Well, if it wasn’t for the wheat market showing a few closes on the north side of unchanged, the entire ag sector would have been deep red at the close yesterday. In the meats, live and feeder cattle both had the majority of the close contract months down over $1. Hogs were down $2+ on a lot of contract months.
There’s a big problem brewing in the meat industry again and it has Covid written all over it. For the last couple of weeks we’ve all seen the news stories of flare ups in cases all over the country and once again it’s causing labor issues at slaughter and processing plants everywhere. On a fairly consistent basis, daily kill totals are coming in lighter than projections and also fairly frequently they get trimmed by revisions even more the next day when USDA puts out the kill tally. I’ve been talking about beef product being stuck in the $260 range for well over a month and how odd that was versus the wild volatility of the last two years. Well, with packers not having enough labor force again to run normal chain speeds, beef slaughter totals and consequently beef production totals are suffering. The response is to raise prices for beef being sold out the back door and with kills light, lower prices in the front door. That’s really simple and elementary Econ 101 theory of supply and demand. It’ll also have folks screaming from the top row of the bleachers that the packers are once again puttin’ it to the cattleman. That couldn’t be farther from the truth. It’s unfortunately just the reality of supply and demand.
So, based on those factors, I think we’ll be seeing product shoot actively higher yet, since it already broke into the $270 level on choice late last week. I also think we’ll see cash start to taper off quite a bit. There’s likely close to enough contract cattle to fill a 113k head kill like we got yesterday instead of the normal 118k – 120k that’s available out there. That means the normal pool of available openly negotiated cash likely has more cattle to sell than what needs to be bought. While that doesn’t mean the cash market completely falls off a cliff, like it theoretically could, to me it says it’s going to be a lot easier to stay steady or go down than it will be to go up in cash. Packers were pretty good about flooring cash with token trade at times the last two years. If this labor situation gets worse, I hope they’re willing to continue down that path.
Cattle slg.__ 113,000 +6k wa -3k ya
Choice Cutout__276.04 +4.22
Select Cutout__266.50 +5.40
Feeder Index:___161.98 +.19
Lean Index.__74.70 +.97
Pork cutout___86.42 +.52
National daily direct carcass__65.89 -1.06
Hog slg.__457,000 -1k wa -41k ya
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Moving on to the grain and oilseed trade, if you ignore the fundamentals and solely look at the chart technicals, the corn and soybean markets have looked pretty good lately, while the wheat market looks sickly. That’s why yesterday’s trade threw some folks for a loop when wheat held in there really well while the corn and soybeans were under decent pressure.
The fall crop markets have been all about South American weather in the recent run higher. A little moderation in the forecast down south was the most commonly used scapegoat for the drop yesterday, but in reality, there’s a lot more at play than just Southern Hemisphere weather this week. Tomorrow we get the final crop production numbers for US corn and soybeans from USDA along with S&D’s for the world and US, plus Winter Wheat Acreage numbers and Quarterly Stocks. That’s a lot of hot topics in one shot and there’s a wide range of differing opinions in the estimates leading into this stuff as well.
On the world side, the closest watched numbers will be Brazil and Argentina corn and soybean production figures. There have been a couple firms touting more than a 10 mmt drop in Brazil bean production. Brazil’s CONAB updated their production estimates this morning actually. They pegged Brazil bean production at 140.5 mmt’s, which was only down 2.3 mmt’s from their December number. That’s still 3.2 mmt’s bigger than last year’s crop. They also pegged Brazil corn at 112.9 mmt’s, which is down 4.3 mln from December. Last year they raised 87 mmt’s. In December, USDA had Brazil beans at 144 and corn at 118.
Weekly export inspections yesterday morning were bullish milo, decent in corn and disappointing in soybeans and wheat. The wheat total was 8.6 mln bushels versus an 18.2 mln bu weekly pace needed to hit USDA’s export target for the marketing year. Milo hit 7.9 mln bushels and needs 7.1 mln per week.
This next part might sound a little confusing, but stick with me and I’ll explain it… I said corn was decent and we got 40.3 mln bushels yesterday, but we need 55.1 mln per week as an average. I said beans were bearish, but we got 33.3 mln and only need 25.7 mln weekly as an average. Here’s the deal, soybean export shipments are almost always very front end loaded in the marketing year when the US has a fresh crop and South America has shipped a lot of their product from their last crop. Then, as South American harvest kicks into high gear, US soybean export loadings get significantly lower through spring and summer. Because of US export loading capacity, corn shipments are usually a lot lighter than beans in the first half of the marketing year and then corn kicks it into high gear as beans shipments start to taper off. The problem is, that usually happens a little later than now. Yesterday the corn shipment total was bigger than beans. I think we can hit 55-60 mln corn per week through the 2nd half of the marketing year. I’m not sure we can hit 25 mln beans per week in that same timeframe.
The top destination in everything was: Mexico in corn, followed closely by China. Japan and Indonesia were the top two in wheat. China took all the milo and China was by far the biggest soybean destination.
Funds yesterday were estimated buyers of 3k wheat and sellers of 6k corn and 8k beans.
8am daily export reporting showed 100k mt’s of US soybean sales to Mexico.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell
www.loewenassociates.com