Back on Monday we had the massive meltdown in equities and the “sell it all” reaction by literally everything in the ags and a lot of other markets as well. On days like that, digging for commodity specific reasoning or information is kind of a useless task. Instead, you just brush if off and hope the next day doesn’t come with the same influences and crazy trade that has absolutely nothing to do with fundamentals. Yesterday was a lot less stressful than Monday, because meats and grains were avoiding the influence of outside markets for the most part. Cattle complex futures traded on both sides of unchanged. Hogs did not though. They started higher and finished a lot higher. Cattle started mixed and finished under active pressure in most contract months, except the front month September feeders that were higher and that’s also a contract that’s just one day off of final expiration.
Negotiated feedlot cash activity was quiet yesterday and quiet Monday as well. The Fed Cattle Exchange trade happens later today and might give us some insight on a higher or lower trend for the week. Nebraska traded a very limited number at $164 dressed yesterday, which is up $1 from the top end of a week ago, but I wouldn’t use that as an indicator of things to come given the really small numbers. I’m really kind of riding the fence as far as cash predictions go. There are expectations of a bearish COF report coming up Friday. We’re still on the lighter end numbers-wise from last spring’s extremely light placement totals, which is positive. Beef cutouts have found some stability after being really bearish the last couple of weeks, but stability hasn’t turned into strength by any means yet. Choice beef to pork cutout ratio is at 2.43:1 though and that’s good for beef movement potential through domestic channels and retail featuring.
Like I mentioned earlier, the Cattle on Feed report has some bearish implications. The range of estimates for the On Feed total on September 1 are from 102.2% of a year ago up to 103.9%. Placements in the month of August have a range of estimates from 100.8% on the low end up to 110% at the top, along with the vast majority of the participants in the poll I looked at being over the 105 mark on placement estimates. Marketings last month are expected to be in the 96%-97% range versus the previous year. There was one less business day in August this year versus August 2019 though, so that technically adds 4%-5% to the marketing total to give us the daily marketing rate. In other words a 96% actual number on Friday would be 100%-101% in real daily terms, so it’s really not as bearish as it seems.
Cattle slg.__121,000 +1k wa +4k ya
Choice Cutout__215.44 -.78
Select Cutout__206.30 +.48
Feeder Index:___142.45 +.40
Lean Index.__72.17 ++.88
Pork cutout___88.66 -1.43
IA-S.MN direct avg__64.43 +1.84
Hog slg.__485,000 unch wa +15k ya
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Moving on to the grain and oilseed trade, it was mixed day with mostly higher trade throughout the session but the fall crops pulled back into the close, while the wheat held gains. Fall harvest is progressing well and pressure will be evident on the markets.
Exports in the fall crop markets are super strong though, with 35.5 MBU of soybeans and 18.1 MBU of corn so far this week announced as private sales by USDA in the 8am daily reporting. That’s just through yesterday, since there were more this morning.
World wheat values continue to climb higher. Egypt purchased another 7 cargoes of wheat yesterday, all Russian at $7/MT higher than the average price paid just last week. Jordan, Taiwan and Pakistan all have tenders for wheat coming and are due later today. Generally speaking, US wheat futures values will respond some to world offers climbing into higher territory. The dilemma with that in recent years though, is that futures price climbs and US exports don’t respond with any increase, because price is going up. I wanna see US exports pick up!
Bigger export numbers mean less ending stocks numbers and the fastest way to ensure legitimate higher US wheat prices that have any kind of lasting potential is to see ending stocks trimmed down into the 700-800 mln bushel or lower range. We have been plagued by ending stocks around 1 bln bushels for years. The current projection is 926 mln bushels, but that’s still a heck of a lot closer to 1 bln than it is to 7-800 mln. To give you a little bit of historical perspective, since 1990, US wheat ending stocks have been above 1 bln bushels exactly four times. That was the last four years. Only 5 years have been in the 900 mln range, which is where we’re at with the current estimate. 9 total years in the last 31 years have been 900 mln or higher. If you want to know why US wheat futures have been depressing? We either; a) raise too much, or b) don’t export enough. Take your pick, but one of the two needs to be reversed to get wheat back on the bullish stage, because one of the two need to happen in order for stocks to decline.
Going from bearish to bullish…, Nov beans yesterday posted only the second two day string of lower closes since August 10th. 31 trading days and only 8 of those have closed lower. Why? China!. Although, weather had a part in the August rally as well, since it was hot and dry in most areas of the Corn Belt and western fringe states.
Funds yesterday were estimated buyers of 3k wheat and sellers of 2k corn and 2k soybeans.
8am daily export reporting showed 126k mt’s of US soybean sales to unknown destination and 132k mt’s of US bean sales to China.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell
www.loewenassociates.com