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Alan Brugler

We had an almost perfect storm for a market sell off around Thanksgiving and the week that followed. Liquidity was limited, with many traders taking a 4-day or 5-day holiday for travel. The omicron variant of the COVID virus was discovered, with more than 50 mutations but little data on lethality. The Fed signaled in various ways that maybe inflation wasn’t going to be quite so temporary, and it might have to be more aggressive in taking away the punch bowl and the cheap money they’ve been pouring into it. On top of that, many traders practice asset allocation, selling big gainers (we’re looking at you, wheat and oats) before they revert to the mean and looking to buy undervalued assets. The bottom line was a big flight to cash at the end of the month.  However, cash is trash. Yields on bonds are paltry, and those on savings accounts are an insult. Some recent inflation readings have been over 6%. If you’re getting 2% interest, you are losing purchasing power. As a result, we started to see money coming back in on the buy side of commodities after the calendar turned to December. Soybeans and hogs were up on the week. Other commodities and equities still weren’t cheap enough to qualify as undervalued and suitable for buying.

Corn futures slipped 7 ¾ cents or 1.3% this week. All of that occurred in the waning days of November. Weekly corn export sales weren’t as good as the previous week, at 1.021 MT. Marketing year export commitments (shipped plus outstanding sales) are 35.430 MMT, about 7% smaller than last year at this time. That is 56% of the full year WASDE forecast, and on average we would be at 48% by the end of November. We are currently on pace to make the USDA numbers. IA data showed ethanol producers averaged 1.035m barrels of output per day through the week that ended 11/26. That was 44k bpd below the week prior, and was 36k bpd below the 4-week average. Ethanol stocks were 137,000 barrels higher to 20.3 million. That was the largest stockpile since the MY began.  Official corn grind for ethanol in October was 469.312 million bushels, the largest since 2017. Friday’s Commitment of Traders report showed the large managed money spec funds cut 51,422 contracts from their net long in the week ending 11/30, taking it to 315,269 contracts as of Tuesday COB. Much of that was related to the December options expiration.

Wheat futures were down sharply in all three markets this week. MPLS spring wheat was in retreat mode, down 2.65% but still in a trading range. CBT futures dropped 4.3% and KC HRW was down 5.2%.  French (MATIF) prices hit new highs during the week, but ABARES also raised projected Aussie production to 34.2 MMT. On Friday, Stats Canada kept Canadian All Wheat production close to the previous estimate, and above trade expectations @ 21.652 MMT.  Spring wheat production rose about 700,000 MT from the previous estimate but is down nearly 9.8 MMT from last year. Weekly Export Sales were a marketing year low of 79,900 MT as prices nudged multi-year highs. Export commitments are down 22% from last year at this time. They are 62% of the full year WASDE forecast, vs. the 5 year average of 70% for this date. The CFTC Commitment of Traders report on Friday showed the large spec funds cutting 11,763 contracts from their net long in CBT wheat during the week, taking it to 6,200 as of November 30. They trimmed the large net long in KC HRW by 3,241 contracts during the week, but were still net long 62,368 contracts.

Soybeans had a strong finish to the week and gained 14 ½ cents from Friday to Friday. Soybean meal was again the backbone of the rally, up 2.6% for the week. Soy oil was down 2.8%. USDA’s Export Sales report indicated exporters sold only 1.063 MMT of soys during the week ending November 25, down 32% from the previous week. Meal sales were close to expectations at 146,700 MT, while soy oil bookings were again solid at 49,300. Total US export commitments are now 37.167 MMT, still 29% smaller than year ago. US Exporters have now booked 67% of the USDA estimate vs. the average 66% pace for this date. CFTC data on Friday showed the managed money spec funds hastily exiting some of their net long futures position at month end. They cut 15,931 contracts during the reporting week, cutting the net long to 33,425 as of Nov 30. That was still a trifle more bullish than they were two weeks ago.

Live cattle futures leaked 0.3% lower on the week. The basis continues to firm, with cash cattle sales mostly $137-140.75 and some premium cattle at $142. Feeder cattle futures dropped more than $3.00 for the week, or 1.8%. Higher corn and lower cattle squeezed what feedlots could pay for the walking inputs. The CME feeder cattle index is $161.58. Wholesale beef prices were lower this week. Choice boxes were down $5.65 (-2.0%) per 100 pounds, with Select down $3.64/cwt (-1.4%). Weekly beef production was up 19.6% for the week vs. Thanksgiving week, and up 0.2% vs. last year. YTD beef production is now 2.5% above year ago on 2.9% larger slaughter. Weekly Export Sales data showed combined 2021 and 2022 sales of 32,000 MT for the week ending 11/25. China bought 12,400 MT of the 2021 shipments, apparently starting to stuff the pipeline ahead of the Lunar New Year holidays.  Also on Friday, the Commitment of Traders report showed the large spec funds adding 9,484 contracts to their net long in cattle. That took it to 78,517 contracts of futures and options as of 11/30.

Lean hog futures eked out a 47 cent gain for the week, up 0.6% in the active February contract. The CME Lean Hog index was $70.86, for a $3.14 discount to the board. The pork carcass cutout value was down $2.61 (-3.1%) this week to $81.37. Loins were down >14% to provide the downside pressure. Weekly pork production was up 18.2% from Thanksgiving week, and 5.8% lower vs. the same COVID distorted week in 2020. The YTD pork production is 2.4% smaller vs. last year, on 2.1% smaller slaughter. Weekly pork export sales for the week ending 11/4 were 45,500 MT for combined 2021 and 2022 sales. Pork shipments increased 26% to 36,500 MT with only 3,100 MT headed to China.  CFTC on Friday showed the large spec fund position increasing by 897 contracts for the week. That put them net long 56,373 on November 30.

Cotton futures sank 6.8% this week. Like Icarus, they might have gotten a little too close to the sun, or at least to the Fed and the omicron virus. Unshipped export sales on the books are 21% larger than last year @ 6.953 million running bales. Exports year to date, however, are down 42%. Exporters have now sold 64% of the USDA projected total for the year, vs. the average pace of 66%. The new AWP for cotton this week is 97.06 cents/lb, down by 5.59 cents per pound vs. the previous week. The Commitment of Traders report on Friday showed drop of 6,050 contracts in the managed money net long position during the reporting week, taking it down to 77,743 contracts as of Nov 30.

Market Watch

The first full week of December starts with the normal USDA Export Inspections on Monday morning. Wednesday we will see the EIA report on weekly ethanol production and stocks. That is also the last trading day for December cotton futures. USDA will release their monthly Crop Production and WASDE Supply/Demand estimates on Thursday, the 9th. Thursday morning we will also see the weekly Export Sales report from USDA.

Tech Talk: January Soybeans

January soybean futures gapped down in thin market conditions on the Friday after Thanksgiving. Gaps are meant to be filled, and that one was filled by Monday morning. However, bulls had made pretty good money since November 1, and we saw some asset allocators selling beans ahead of month end. Tuesday was a battering ram trade, washing out the rest of the weak longs and bouncing off of the 61.8% Fib retracement support. With BR trades, we expect consolidation (Wednesday in this case) and then profit taking (buying on Thursday and Friday). Stochastics are now bull friendly, to the point of jumping the creek (gapping over the blue 18-day moving average) on Friday.

Resistance is likely the 38.2% Fib retracement of the entire drop from the summer high, at $12.95, with the 100-day moving average still declining resistance at $12.88 ¾. CCI turned bullish on Thursday, with fast MACD joining the bull camp with Friday’s higher close. Lateral support is the low at $12.14 ¼, and potentially an uptrend line from the lows @ $12.24.

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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