When you couple a major holiday week with the end of a month, things are bound to get a little erratic and then jumping on top of the dog pile was a full moon happening at the same time. It created an interesting day in the grain and oilseed trade yesterday that included a LOT of pressure. Meats didn’t really do much. We had less than $1 range from high to low in the front month live cattle and a close that was mildly lower in everything. Feeders finished on the plus side of unchanged and had a broader range, no doubt aided by the sinking corn market.
We’re kind of sitting at a crossroads in the cattle. The transition from fall to winter meant moving away from the smaller placed against numbers from last spring and into the much larger readily available on feed numbers from the sharply increased placement activity in July, August and September. Couple that with some hefty out-weights and we knew at some point cash was going to start riding the struggle bus. A cool thing happened though, right as that transition was happening. Beef product prices started to aggressively ratchet higher as we hit another surge of panic buying at the retail and wholesale levels. Covid spiked again and the incentive for beef packers to keep chains moving aggressively to capitalize on the fantastic margins has kept cash underpinned pretty well.
The biggest volatility coming at us with market moving potential is whether we see Covid slowing down or shutting down kill or processing plants again. If that were to happen, futures get slammed and cash gets slammed and product is going to shoot higher in conjunction, just like last spring. The flipside to that though is that if we don’t get any significant shutdowns, it keeps cash a lot better supported that previous projections. Why? Because packers have every incentive to slam as many cattle in the front door as possible to capitalize on the price levels they are selling meat for out the back door. That being said, there are a LOT of pounds of beef that’ll be produced the next 90 days from a lot of market ready cattle. There’s also a huge variation in price direction possibilities and the #1 driver behind all of it is going to be Covid.
Buckle up, because the roller coaster ride isn’t over.
Cattle slg.__119,000 -1k wa unch ya
Choice Cutout__243.68 +.83
Select Cutout__222.43 +1.75
Feeder Index:___138.90 -1.35
Lean Index.__66.81 -.34
Pork cutout___80.09 +.13
IA-S.MN direct avg__56.83 -.33
Hog slg.__497,000 unch wa +1k ya
Monthly closes in the meats had Dec live cattle up 1.87, January Feeders up 6.92 and Dec hogs up 2.00.
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Moving on to the grain and oilseed trade, there was a little civil unrest going on yesterday as funds looted the soybean and wheat markets amidst an otherwise peaceful protest. There was a lot of panic in the streets wondering what the major driver was to the downside and in my opinion, we didn’t need to look much farther than the calendar for valid reasoning. Funds and managed money have been consistently building a long position and they love to churn a little commission at the end of the month, right before the calendar turns. They were on the buy side of things most days last month. They were on the sell side of 10k wheat, 13k beans and 15k corn yesterday specifically.
We finished the month of November with Dec corn up 21 ¼ cents, Jan beans up 1.12 ¼, Dec KC wheat up 4 ½, Dec Chicago down 18 ¼ and Dec MGEX down 17 ¾.
There’s fundamental logic behind the monthly action as well. The domestic S&D profile looks more bullish for beans than the others with a 190 mln carryout forecast in the last report. Corn is a close second at 1.702 bln bushels. Those numbers produce a 4.2% stocks/use ratio in beans and 11.5% in corn. Wheat’s stocks/use ratio is 41.7%. Granted, that’s a heck of a lot better than the 50% levels of the past couple years and the current 877 mln bushel ending stocks forecast is much better than 1 bln. BUT, all those weeks when I talk about weekly export sales or export inspections that have been consistently below 20 mln bushels…, that’s the reason wheat continues to be a dog relative to the fall crop markets. Vastly different fundamental picture for wheat. It’s much less bearish than the last couple of years, but it’s a long shot from being bullish and the #1 culprit for that is exports. They’ve been terrible (That’s for JG).
At least until last week. I think we hit a new marketing year high on last week’s export sales with a number that was closer to 30 mln bushels than 20. Yesterday’s export inspections were back to reality though with only 18.5 mln bushels for wheat. That’s right at the pace needed to keep up with USDA’s export target for the marketing year, but I don’t want to keep up the pace, I want to see wheat exports beat the pace, so ending stocks can move lower and price can be justified higher.
Corn export inspections yesterday were 35 mln bushels versus a 56.3 mln bushel per week paced needed to hit USDA’s target, so that was bearish. Soybeans were crazy bullish once again with 74.8 mln bushels compared to only 30.5 mln needed. Milo was 9.7 mln bushels versus 5.2 mln needed. Just a quick reminder on soybeans though before you get too bulled up on the situation. When spring and summer roll around, we don’t ship many beans. South America is shipping beans then. The time to make hay is while the sun shines and the sun only shines on soybean exports and shipments generally in fall and winter.
The top destinations for shipments yesterday were; Philippines in wheat, China in corn, China in milo and China in soybeans. China was #3 on the wheat list, so if you want to know what the #1 driver is for most of what’s going on in grains, it’s China.
8am daily export reporting showed no new business this morning, but there was 344k mt’s of corn business in yesterday’s reporting.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell
www.loewenassociates.com