Uncertainty Reigns
Market Watch with Alan Brugler
May 8, 2015
UNCERTAINTY REIGNS
In my Marketing Psychology presentation at the Top Producer Chicago conference back in January, I talked about Intolerance of Uncertainty. People tend to deal with unknowns in two ways. The first is DENIAL. We deny the fact that we don’t know, and act as if we do know. You can also call this UNINFORMED ACTION. The second is INACTION. We know that we don’t know, and choose not to act until we have the facts. Marketing decisions are a balancing act between these two modes, and your personal psychology tends to put you in one camp or the other by default. Analyticals can be slow to act in a trend, because they always need more data. Extroverts will tend to charge ahead and deal with the consequences later. Amiables want some facts, but will tend to do what the crowd is doing. Pragmatics want more data than the Amiables or Extroverts, but are willing to act without a complete picture.
All of the above is a preamble to the current grain market situation. We are clearly in the Uncertainty category when it comes to 2015 production. We are gradually establishing facts such as the crops getting planted and improved soil moisture. USDA this week will give us their initial estimates of the world environment for the next 16 months, with their first WASDE SD estimates for 2015/16. Be aware that there are major revisions in those preliminary estimates when you look back two years down the road. There is also little correlation between early planting progress and final average yield for the US. If you are in the Uninformed Action group, make sure you set mental triggers that will tell you when you have been premature in your judgement. If you are in the Inaction group, make sure you have examined the consequences of not selling should the crops turn out to be huge, and adjust your approach if necessary.
Corn dropped another 0.35% for a two week decline of 6 cents per bushel. Planting progress was more rapid than expected at 55% complete, followed by widespread rain to get the crop germinated and up. Progress is expected to be close to 70% this week, with gains in the ECB but the west slowed by the rain. US Export demand has been steady, but total commitments at 90% are less than the usual 92% of the full year USDA forecast for this date. Traders are also leery of a USDA cut in projected feed use because of the more than 24 million turkeys and chickens now dead or being liquidated due to the H5N2 outbreak in the central US. Weekly corn use for ethanol production slipped seasonally, with ethanol stocks holding steady at 20.8 million barrels. The average trade estimate for US ending stocks next Tuesday is 1.864 billion bushels for 2014/15 and 1.75 billion for 2015/16.
Wheat tried to rally out of oversold conditions, then retreated to set a new life of contract low again on Tuesday. KC did post a net 3.4% gain for the week, thanks to the less than rosy yield estimates from the Kansas tour. Chicago gained 1.4%, while MPLS gained 1.6% in extremely thin May contract trading. The Brugler500 Index for all winter wheat was up 2 points from the previous week, with improvements in both the HRW and SRW components. The Kansas Wheat Qualtity Tour projected production of 288 million bushels, up from the 260 million projected a year ago. The Oklahoma estimate was raised to 111.7 million bushels. Combined old and new crop bookings in the USDA weekly export sales report came in at 298,600 MT. Old crop sales were a net reduction due to rollovers, but bookings for new crop were 446,800 MT.
Soybeans continued to trade in the range they have been in since March. The May futures gained 1.6% on the week. Weekly USDA export sales were a stout 689,200 MT, with old crop sales at 338,900 MT. Total US export sales commitments are 101% of the USDA forecast, and with recent strong old crop sales USDA could bump up the projection on Tuesday. The soy oil market got a little bullish bounce from a crush plant strike in Argentina which quickly fizzled. Argentine soybean harvest is now estimated to be 70% completed, with the Buenos Aires exchange projecting the final crop will top 60 MMT. That would be a record volume. Reuters puts trade estimates at a more conservative 58.5 MMT. Brazilian production estimates have settled into the 94.5 MMT area.
Live cattle futures were up 1.5% for the week, thanks to a strong rally on Friday. Weekly beef production was up 0.1% from the previous week but down 2.5% from the same week in 2014. Beef production YTD is still down 5.0% from last year. Estimated carcass weights are 25# bigger than year ago. Wholesale prices were higher on a Thursday/Thursday basis with Choice boxes up 0.26% for the week, while Select boxes were up 0.73%. US beef exports typically increase each month until July. Cash cattle did trade above $160 on Friday, with dressed prices expected to be $257-260.
Lean hog futures were up 6% to add to the 5.3% advance the previous week. We are beginning to see the seasonal drop in market numbers, and exports have also picked up. Carcass weights are now an estimated 2# below year ago. Pork production YTD is up 5.6% from last year at this point. Weekly pork production was down 2.2% from the previous week. However, it was still up 4.3% from the previous year. Weekly pork export sales reported by the USDA were well below the prior week, but export shipments for the week ending April 30 were the largest of 2015. Shipments to China were noted. The USDA pork carcass cutout value was up a whopping 7.6% on a Thursday/Thursday basis, with the pork butt primal up 13.2%.
Cotton was up 0.52% for the week, due to a big sell off on Friday. It had been up 4.8% for the previous week. The US dollar index dropped to the weakest reading since January on Wednesday, followed by a short covering rally into the weekend. US employment looked strong on Friday, with the unemployment rate dropping to 5.4%. USDA put the weekly AWP at 52.54 and thus lowered the LDP/MLG to 0.00 through May 14. Outstanding (unshipped) cotton export sales are 74% larger than they were on May 1, 2014. Actual shipments are 2.2% behind year ago.
Market Watch
USDA will issue the usual growing season reports this week, with Export Inspections and Crop Progress on Monday, and weekly Export Sales on Thursday. The main USDA reports for the month will be on Tuesday, with WASDE supply/demand and NASS Crop Production. These will include the first USDA forecasts for world supply/demand for the 2015/16 marketing year. Thursday will also mark the expiration of the May grain futures contracts as well as May hogs. The monthly NOPA crush report is scheduled for Friday, May 15.
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