Sluggish start to the week for the cattle complex, but it wasn’t as bad as it could have been. Live cattle futures had a tight trading range all day and spent most of it, including the close at mildly lower money. While that was going on, the grain complex was on fire to the upside with corn gains in the teens, so pressure potential for the feeder market was ripe. Two different months in feeders closed a little over $1 lower and the rest were just mildly lower. I’d call that a victory and a relief we didn’t see much heavier selling.
On the charts, the live cattle had most months tiptoe into new contract highs, but didn’t get any extension and backed down to close near the lows. In some months that meant an outside day reversal off of contract highs which in technicals terms is a bearish key reversal. The months that did that were deferred months though, not the Feb or April contracts, so I won’t place any merit on it being significant. It isn’t. I think there’s more merit to be placed on new contract highs again and bullish looking charts. Feeder cattle technicals look a lot less appetizing than the fats and it’s the corn market we can blame for all the choppy and wide swings. I don’t think that’s going away anytime soon either. Too much volatility in South American crop weather and crazy high price levels in grains are going to keep volatility steep in the crop markets, meaning more of the same chop in feeders as well. Fundamentally, that market is long term bullish, but cattle never seem to eat $7 corn as well as they do $4 corn, so the corn market is going to continue to dictate direction to a large degree.
Cattle slg.__121,000 +1k wa +8k ya
Choice Cutout__278.96 -.85
Select Cutout__275.04 -1.01
Feeder Index:___160.14 -.03
Lean Index.__85.87 +1.57
Pork cutout___98.19 +.78
Hog slg.__481,000 +6k wa -7k ya
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Moving on to the grain and oilseed trade, the corn and soybean markets blew up to some huge gains at times and the clear leader was the bean market. The beans gapped higher at the open and way up into new contract highs with most months leaving that gap open into the closing bell. While you can give South American weather most of the credit, there’s been a pretty good string of daily sales business happening recently as well that’s provided some bullish push. Yesterday’s 8am announcements had 507k mt’s of US bean sales to unknown destination. Back on Friday there was 295k mt’s of bean sales to unknown as well. The flipside of that friendliness though was the 380k mt cancellation of corn sales to China from last Thursday.
Weekly export inspections data was a mixed bag. Big picture, the soybean number was good, milo and wheat were mildly bearish and corn was neutral to maybe a little bearish. In the same breath, the fall crop markets posted what I’d call very routine and normal numbers versus recent trends. Corn inspections were 41.5 mln bushels versus 54 mln needed as the current average each week to hit USDA’s export target for the marketing year. Milo was 6.1 mln and needed 7 mln. Soybeans were 44.8 mln bushels and only need 21.8 mln per week as an average. While that may sound really bullish beans and bearish corn since corn was well below it’s target and beans were well above, you have to also keep in mind the trend from late winter forward. That historical trend is for beans shipments to tail off significantly as South America new crop takes over as primary world trade. When beans slide, corn usually takes off to much higher numbers. Another big picture way to look at that is; soybean shipments are typically very front end loaded in the marketing year and corn shipments are back end loaded. The marketing year for those markets starts on September 1, so the halfway mark is around the 1st of March. Not that history is required to repeat itself, but seasonality does show that shift starting soon.
Funds yesterday were estimated buyers of 5k wheat, 18k corn and 14k beans.
Stats Canada came out with Grain Stocks numbers this morning and while the estimates were looking for some bullish numbers in a few crops, the data was even friendlier than expected. The two markets I’m going to touch on are wheat and canola. Canola stocks on Dec 31 were 7.6 mmt’s and on Dec 31, 2020 they were 13.3 mln. That’s a monster year to year drop. All wheat stocks were 15.6 mmt’s and in 2020 they were 25.1 mmt’s. That’s a monster as well, but the highlight of the wheat bullishness was durum stocks that came in at 2.1 mmt’s versus 4.8 mln the year before. That’s less than half the year prior. Ironically, KC and Chicago showed no compassion with this data coming out before the overnight close and they still closed lower. MGEX was obviously mildly higher, but mind you, just mildly.
8am daily export reporting today showed 332k mt’s of US new crop soybean sales to unknown destination and 132k mt’s of new crop beans to China. I would have been a little more excited if those were old crop sales instead of new crop, but a sale is a sale nonetheless, so it’s all good.
Tomorrow morning we get monthly S&D data released by USDA as well as world stocks and production. Brazil and Argentina numbers will be watched closely and the trade is looking for corn and soybean production reductions in both those countries. US ending stocks estimates have an average trade estimate of 629 mln bushels in wheat, which would up 1 mln from the January report. Corn ending stocks are forecast to be down 28 mln bushels from last month. Soybeans are pegged at 30 mln lower than a month ago. The specific numbers were 1.512 bln ending stocks for corn and 310 mln beans.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell
www.loewenassociates.com