It was a good start to the week for the meat complex with green across the screen from top to bottom in live cattle, feeders and the lean hogs. Hogs caught a huge surge on the front months and had triple digit gains across everything at the close. Feeder cattle were up triples on almost every month and fats were just mildly higher.
Watching the situation unfold regarding plants closing down or just slowing down tremendously over covid and the bullish ramifications of that on product trade and negative impacts it has had on cash trade is disheartening, but it’s also fundamentally very logical as well. The pinch point, or bottleneck in the meat chain only exists at the front door of the packing plant where animals walk in live. If a kill plant can’t kill at capacity, it obviously doesn’t need to buy as many live animals for slaughter needs, hence the bearishness that creates on cash. On the flipside, if they can’t kill at capacity, or process at capacity, there isn’t as much meat available coming out the exit door, hence the sharp increase in values we’ve seen in beef and pork cutouts.
To the folks who have been shouting from the top row of the bleachers that the packer is intentionally manipulating this current situation and causing them to lose money, some of those folks would be money ahead to go find an Economics 101-type book and start reading. I’ll pour a little more gas on that fire as well by stating that a little sound risk management would have averted 90% of the situation as well. The 10% it can’t help is that key item in this equation called “shackle space”. Simply put, there’s 160k++ head per day looking for space at a kill plant, but plants only killed 75k head yesterday, because so many are throttled down due to covid. Simple supply and demand analysis would tell you that means packers should be able to pay less for cattle every day or every week as more cattle back up in the country. They aren’t though, are they?? They are “NO BID” on a lot of cattle, but the ones they are buying have been at steady money around the $100 mark for three straight weeks. That’s called a gift! That cash could have easily been $10, $15 or even $20 or more lower. It isn’t…
Also keep in mind; a packing plant that’s closed due to Covid has an enormous negative margin. A packing plant only killing half normal numbers due to Covid is probably struggling some with margin as well. Only the plants running close to full throttle are making the insanely large margins. EVERY plant has 100% incentive to run at capacity, but Covid problems are keeping that from happening. If you want to shout from the top row of the bleachers, shout at the media for dramatizing the situation so far out of proportion and placing blame on places it shouldn’t.
Cattle slg.__75,000 -2k wa -43k ya
Choice Cutout__410.05 +32.60
Select Cutout__376.66 +19.53
Feeder Index:___118.91 -.48
Lean Index.__ 57.27 unch
Pork cutout___107.81 +1.20
IA-S.MN direct avg__37.55 no comp
Hog slg.__292,000 -11k wa -176k ya
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Grain and oilseed trade struggled with pressure on corn and beans, but wheat moved higher in all three markets. Some of the pressure on corn and beans stemmed from tensions growing between the US and China regarding trade again. China is a little ticked off about how the US is handling the blame game on Covid, the US is dropping hints about tariff’s, China dropped some hints about military action if the tariff game is played and the whole mess went south from there… Beans were hit with double digit losses on some front end contracts, corn was mildly lower and wheat settled mildly higher.
Funds finished the day as estimated buyers of 3k wheat, but sellers of 10k corn and 8k beans.
Weekly export inspections data yesterday morning was bullish corn and milo and any kind of friendliness ended there. Beans and wheat were disappointing. Corn export loadings were the 3rd largest for the marketing year at 47.9 mln bushels. We need 45.6 mln per week from here until the end of August to hit USDA’s export target for the marketing year. Milo was 5.5 mln versus 4.7 needed each week. Soybeans came in at the 2nd lowest level since the marketing year began back on September 1st. Bean export loadings were 11.7 mln bushels versus 30.5 mln needed each week to hit their export target. Wheat needs 30.7 mln each week and we got 19.7 mln.
The top destination in each commodity was Philippines for wheat, Mexico for corn, China for soybeans and China for almost every bushel of milo.
Crop progress and condition data that was released yesterday afternoon gave us some expected, yet still shocking news on the corn and soybean planting pace. 51% of the corn crop is in the ground nationwide, up from 27% last week and well over the average for that date of 39%. Soybeans are 23% planted nationwide which is 12% ahead of the 5 year average and was a gain of 15% for the week. Essentially, the US planted 24% of the corn crop last week and 15% of the soybean crop.
Winter wheat condition ratings were 55% g/ex, which was 1 point better than last week and 9 points less than last year. Kansas gained 2 points in the g/ex category, Oklahoma gained 2 points and Texas went down 7 points.
8am daily export reporting 109,135 mt’s of US corn sold to Mexico, along with 378k mt’s of US soybean sales to China.
6-10’s last night showed normal temps in most of the Panhandle, but below normal temperatures for the rest of the Plains and the entire Corn Belt with much below normal temps central and east in the Corn Belt. Precip chances are above normal in most of the Panhandle and normal to below throughout the rest of the Plains and Corn Belt.