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Alan Brugler

We have another USDA quarterly Grain Stocks report under our belt, and once again got some big prices moves out of that data. There are good reasons for that, including the fact that (except for January) they are released at the end of the month or end of the quarter, when large spec funds are already shifting big chunks of money around for asset allocation purposes.  Historically, the quarterly Stocks numbers allow the trade to compute consumption items that aren’t directly measured, like feed and residual use. Take the known quarterly change in stocks, subtract the known uses like exports, crush or ethanol, and anything missing must be feed or residual. This reality check can sometimes result in huge NASS corrections to previously released data, most notoriously the more than 200 million bushel reduction last September for the already 3 months old June corn stocks. The needed changes have been ‘consistently inconsistent’ with trade estimates ahead of the reports.

Market reaction had been a little TOO consistent. Karen Braun of Thompson Reuters pointed out on Twitter (check @kannbwx for the complete thread) ahead of the report that a) soybeans had closed higher after each of the past 9 quarterly stocks reports, b) corn had risen more than 4% after 6 of the last 8 Grain Stocks reports, and c) corn and soybeans had closed lower following the September report only once in the past five years. Those types of streaks get my contrary opinion bone aching, but traders seemed to think they were sure bets. They were buying futures right up until the report release.  The results were inconsistent with the previous history, as USDA reported larger than expected stocks for corn and soybeans, and tighter than expected wheat stocks.

Corn futures received a little help from the wheat complex this week, with December futures rallying 2.8% from last Friday. Most of that gain was early in the week, ahead of Thursday’s Grain Stocks report. September 1 corn stocks were tallied at 1.236 bbu, which was down 35.6% from last year but 81 mbu above the average trade estimate. NASS also released their monthly Grain Crushing report on Friday, tallying corn used for ethanol in August at 417.3 mbu. That is 1.51% larger vs last year and brings the total for the MY to 5.032 bbu. Weekly corn export sales continue to remain light at 370,400 MT for the week ending 9/23. Outstanding sales are now just 9% larger than year ago. The lack of new purchases is diminishing the lead we had from the forward books. Total commitments are now 40% of the USDA projection, now just 10% above the 5-year average buying pace. Friday’s weekly Commitment of Traders report indicated that managed money spec funds increased their net long in corn futures and options by 30,391 during the week ending September 28. That took them to a net long 244,741 contracts by Tuesday. 

Wheat bulls had one of the better arguments this week and put their money where their mouth was. KC was the leader to the upside, posting a 5.52% gain, with CBT (now a discount to KC) up 4.35%. MPLS wasn’t as stout but still managed a 1.42% rally. One of the bigger surprises from NASS was a larger reduction to the wheat production total via the Small Grains Summary. That tallied all wheat production at 1.645 bbu, down 52 mbu from August and 35 mbu below trade estimates. Of that cut, 42 mbu was in winter wheat, with 12 mbu from spring. That helped to tighten first quarter stocks on September 1 to 1.78 bbu, nearly 72 mbu below the average analyst guess. Thursday’s Export Sales report showed wheat bookings backing off again to 290,100 MT for the week ending September 23. Total commitments for wheat exports are now 11.198 MMT, which is 47% of the USDA forecast vs. the 53% average pace for this date. CFTC data via the weekly Commitment of Traders report showed spec funds in CBT wheat adding to their net short position by 4,324 contracts for the week ending 9/28. That took them to net short 9,815 contracts. In KC HRW, they added a total of 7,093 contracts to their net long for the week, to 46,127 contracts.

Soybean futures were not as lucky as the grains this week, as nearby November took a 3% loss heading home on Friday. Soymeal was weaker again with a 3.3% drop. Bean oil held nicely, with a 1.1% rally. The major bear in the room was the Grain Stocks data out of NASS. September 1 stocks of soybeans were 256 mbu, a 51.3% drop from last year but 82 mbu above the average trade estimate. A big reason for that was NASS raising 2020 production by 81 mbu to keep the residual use from being a negative number.  Monthly crush data from the Fats & Oils report showed 168.24 mbu of soybeans crushed during August. That was down 3.7% from last year, taking the 2020/21 MY total to 2.140 bbu. Soybean export sales through September 23 were tallied at 1.094 MMT according to Export Sales data. That back up from the previous week and take total export commitments to 24.286 MMT. US Exporters have now booked 43% of the USDA estimate, which is now 2% behind the average pace. Last year’s 63% does skew that average pace higher. Outstanding sales are now 31% below LY, which had a large forward book coming into the MY. The weekly CFTC Commitment of Traders data soybean futures and options spec traders adding just 9,610 contracts to their soybean net long positions in the week ending 9/28. They took that smallest position in more than a year back up to 59,311 contracts as of Tuesday.

