April Fooling by Alan Brugler

April Fooling

Apr 01, 2016

Market Watch with Alan Brugler

April Fooling

In Honor of April Fool’s Day, I went searching for some famous quotes on fools and foolishness. On tenet of any bull market (few and far between at the moment) is the greater fool theory. Instead of buying low and selling high, fools buy high and try to sell higher to an even greater fool. The last one to get “in” gets stuck with the biggest loss. Bernard Baruch said “The main purpose of the stock market is to make fools of as many men as possible”. He might as well have been talking about commodities. Just substitute “USDA” for “stock market” and you have this week’s corn reports pretty well summarized. The entire market got caught on the wrong side as producers planned a much bigger shift to corn than imagined possible. Of course, Mark Twain had a few things to say about fools as well. First, “get your facts first, then you can distort them as you please.” And finally, “The first of April is the day we remember what we are the other 364 days of the year”.

Corn futures were down 4.5% this week. THE big event of the week was the Planting Intentions report on Thursday. Producers told USDA they intended to plant 93.6 million acres to corn in 2016, nearly 3.5 million more than the average trade estimate coming into the report. That was a shocker, and worthly of the double digit decline on report day. Sometimes a grain stocks surprise will blunt the acreage figure, but USDA found corn stocks on March 1 to be 7.807 billion bushels, just about as expected. Weekly ethanol stocks rose 500,000 barrels from the previous week. Monthly corn grind for ethanol came out on Friday afternoon, with USDA showing 420.8 million bushels used in February. Weekly export sales for corn through March 24 totaled 870,200 MT, with the old crop total of 790,600 down 2% from the previous week.

Commodity Weekly Weekly
Mon 03/18/16 03/24/16 04/01/16 Change % Chg
May Corn $3.670 $3.700 $3.540 ($0.160) -4.52%
May CBOT Wheat $4.630 $4.630 $4.758 $0.128 2.68%
May KCBT Wheat $4.695 $4.718 $4.778 $0.060 1.26%
May MGEX Wheat $5.09 $5.12 $5.29 $0.170 3.21%
May Soybeans $8.975 $9.105 $9.183 $0.077 0.84%
May Soy Meal $266.60 $275.30 $272.30 ($3.00) -1.10%
May Soybean Oil $33.42 $33.18 $34.45 $1.270 3.69%
Apr Live Cattle $139.825 $135.850 $132.975 ($2.875) -2.16%
Apr Feeder Cattle $162.20 $155.83 $156.20 $0.38 0.24%
Apr Lean Hogs $71.450 $69.625 $67.800 ($1.825) -2.69%
May Cotton 57.16 57.72 59.20 1.480 2.50%
May Oats $1.880 $1.870 $1.850 ($0.020) -1.08%

Wheat futures were higher at all three exchanges. MPLS was the firmest again, with a 3.2% advance. USDA confirmed what the market was telling us, i.e. spring wheat acreage is sharply lower in 2016. The report on Thursday put Other Spring at 11.3 million, and All Wheat at 36.2 million acres. The All Wheat figure is the lowest since 1970. The March 1 wheat stocks were a dead weight, at 1.372 billion bushels. USDA will likely cut feed & residual use to reflect the slightly larger than expected number. US Weekly export sales were 402,800 MT. The old crop number was one vessel shy of the previous week, at 317,200 MT. The IGC increased its 2015/16 world production estimate by 2 MMT to 734 MMT (USDA: 732.32 MMT). Production in 2016/17 is expected to fall to 713 MMT, their lowest estimate since 2012/13. However, world ending stocks are estimated to only fall to 211 MMT next year, from the 15/16 estimate of 214.

Soybeans were up 0.8% this week, with an assist from another 3.7% gain in nearby soy oil. Palm oil production is being hit hard by El Nino weather, shrinking projected ending stocks and lending a hand to competing oils. USDA didn’t hurt the bulls in the big reports, with both March 1 stocks and acreage intentions on the low side of trade guesses. Beans became the long leg of spreads, and the funds had little incentive to exit their recently acquired long positions. USDA reported March 1 bean stocks of 1.531 billion bushels, with 82.2 million acres intended for 2016. By Friday night the soy:corn ratio had ballooned out to 2.52:1 in an attempt to pull some ground away from corn and toward beans. The USDA monthly crush report on Friday showed 154.6 million bushels consumed in February. Oil stocks were 2.281 billion pounds. The IGC increased its 2015/16 world soy production estimate by 2 MMT to 323 MMT (USDA: 320.21 MMT). World production in 2016/17 is estimated to be 320 MMT.

May cotton futures were up 2.5% for the week, thanks mostly to weakness in the US dollar. USDA confirmed that producers intend to plant 9.6 million acres in 2016. That is down from 2 years ago, but above both trade estimates and the weather depressed 8.58 million from last year. Old crop US cotton export sales slowed firmed last week, with upland bookings of only 121,600 RB vs. 84,400 RB the previous week. Pima sales were 12,200 RB, up from 8,500 RB last week. The marketing year ends July 31. The USDA AWP for the week is 44.48 cents, down from 44.84 cents last week. The updated LDP/MLG is 7.52 cents, up from 7.16 cents last week.

Live cattle futures dropped 2.2% this week, extending the 3% drop from the previous week. USDA weekly export sales for beef jumped to a marketing year high of 24,500 MT. Japan bought a big 16,000 MT chunk, helping to explain wholesale price strength earlier in the month. Dressed sales in NE and the WCB were reported at $115-116, which is $2-3 lower than last week. Weekly FI cattle slaughter was estimated at 542,000 head. Beef production YTD is now 2% larger than last year. Choice wholesale beef prices plunged $5.25 this week (-2.3%), while Select boxes were down $7.96 (-3.14%).

Lean hog futures were down 2.7% this week. The CME Lean Hog Index was up 32 cents on Friday to $65.25, but still below where it was ahead of the Easter break ($65.89). The USDA average pork carcass cutout value was up 98 cents on a Friday/Friday basis, a 1.3% increase. Hams posted the biggest gain for the post-Easter week. Estimated weekly FI hog slaughter is 2.181 million head, up 3,000 from last week. Pork production YTD is down about 1.5% from last year (It was -1.3% last week). The Hogs & Pigs report was initially spun as bullish because it wasn’t more bearish than expected. By the end of the week, prices were lower due to improving productivity.

Market Watch

Cattle traders will begin the week reacting to any surprise positions inherited with the expiration of the April cattle options on April 1. Grain types will have the usual weekly USDA Export Inspections on Monday and weekly Export Sales report on Thursday morning. Now that the calendar has turned to April, we will begin getting the weekly 18-state Crop Progress reports from NASS on Monday night.

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