Apr 28, 2017
Market Watch with Alan Brugler
April 28, 2017
The cattle market is seeing what some have described as a perfect storm, a confluence of events resulting in an unusually significant impact. Think F5 tornadoes or Cat 5 Hurricanes or the monster waves seen in movies. Packers appear to have a lot of lucrative forward sales on the books, at a time when slaughter ready cattle numbers are just climbing out of a multi-year low for this time of year. They are pulling cattle ahead, dropping average carcass weights and beef tonnage from what it would otherwise have been and thus extending the tightness. Export sales are up 1-2% in a market where that much of a change has a big impact on price. The spec funds have the largest long position since April 2014, and are pressing it because the cash cattle aren’t yet offering any delivery risk. The largest short in the market is the farmer/feedlot operator, who isn’t happy about the margin calls but does have offsetting gains in the cash market. How will it end? Probably with a lightning bolt of liquidation selling. When? Stay tuned!
Corn futures were up 1 cent per bushel for the week and down 6 ¼ cents for the month. Corn planting was 17% done as of last Sunday, which was more than expected. Widespread rains are expected to have slowed the progress this past week, with results due on Monday. The market took a wait and see attitude, since yield declines are not very strongly associated with planting progress until after May 7. Corn total export commitments are now 37.63% greater than last year at this point, and 90% of the final USDA projection. That is compared to the average of 88% and only 79% last year. The Commitment of Traders report showed spec funds adding 24,448 contracts to their net short position in corn futures and options as of last Tuesday. Their net short position of 196,257 contracts (just shy of one billion bushels) is the largest reported position since March 2016.
Wheat futures were higher in all three markets, but with different dynamics. KC HRW was the bull leader, thanks to a hard freeze and heavy frost that hit some heading wheat and burned back leaves in some other areas. MPLS spring wheat was higher due to planting delays in both the US and Canada. Chicago SRW is seeing some heavy rains from AR up to IL and IN and KY, but wet conditions in late April are more typically a breeding ground for fusarium and quality issues in SRW than for outright yield loss. The Brugler500 Index rose from 346 to 347 this week. That is still below the 359 index for the same week in 2016. HRW conditions improved 1 point, while SRW ratings were static. Old crop export sales bookings are slowing down, with only a month left in the marketing year. In the CFTC COT report, spec funds added another 20,201 contracts to their net short position in Chicago Wheat Futures and options for the week ending April 25….