By: Alan Brugler
Traditionally, futures volatility is tied to the growing season, at least in the grains. When things are in the bin or the bag, say November to February, price volatility has typically been at the lowest levels of the year. It picks up during the growing season. If that is the case this year, things are going to get REALLY crazy. Implied volatility in corn peaked at 45% this past week, the highest reading since last October. In March of 2010, it was only around 31%. Cotton implied volatility has been around 60% since mid-February, so corn is still comparatively quiet compared to what COULD happen. Past performance is, of course, not necessarily indicative of future results.
Corn prices were 19 cents per bushel higher on Friday night than they were the previous Friday. That would have surprised a lot of folks if you told them you expected that outcome on Tuesday. Low prices cure low prices, and some buyers just couldn’t wait any longer to take advantage of the drop since the beginning of the month. South Korea came in, there were rumors of Chinese buying interest, and the USDA confirmed stronger than expected sales were made in the week ending March 4 at 1.337 MMT (52.6 million bushels) of combined old and new crop sales. A private forecasting firm on Friday projected 2011 corn plantings in the US at 91.758 million acres, regarded as a neutral number.
The soybean complex was mixed. While energy was still a popular topic, it was of the nuclear persuasion. Crude oil kept hanging around $100, but that wasn’t enough to get soy oil higher for the week. Soy meal rallied, pulled higher by corn and the other feed grains. Weekly export sales for soybeans were disappointing, but some firms lowered their projected Brazilian production to 69-70 MMT due to quality problems caused by ongoing heavy rains. China announced the third increase since January 1 in the bank reserve requirements, in another attempt to slow inflation. That didn’t appear to have any impact on the soybean market there, or here. A private forecasting firm estimated soybean acreage this spring will be only 75.269 million bushels. Futures prices did not appear to react to the news, probably because it has been assumed that corn picked up intentions at the expense of beans based on the $6.01 per bushel revenue insurance guarantee price.
Wheat futures saw the steep slide grind to a halt and a little bit of a bounce unfold. Prices were up anywhere from .59% to 2.46%. KC was in the bullish lead, thanks to ongoing crop problems in TX and OK that will likely mean some wheat being ripped up and replaced with cotton or milo. HRW wheat also has been in demand for export. Gains were slowed a little by Japan worries, with the MOA buying only about a third of its normal weekly tender, and all of that coming from Canada.
Cotton futures continued to be plagued by limit moves almost day, in both directions. Despite the increase in allowable daily moves to 700 points per day, the market appeared to want to be even more volatile. Prices lost 2.8% for the week, but that camouflaged a couple limit up days at the end of the week in the front month futures. Weekly export sales were larger than expected on Thursday morning, which helped boost prices. Dryness continues to plague a swath of the southern cotton belt.
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 | 02/25/11 | 03/04/11 | 03/11/11 | 03/18/11 | Change | % Change | |
| May | Corn | $7.22 | $7.28 | $6.64 | $6.84 | 0.19 | 2.90% |
| May | CBOT Wheat | $8.11 | $8.32 | $7.19 | $7.23 | 0.04 | 0.59% |
| May | KCBT Wheat | $8.99 | $9.29 | $8.23 | $8.43 | 0.20 | 2.46% |
| May | MGEX Wheat | $9.29 | $9.65 | $8.59 | $8.68 | 0.09 | 1.05% |
| May | Soybeans | $13.75 | $14.14 | $13.35 | $13.63 | 0.28 | 2.10% |
| May | Soybean Meal | $364.70 | $369.70 | $350.00 | $367.90 | 17.90 | 5.11% |
| May | Soybean Oil | $57.58 | $59.48 | $55.90 | $55.77 | 0.13 | 0.23% |
| Apr | Live Cattle | $114.10 | $114.05 | $117.13 | $111.65 | 5.47 | 4.67% |
| Mar | Feeder Cattle | $129.83 | $129.95 | $131.55 | $128.00 | 3.55 | 2.70% |
| April | Lean Hogs | $90.20 | $88.48 | $88.15 | $88.33 | 0.17 | 0.20% |
| May | Cotton | $184.23 | $212.80 | $204.94 | $199.12 | 5.82 | 2.84% |
| May | Oats | $3.79 | $3.90 | $3.51 | $3.52 | 0.02 | 0.43% |
| May | Rice | $14.31 | $14.19 | $13.01 | $13.64 | 0.63 | 4.80% |
Cattle futures were the biggest loser, sinking 4.67% for the week. Cash cattle prices surged to $118 the previous week from $114, an unusually large jump. They went back where they came from this past week, taking futures with them, and then some. Heavy speculative selling took the spot April $2 past the cash market, trying to anticipate further weakness next week. The wholesale market was up more than 5% for the week, but still comfortably below the 2003 peak. The Friday afternoon Cattle on Feed report was neutral, with March 1 numbers 105% of year ago. While that is yet another month of expansion, it matched the average trade guess exactly. Marketings were on the high side of guesses, while placements were also a little larger.
Hog futures eked out a 17 cent gain for the week. Japan’s woes translated into opportunity, with losses of refrigeration and disruptions of slaughter and feeding programs there. They were thought to want more packaged pork products for immediate shipment. On a Thursday/Thursday basis, the pork cutout value was up 1%, or about 9.4 cents per pound. That is a reflection of wholesale demand vs. supply. The preliminary estimate for weekly pork production was down 0.7% from the prior week, but production since January 1 is still about 0.8% larger.
Market Watch: Spring has sprung, or at least it will officially be Spring when traders get back to work on Sunday evening. They will initially be reacting to Friday’s Cattle on Feed report. Livestock reports will be featured this week, with the monthly Cold Storage report due out on Tuesday afternoon, and the quarterly USDA Hogs & Pigs report coming out on Friday afternoon. The Census Crush report will be on Thursday morning, along with Census Cotton Consumption and USDA weekly Export Sales. Friday will also mark the last trading day for April grain options.
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