About The Author

Alan Brugler

One of many wise market axioms is that “if you trade the news, you lose”. While markets can and do react to news, someone else often had it first, and trading it also opens you up to the Big Three weaknesses of traders. Those of course are panic, fear and greed. They are the source of many bad marketing decisions. USDA didn’t give us much news in the WASDE reports this week, with most of the changes in wheat. The markets haven’t been running low on news, though, with the threat of a Russian invasion of Ukraine top of mind. Power abhors a vacuum, and the likes of China, Russia and Iran all appear to want to test the resolve of the US and other democracies. Speaking of Ukraine, that country is also a major export player in corn and wheat. China has reportedly been buying Ukrainian grain even though it is higher priced than the US offers. Ukraine is also host to a major nat gas pipeline going to Europe, and winter starts in less than two weeks. On the politics side of our headline, the FOMC is meeting this week, and has to deal with the latest inflation numbers (6.8% CPI in November, 4.9% core inflation ex-food and energy).  The CPI was the highest in 39 years and has spent multiple months above 5 percent. That isn’t transitory, and the Fed is expected to signal a more rapid tightening of the money supply.

Corn futures were up 6 cents per bushel this week, offsetting most of the 7 ¾ cents lost the previous week. Weekly corn export sales were up 11% vs. previous week, at 1.133 MT. Marketing year export commitments (shipped plus outstanding sales) are 36.563 MMT, about 8% smaller than last year at this time. That is 58% of the full year WASDE forecast, and on average we would be at 50% by early December. USDA left projected corn ending stocks UNCH in Thursday’s WASDE report and left the full year cash average price estimate at $5.45. Friday’s Commitment of Traders report showed the large managed money spec funds added 17,232 contracts to their net long in the week ending 12/7, taking it to 332,501 contracts as of Tuesday COB. Nearby futures rose 19 cents during that 7-day reporting period.

Wheat futures were down 2.3% in the CBT and KC markets this week, while Minneapolis spring wheat was up 1 cent per bushel.  USDA cut projected US wheat exports 20 million bushels due to the slow pace of sales, while also trimming imports by 5 million. Their average cash price estimate for the year was increased 15 cents to $7.05. Weekly Export Sales improved to 239,900 MT after hitting a marketing year low the previous week. Export commitments are down 23% from last year at this time. The CFTC Commitment of Traders report on Friday showed the large spec funds cutting 5,479 contracts from their net long in CBT wheat during the week, taking it to only 721 as of December 7. They trimmed the large net long in KC HRW by 2,793 contracts during the week but were still net long 59,575 contracts.

Soybeans eked out a ½ cent increase for the week, dealing with big cross currents in the products. Soybean meal was again the backbone of the rally, up 2.3% for the week. Soy oil was down a sharp 6.2%. USDA’s Export Sales report indicated exporters sold 1.638 MMT of soys during the week ending December 2.  Meal sales were close to expectations at 202,500 MT, while soy oil bookings were weak at 5,300 MT. Total US export commitments are now 38.805 MMT, 27% smaller than year ago. However, the WASDE balance sheet expects a slowdown.  US Exporters have now booked 70% of the USDA estimate vs. the average 69% pace for this date. On Thursday, USDA left projected US soybean ending stocks UNCH, but tightened projected world stocks to 102 MMT. CFTC data on Friday showed the managed money spec funds adding 4,457 contracts to their net long futures position in the first week of December. That put them net long 37,882 as of December 7.

Live cattle futures leaked 0.6% lower on the week. The basis continues to firm, with cash cattle sales mostly $140 while futures dipped to $136.85. That’s a bonus for hedgers. Feeder cattle futures were up 75 cents this week, about 0.5%. The CME Feeder Cattle Index is $161.51, down 7 cents from the previous week. Wholesale beef prices were lower this week. Choice boxes were down $9.82 (-3.6%) per 100 pounds, with Select down $6.40/cwt (-2.5%). Weekly beef production was down 0.7 for the week and almost identical to last year. YTD beef production is now 2.4% above year ago on 2.9% larger slaughter. Weekly Export Sales data showed combined 2021 and 2022 sales of 14,600 MT, down sharply from 32,000 MT the previous week. On Friday, the Commitment of Traders report showed the large spec funds adding another 1,333 contracts to their net long in cattle during the reporting week. That took it to 79,850 contracts of futures and options as of 12/7. 

Lean hog futures lost 47 cents this week, erasing a gain of the same size the previous week for a two week round trip in that February contract. The CME Lean Hog index was $70.95, up 9 cents from the previous week and $2.10 below the Board. December hogs expire on Tuesday. The pork carcass cutout value was up $4.82 (5.9%) this week to $86.19. Hams, loins and bellies were all up more than 6% on the week. Weekly pork production was down 2% from last week, and 6.7% lower vs. the same COVID distorted week in 2020. The YTD pork production is 2.5% smaller vs. last year, on 2.2% smaller slaughter. Weekly pork export sales for the week ending 12/2 were 20,500 MT for combined 2021 and 2022 sales. They had hit 45,500 MT the previous week. CFTC on Friday showed the large spec funds still exiting hog longs, dropping 9,169 contracts net for the week. That put them net long 47,204 on December 7, just slightly more bullish than they were three weeks ago.

Cotton futures rebounded 2% this week. The highest inflation in 39 years (6.8% for CPI in November) provided a little support, along with tighter projected world ending stocks. USDA bumped up its US yield estimate but left US ending stocks UNCH at 3.4 million bales on Thursday. They tightened projected world ending stocks to 85.73 million bales from 86.93 million in the November report. Unshipped cotton export sales on the books are 24% larger than last year @ 7.22 million running bales. Exports year to date, however, are down 44%. Exporters have now sold 66% of the USDA projected total for the year, vs. the average pace of 68%. The new AWP for cotton was 351 points lower than the previous week at 93.55 cents/lb. The Commitment of Traders report on Friday showed a drop of 7,434 contracts in the managed money net long position during the reporting week, taking it down to 70,309 contracts as of December 7.

Market Watch

We get one more week of “normal” before the holidays kick in. We start with USDA Export Inspections on Monday morning. December grain and hog futures expire on Tuesday. The Fed (FOMC) meets Tuesday and Wednesday, with ‘tightening’ language expected. Wednesday we will see the EIA report on weekly ethanol production and stocks. The NOPA crush report is also expected. Thursday morning we will see the weekly Export Sales report from USDA.

Tech Talk: March Corn

Corn in general is continuing a post harvest rally from the September low. Nearby December futures posted a new high for the move this week, but they expire on Tuesday.  March futures have been converging with December ahead of expiration and didn’t quite get to their high from November 24. That is lateral resistance at $5.96 ¾. Prices are in a rising regression channel, with support at $5.72 ¾ and resistance at $6.01. Taking out the 61.8% Fib retracement resistance at $5.895 opens the door to the 78.6% retracement at $6.12 if not stopped by the quants. Stochastics are getting close to overbought territory, but not yet turning.

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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