Live cattle futures are in decline mode at the moment, as October slipped another 2.05% this week. Cash cattle trade this week seemed light but was steady to weaker at 121-124 in KS, $124 in TX and $122 in NE. Despite the strong corn and weaker fats, feeder cattle futures were down just 90 cents on the week. The CME feeder cattle index is $153.72, down $0.32 from the previous week. Wholesale beef prices were the lowest since early August. Choice boxes were down $10.96 (-3.6%), with Select down $9.69/cwt (-3.5%). Weekly beef production was down just 0.3% for the week and 5.8% lower than last year. That is on 0.6% lower slaughter wk/wk and -4.1% yr/yr. YTD beef production is now 3% above year ago on 3.3% larger slaughter. Weekly Export Sale data showed 16,100 MT in beef bookings for the week ending 9/23, the largest since mid-July. Shipments were at a 3-week high 18,500 MT The Commitment of Traders report tallied managed money spec funds at a net long 28,770 contracts in live cattle futures and options during the week ending 9/28. That was a 5,934 contract drop from the previous week.

Lean hog futures continued last week’s rally following the bullish Hogs and Pigs report, up 5.76% for October. The CME Lean Hog index was back up $1.01 for the week @$92.90. The pork carcass cutout value was up $2.62 this week at $113.39, for a 2.4% increase. The butt and ham primals were the only cuts lower. Weekly pork production was down 1.8% from the previous week, and 5.5% lower vs. the same but COVID distorted week in 2020. The YTD pork production is 1.9% smaller YTD vs. last year. Weekly pork export sales for the week ending 9/23 were up 31% from the previous week at 42,500 MT, including 14,000 MT to China. Shipments slipped on the week to 30,300 MT. CFTC’s Commitment of Traders report indicated managed money bouncing back from a 33-week low in their lean hog futures and options net long by 9,775 contracts. They were net long 65,633 contracts on September 28.

Cotton futures posted the largest rally of the ag commodities this week, shooting 8.9% higher. We finally broke $1! A likely major reason for that was export bookings, as the week of 9/23 saw 571,400 RB sold, the largest since June 2012 for any week (excluding MY rollovers and government shutdown lumped data). A majority of that was to China, totaling 418,600 RB. Export shipments totaled 163,900 RB, down from the previous week but not uncommon for this time of year. Weekly NASS Crop Progress data has cotton a little behind pace with 60% of the crop with bolls open. Harvest was 11% complete vs. the 14% average pace as of Sunday. Cotton crop condition ratings were unch on the week at 368 on the Brugler500 index, though gd/ex ratings were up 1% to 65%. The weekly Commitment of Traders report indicated managed money spec funds adding back to their net long in cotton futures and options by another 13,327 as of Tuesday. They were net long 94,599 contracts on September 28.

Market Watch

The first full week of October starts off with the weekly Export Inspections report on Monday morning, with the Crop Progress report released that afternoon. Cattle traders will be reacting to any surprise futures positions resulting from October options expiration. On Tuesday, Census will release trade data from August. EIA data for ethanol production and stocks will be released on Wednesday. Fast forward to Thursday and FAS will put out their weekly Export Sales report. The thinly traded October cotton futures contract expires on Thursday as well.

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.

Tech Talk: November Soybeans

As we pointed out in several different channels, the key reversal on September 10 wasn’t necessarily the harvest low, just a local low. Prices needed to break out of the regression channel and get some trend following buy signals to confirm.  That didn’t happen. The rally stalled at the Bollinger midline, with two spikes both rejected. The Grain Stocks report fueled a drop to new lows for the move, and a test of the June low ($12.40) and the 50% retracement on the weekly chart ($12.42). November has a trading cycle low due on 10/4, plus or minus three days.  The weekly chart has a low due next week, +/- two weeks. Ideally, the oscillators like stochastics would be oversold coming into those lows. That is not yet the case. We have a declining regression channel, with resistance at $12.93 and support at $12.27. The twice tested 18-day moving average resistance is $12.79. ADX, not shown, rose on the Thursday/Friday break.  The main overhead resistance past the regression channel is the trendline at $13.15.

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.

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