We found the cure! I’m not talking about COVID-19, although there are certainly thousands of scientists and researchers working on either vaccines or drugs and therapies help people recover. I’m talking about prices. One of the first market axioms I learned as a newbie analyst was “Low prices cure low prices”. High prices attract more production and ration use, eventually halting rallies. Low prices do the opposite. They attract new users, win business away from substitute goods or other suppliers, and constrain production by making margins unattractive. As with most drugs, it can take a while for the patient to recover. Ethanol production is still only running about 90% of where it was BC (Before Covid). But, 4 year lows in corn and an 11 year low in cotton certainly SHOULD stir up buying interest. The situation is a little more complicated than that, as price is the intersection between supply and demand curves. Shifts on either can move price. The Iowa drought and derecho reduced US corn supplies. Drought losses in the EU and flooding in China also have trimmed supplies. China’s Phase One buying is starting to add up, and those low April prices likely increased the volumes they are willing to buy overall. They certainly cleaned out the Brazilian cupboard at very low prices. We don’t know yet whether the patient can resume normal activity, or is just convalescing, but Mr/Ms Market certainly looks better than they did back in April.
Corn futures surged 19 cents per bushel this week, a 5.8% weekly gain. This week’s Crop Progress report showed crop conditions as of August 16 down 10 points on the Brugler500 index at 363. Only 2 states saw improved ratings for the week. The weekly Export Sales report showed 270,400 MT in old crop sales, with new crop totaling a respectable 1,18 MMT. Old crop export commitments are 98% of the USDA projection, vs. the 104% avg. Exports are 92% of the projection, compared to the normal 97%. Unshipped sales on the books are 50% larger yr/yr, but time is running out to get them shipped before August 31. Most are likely to be rolled over into new crop delivery. The weekly CFTC Commitment of Traders report showed spec funds in corn futures and options pared back their net short position by another 49,010 contracts. They were still net short 61,489 contracts as of August 25.
The three wheat futures markets closed the week higher than they began it. KC HRW led the way this week with Sept up 5.5%. Chicago was up 2.3%. MPLS spring wheat is still in the middle of harvest and was up 0.7%. Spring wheat harvest has begun, with 49% done nationally as of last Sunday. The average pace would be 62%. USDA export sales data showed 764,100 MT in 20/21 US export sales for the week that ended August 20. Export commitments for 20/21 wheat are 45% of the 975 mbu USDA forecast. That matches the 45% average. Unshipped sales are 12% larger than we had on the books a year ago. Friday’s Commitment of Traders report indicated managed money spec funds in CBT wheat futures and options added a net 13,991 contracts for the week, flipping back to net long 1,517 contracts as of August 25. They trimmed their net short in KC wheat by 5,889 contracts to make it 21,116 contracts on 8/25. The spec funds trimmed their net short Minneapolis spring wheat position by 4,012 contracts, but were still net short 17,316. They have been bearish that market for 103 consecutive weeks.
Soybean futures shot up 5.5% this week, picking up almost 50 cents per bushel. Both products rose in support, with meal futures up 3.9% and soy oil up 6.3% for the week. Crop condition data on Monday showed soybean condition ratings dropping 6 points to 373 on the Brugler500 index. The Thursday Export Sales report showed 50,400 MT of old crop sales. New crop bookings totaled 1.874 MMT for the week ending August 20. Export commitments for old crop are now 106% of the USDA projection, ahead of 104% average. Accumulated shipments are just 96% of that number, vs. the normal 97%. Unshipped old crop sales on the books are 16% above year ago. Most of that will be rolled over to new crop, which has the largest pre-season sales book since 2013. Managed money spec traders added 2,230 contracts to their CFTC net long position in soybean futures and options this week, taking it to 109,288 contracts as of 8/25.
