Musician Meat Loaf passed away this week at age 74. His ninth studio album was titled Bat Out of Hell III: The Monster is Loose, notable not only for the title track but for another song with a nod to agriculture titled In the Land of the Pig, the Butcher is King. We’re going to focus on the monster roaming in the ag commodities this week. We suspect it might be one of those shape shifters from sci-fi, however. We saw some large scale jumps in open interest on up days, often a fingerprint of the asset managers taking a liking to commodities instead of stocks. That would be understandable, given the slide in equities this month. Inflation and commodities as a haven was one face of the monster. Another was the drought in South America. It’s raining down there now, but the downward revisions to production estimates continue. Others saw the monster as a potential Phase Two trade deal with China, and massive commodity purchases tied to it. Finally, the monster looked to some like the Russian bear, encircling Ukraine and likely to cause major disruptions to grain exports from both Russia and Ukraine.
Corn futures closed out the week with a 20 cent gain. There was big fund buying on Wednesday, and some new contract highs were set later in the week. Rumors flew that the US and China were coming close on a Phase One and/or Phase Two trade deal, with increased Chinese buying expected. No sales announcements were forthcoming. Export Sales data showed corn bookings bouncing from the prior week to 1.091 MMT. Marketing year export commitments (shipped plus outstanding sales) are 42.546 MMT, about 9% smaller than last year at this time. That is 69% of the full year WASDE forecast, and on average we would be only at 61% by mid-January. Accumulated exports are 28% of the USDA projection, matching the average pace. CFTC data showed specs in corn futures and options trimming 17,856 contracts from their net long position in the week ending 1/18, taking it to net long 326,523 contracts.
Wheat futures rebounded with a vengeance this week, reminding us once again of the old trade axiom “trade wheat, sleep in the street”. KC wheat rallied 48 cents after losing 30 cents the previous week. CBT SRW was up 38 ½ after being down 17 cents the week before. MPLS spring wheat rallied 6.6% for the week despite being lower on Friday. Weekly Export Sales improved to 380,600 MT for the week ending January 13. Export commitments are now 75% of USDA’s recently reduced full year forecast. They would typically be 82% by now. Unshipped sales on the books are 24% smaller than year ago, at 16.743 MMT. Friday’s Commitment of Traders report showed managed money in CBT wheat future + options reducing their net short position last week by 2,863 contracts. They were still net short 24,901 contracts as of Tuesday. In KC wheat, they pared back their net long position by 6,555 contracts during the week, to 36,119.
Soybeans rose 44 ½ cents net for the week or 3.25%. That more than offset the 2.87% loss the previous week. Soybean meal was a drag, losing $12.90/ton or 3.2%, but that was offset by a jump of 7.8% in soy oil value. There were several contributors to the rally, including indications that Indonesia might restrict palm oil exports to control domestic prices, some more private analyst reductions in South American production forecasts, and a surge of new money coming into ag commodities broadly on Wednesday. There were rumors China might be buying, but no big purchases were announced. Export Sales data indicated exporters booked a net 671,000 MT of soybeans during the week ending January 13. That was down from the previous week, but mostly because 984,200 MT were switched out of “unknown” to other buyers. Total US export commitments are now 43.108 MMT, 25% smaller than last year’s record buying pace. On the plus side, US Exporters have now booked 77% of the USDA full year estimate vs. the average 79% pace for this date. Shipments have hit 60% of the full year WASDE forecast, running a little ahead of the 57% average pace. Spec traders in soybean futures and options trimmed 7,240 contracts from their net long position in the week ending 1/18, taking it down to 99,639 contracts right ahead of the big rally.
Live cattle futures were down a measly 5 cents per 100 lbs. for the week, waiting for the USDA Cattle on Feed report released on Friday afternoon. The bulk of the cash cattle trade for the week was at $137, with a few higher quality loads at $139. Feeder cattle futures were down 1.5% this week, pressured by the rise in corn prices. The CME Feeder Cattle Index was $161.10, down 69 cents from the previous week. Wholesale beef prices were higher. Choice boxes were up $8.10 (+2.8%) per 100 pounds, with Select rising $8.36/cwt (+3.1%). Weekly beef production was up 3.1% for the week and down 4.5% vs. the same week last year. YTD beef production is off 8.6% vs. year ago, but with a different number of holidays in the reporting window. Weekly Export Sales totaled 12,800 MT in the week ending January 13. China was the largest buyer. CFTC data released on Friday showed spec funds adding 236 contracts to their net long position in live cattle futures and options from 1/11 to 1/18. They held a net long position of 62,177 contracts on that date.
Lean hog futures climbed 6.6% on the week, a $5.30 bounce from the week prior. The CME Lean Hog index was $76.79, up $2.19 from the previous week and reinforcing the futures rally. The pork carcass cutout value was up $4.22 (+4.7%) this week to $93.29. Hams led the way, up 15.3%. Weekly pork production was up 3.5% from last week, but still 11.1% lower vs. the same week in 2021. Weekly pork export sales for the week ending 1/13 were 38,700 MT. The weekly Commitment of Traders report indicated money mangers in lean hog futures and options backed off their net long position by only 9 contracts in a week, leaving them net long 48,795 contracts on Tuesday night.
Cotton futures rallied another 105 points during the week, up 0.88%, as March and other months posted new life of contract highs. Nearby futures traded at the highest price since 2011. Thursday’s Export Sales were slower, with upland cotton at 273,000 RB for the week. Unshipped cotton export sales on the books are 30% larger than last year @ 7.864 million running bales. Exports year to date, however, are down 44%. Exporters have now sold 77% of the USDA projected total for the year, vs. the average pace of 78% for this date. The FAS updated the adjusted world price (AWP) for cotton to 110.44 cents. That was a 4.86 cent bump and is good through next Thursday. The Commitment of Traders report on Friday showed the managed money spec funds adding 844 contracts to their net long during the week ending 1/18. By Tuesday they held a net long position of 77,608 contracts.
The markets go back to a regular schedule this week, in so far as that is possible with all the Omicron disruptions. Cattle traders will begin the week reacting to Friday night’s COF report results. Grain traders are reacting to any surprise positions inherited from February options expirations. USDA Export Inspections will be out on Monday. The monthly Cold Storage report is also planned for a Monday afternoon release. Weekly EIA data will be released on Wednesday morning. The weekly Export Sales report is expected on Thursday.
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.
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Tech Talk: March Corn
The gain in March corn on Friday was only 5 ¼ cents, but needs to be viewed in context. We picked off stops above the December 28 high, and have now exceeded the 78.6% Fib retracement of the entire sell off from the contract high last May. Lateral resistance is $6.40 ½. Volume weighted MACD turned bullish on Friday. Looking back a few days, the quant funds were buyers on that dip to the lower regression channel ($5.92 at the time), reinforcing that the uptrend since October is still in force. The upper regression channel is resistance for this week, at $6.23. The upper Bollinger Band is $6.17. The biggest risk for the bulls (if not a Black Swan headline) is probably the overbought 4-day RSI and the intraday indicators. Regression channel support to start the week is $5.945. The lower Bollinger Band is $5.865.
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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