Date: May 24, 2018 Pete Loewen
You know, a week ago we were all in panic mode talking about cattle coming dangerously close to contract lows and since that point the market has done nothing but march higher nearly every day. Cattle complex futures found $2+ gains in most of the feeder cattle contracts yesterday and $1+ on all of the live cattle months except the front month June that was only mildly higher. August was actually up over $2.
Fed Cattle Exchange internet trade had a puny 225 head consigned this week and zero sold, so no indication from that action on cash potential this week. Of course, last week’s cash was all over the place, so trying to peg where this week’s negotiated trade will land is somewhat of a futile effort at the moment. Best guess is it will have a lower top than last week, but with futures rallying nicely and choice cutouts still over the $230 mark, I’d be digging my heels in pretty good resisting any crazy lower bids.
Weekly export sales hit the press at 7:30 this morning. The pork numbers were neutral to borderline mildly bearish on the net number. Beef sales were bad. The net beef sales total was 9900 mt’s with actual exports of 16,100. Neutral would be high upper teens to low 20’s, so they missed the boat on both this week and badly on the net number coming in below 10k. Pork net sales were 20,600 which is a little negative and actual exports of 25,100 mt’s were neutral to slightly friendly.
With the big increase in beef production happening in 2018 versus the last several years, the cattle market can’t afford exports slowing down from the great pace we had closer to the first of the year. Beef production for the week ending May 19th was up 1.8% from the previous week and 9.3% larger than last year in the same week. That’s 44.6 mln lbs more beef versus the same week a year ago.
Cattle slg.___119,000 +1k wa +2k ya
Choice Cutout__230.08 +.73
Select Cutout___205.04 -.82
Feeder Index:___133.43 +.02
Lean Index.__ 69.03 +.34
Pork cutout___74.81 -1.33
IA-S.MN direct avg__64.45 -.26
Hog slg.___ 459,000 -1k wa +15k ya
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Looking at the entire ag sector, all the major markets were up. Meats in the triple digits on most, grain and oilseed trade double digits higher in KC wheat, but only mildly up in the rest of the markets.
There’s a decent chance the recent China trade news had some bearing on that buying. It has definitely impacted basis in a positive way on a few crops like soybeans, but mostly on milo. Soybeans are approaching recent highs, corn made new recent highs and KC wheat closed the gap to less than 20 cents off the recent highs after yesterday’s action as well. Pretty good trade from the farmer’s perspective. Fund activity was estimated as buyers of 13,000 corn, 6000 beans and 8000 wheat. That was obviously helping things along to the upside as well.
Big news technically for some of the grains overnight. The highest Dec Corn had ever traded was last summer in July at 4.29 ½ and that level was matched at the high overnight. So, if it can push up above that level, maybe there’s some stops to run and corn can start pushing more actively to the upside instead of struggling to chew through all the sell orders at each new higher tick like it has been. The highest Nov Beans have ever traded is $10.60 back on the 2nd of April and futures got within ¼ cent of that mark last night, so same potential story in beans. Chicago wheat made new recent highs overnight, but KC is still several cents away from new recent high ground. New crop MGEX broke through recent highs, like the Chicago, so that market is gaining some steam now too.
Weekly export sales numbers in the grains were good in corn, but terrible in soybeans and wheat. Corn sales were 33.6 mln old and 10.8 mln new. Milo sales were a little negative at 1.2 mln bushels of old crop and no new. Soybeans came in at negative 5.1 mln old crop from all those cancellations that were listed last week and new crop sales were only 300,000. Hopefully that will change after the headway Trump made with China over the past week. There was already a lot of talk yesterday that Sinograin and COFCO were shopping US beans for August forward business, so that’s a good thing for potential increases in bean sales in coming weeks instead of this negative net number crud we went through in this report from cancellations.
Wheat sales came in at 4.1 mln old and 12.5 mln new. The marketing year for wheat ends on the last day of this month. Cumulative sales so far this marketing year are 871.3 mln bushels and USDA projected that we’ll sell and ship 910 mln bushels, which is about 39 mln to go by the end of this month. With only 799 mln shipped so far this marketing year, I think there’s close to a 0% chance we’ll hit USDA’s target of 910. That means in all likelihood that old crop wheat ending stocks will go UP from the current 1.070 bln bushels projection, which basically confirms that any and all bullish potential in wheat lies in new crop, or problems that might develop somewhere else in the world.