Cotton futures continued to climb the wall of worry, with Dec 80 points higher vs. last Friday’s close. Hurricane Laura and the remnants threatened damage to standing cotton from AR to TN and KY. By Friday, the bark was thought worse than the bite. Cotton condition ratings dropped 8 points on the Brugler500 to 318 as of last Sunday. NASS says that 22% of the crop is now opening bolls or beyond that stage. USDA tallied export sales of 156,600 RB for upland in the week ending August 20. Another 12,600 RB of pima varieties were also sold. Commitments for the new crop are 49% of the full year 15 million projection, vs. the 46% average for this date. The Adjusted World Price for cotton is 50.50 cents/lb, with the LDP dropping to 1.5 cents. Spec traders in cotton futures and options increased their CFTC net long position by 7,824 contracts in a week, to create their largest net long since October 2018 at 48,723 contracts on August 25.
Front months live cattle futures lost 3.7% in the aftermath of the bearish Cattle on Feed report and amid concerns of a weaker market coming into the Labor Day holiday. Cattle traded hands this week at mostly $105 (down $1-2) with the North trading mostly at $167. Feeder futures lost 3.3% this week, due to both the lower fats and higher corn. The CME feeder cattle index was $141.56, down $2.34 from last week. Weekly beef production was up 0.3% from last week, and up 2.3% from the same week in 2019. Total YTD beef production is now 2.2% lower yr/yr on 4.8% fewer cattle slaughtered. Wholesale beef prices were higher again this week, as Choice rose another $3.46 (1.5%) and Select was also higher, with boxes up $5.87 per cwt (2.8%). The weekly Export Sales report showed a 40% drop from the previous week at 11,800 MT. The weekly CFTC Commitment of Traders report showed the managed money spec funds in live cattle futures and options continuing to build their net long position. The weekly increase of 4,335 contracts built it to 62,102 as of 8/25.
Lean hogs futures retreated 1.1% this week after a 2.3% gain the previous week. The CME Lean Hog index extended gains from the previous week, up $1.71 to $57.12. Pork production for the week was up 1.7%, and 9.5% above last year. YTD production is now 2.3% higher on 1.4% more animals harvested. Carcass weights are estimated at 3 lbs above 2019. The pork carcass cutout value was down $2.12, or 2.9% for the week, with a 15.3% drop in hams. USDA Export Sales data showed 39,400 MT of pork was sold in the week ending 8/20, nearly doubling the previous week. Shipments were up slightly at 32,600 MT. China was on the receiving end of 9,500 MT. Friday’s Commitment of Traders report showed spec funds at a net long position of 27,202 contracts in lean hog futures and options as of August 25. That was an expansion of 7,275 contracts on the week.
This week will be fairly routine in terms of report releases. We’ll get the weekly Export Inspections report on Monday morning, followed by the weekly Crop Progress reports in the afternoon. August cattle futures also expire on Monday. USDA will release the monthly Fats & Oils, Grain Crushings and Cotton Consumption reports on Tuesday afternoon. Wednesday morning, we will get this week’s ethanol production and stocks data from EIA. Weekly Export Sales data will be published on Thursday morning. Not to be overlooked, Friday marks the start of the Labor Day holiday weekend. Visit our Brugler web site at https://www.bruglermarketing.com or call 402-697-3623 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.
The funds were big shorts in Dec corn at the end of June, and the market chased some out with a hot and dry forecast and lower production numbers from USDA. It was a great technical setup for a rally to $4.00, but then it started raining and the whole thing aborted. The funds got further short, and then the Iowa derecho reset the bullish clock. Another short covering rally, but a little longer lasting because the bullish news keeps coming. The gap at $3.455 is a downside target, but came about on a sharper than expected drop in crop ratings. We got past the 78.6% Fib retracement resistance on big Chinese export buying. Now, the bulls are focused on picking off stops above the July high at $3.63. You will note the diagonal red line near the top of the chart. That is the 2/3 speedline resistance from the January high, at $3.73 ¾. If $3.63 is taken out, that becomes the next target. Support is the chart gap, and also the Bollinger midline at $3.39 ¾. It will be over $3.40 on Monday. MACD is still bullish on a rising ADX. The oscillators like RSI and stochastics are overbought, but in a trending market overbought does not translate to sell.
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