A moderate drop in corn futures trade yesterday was accompanied by some massive gains in the feeder cattle futures. I think it helped immensely that the deferred live cattle months were up strongly as well. After the April live contract went off the board, the typical June futures discount was mildly outside of historical normal levels based on Southern trade last week, but it was way undervalued versus some of the action in the north. June was up $3 at one point and settled just over $2.50 higher and that narrowed the gap to much closer to normal in Texas and Kansas, but still strong discount for anything north.
Futures need to come up or cash needs to come down, but reality states we’ve got an entire month before delivery potential starts against June and positive basis doesn’t generate deliveries. The translation to that is there’s some interesting times ahead for the next 50+ days. A strong positive basis may cause hedged cattle feeders to be willing sellers at lower money, but the way packers are behaving with active bids early in the week these days, there’s some leverage that has shifted into the feedlot hands lately as the counter-argument that cash doesn’t need to drop and that it might continue to climb.
Margins on the packer end have definitely changed. For a couple of weeks now, choice beef has been trading lower than comparative quotes in the same week last year, but negotiated cash is substantially higher than a year ago. Keep in mind, this is also happening with cumulative export sales lower than last year and COF supplies higher than last year. The packer has somehow lost a LOT of traction.
Cattle slg.__ 115,000 -10k wa unch ya
Choice Cutout__262.55 +1.77
Select Cutout__248.23 +.26
Feeder Index:___155.24 -.40
Lean Index.__101.59 -.18
Pork cutout___106.58 +2.00
Hog slg.__482,000 +17k wa +8k ya
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Moving on to the grain and oilseed trade, the wheat market finished flat yesterday with MGEX up a little, Chicago mixed and KC mildly lower. To some extent, that matched the weather fundamentals, because it’s raining in parched HRW wheat areas and it’s also raining in already flooded Spring wheat areas that aren’t getting planted because of it being too wet.
Fortunately or unfortunately, however you want to look at it, those same fundamentals were thrown out the window last night because wheat was up across the board and KC was leading the gains. Some of the reasoning behind that can be tied to crop progress and condition data that came out yesterday afternoon. Winter wheat condition ratings as a whole were unchanged from the previous week in the g/ex category at 27%. P/vp ratings got worse though, adding 4 points to 43%. Last year the crop was 48% g/ex versus 27% now. It was also only 19% p/vp versus the 43% now. State breakdowns had Kansas losing 1 point out of g/ex with 25% of the crop in that category. P/vp went from 36% last week to 39% this week. Oklahoma is 17% g/ex and 51% p/vp. Texas wheat is 8% good, no excellent and 77% p/vp.
Spring wheat planting gained 5 points last week to 19% done. Last year 46% of the crop was in and the average for that date is 28%. So, 9% behind the average pace.
Nationwide, the corn planting pace hit 14% done, up from 7% last week and 33% as the average. Iowa, Indiana and Illinois were all single digits. Minnesota was zero and they’re normally 28%. Soybean planting is 8% done nationwide versus 13 normal and 3% last week. Illinois, Indiana and Iowa were single digits there as well and their averages are all double digits by now. Minnesota was at zero again.
Big picture, crop conditions in wheat and planting pace in spring wheat, corn and soybeans are all really bullish.
Weekly export inspections were friendly to bullish across the board. Corn was a new marketing year high of 66.3 mln bushels and the weekly average needed now is down to 49.3 mln. That’s what happens when you consistently beat averages. They go down, which is great. Milo was 8.6 mln bushels versus 5.3 mln needed. Soybeans were 22.1 mln bushels and need 20 mln per week to hit USDA’s export target for the marketing year. Wheat was 14.1 mln and needed 12.9. The top destination in everything was Mexico in wheat and China in corn, milo and soybeans.
Funds yesterday were estimated sellers of 1k wheat, 8k corn and 7500 beans. Corn had some low double digit losses, but the bean market was ugly considering funds were only sellers of 7500.
8am daily export reporting showed no new flash sales the past two days.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell / Tyson Loewen
www.loewenassociates.com