Oil | 58.73 | 56.85 | 55.92 | 55.22 | 0.7000 | 1.25% |
| June | Live Cattle | 104.175 | 102.725 | 109.75 | 113.05 | 3.3000 | 3.01% |
| Aug | Feeder Cattle | 124.25 | 123.625 | 132.65 | 138.6 | 5.9500 | 4.49% |
| July | Lean Hogs | 87.85 | 93.225 | 95.65 | 96 | 0.3500 | 0.37% |
| July | Cotton | 161.63 | 150.03 | 145.18 | 165.22 | 20.0400 | 13.80% |
| July | Oats | 3.78 | 3.955 | 3.515 | 3.355 | 0.1600 | 4.55% |
| July | Rice | 14.475 | 14.895 | 13.965 | 13.45 | 0.5150 | 3.69% |
Cattle futures rose 3% for the week. Cash cattle trade was slow to develop, but came at higher money. It should, with the wholesale prices up more than $5.00 per hundred pounds. Actually, June futures matched the choice cutout value, which was up 3% on a Friday/Friday basis. Estimated beef production for the week was up 2.1% over the same week in 2010, but down 0.2% from the prior week. One big story for the week was the surge in US beef export sales, which was behind the rise in the product value. USDA reported net weekly sales for the week ending June 16 at 23,070 MT. That was the largest weekly sale since February 17. The Year to date shipments total of 350,900 MT wasn’t met until Labor Day in 2010.
Lean Hogs were the second strongest commodity on our list after cotton, gaining 4.49% for the week. The cutout value of a hog set an all time high on Thursday at $99.27/cwt, and so did cash hog prices. The cutout value was up 3.44% for the week. Pork production YTD is up 1% from last year, but was down an estimated 2.2% this week vs. the previous week. Average carcass weight continues to run about 4 pounds above last year, allowing the extra pork tonnage despite smaller overall slaughter. Hog producers are showing just a whiff of expansion, with Friday’s Hogs & Pigs report showing the breeding herd at 100.3% of last year. The number of market hogs in the pipeline was 0.6% larger than last year. On the other hand, June-August farrowing intentions are smaller than the trade had expected.
Market Watch: We start the coming week with USDA export inspections and the well followed weekly Crop Progress and condition reports. Some grain traders will also be wrestling with surprise futures positions acquired via options exercises on Friday. THE news of the week for grains will be made on Thursday morning, when USDA releases the Planted Acreage and Grain Stocks reports. The former will not be complete by any stretch of the imagination, since there were big chunks of farmland unplanted in the first week of June. It should give us a better handle on how much the big WCB states exceeded their March intentions, but could overstate acres in the problem areas. The Grain Stocks report will be the final Ending Stocks number for wheat for 2010/11, and will tell corn and soybean users how much additional price rationing is required for June-August in order to make it to new crop supplies that will hopefully be ready by September.
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