8/21/2018
Compared to the normal trade in recent weeks, live cattle futures showed very little volatility and a dull trading session yesterday. The range from high to low in everything was less than $1. Feeders traded in a range just over $1. Hogs were still acting flighty and pushed into new recent highs early, only to turn over and flop hard to the downside closing solidly in the red in everything. Feeders finished mildly lower in most, but down over $1 on the front month August. Live cattle were mixed at the close with the front three lower and the next two months mildly higher.
In the hog trade, the cart got way out in front of the horse with the recent surge to the upside in futures. In eight sessions, October hogs went from new contract lows to $11.67 higher. At that peak yesterday, spot month October futures were $19.20 above the Ia – S. Mn direct carcass average cash price. Cash and product continued to move actively lower while futures were surging higher, hence the reference to the cart being way out in front of the horse. At some point, there needed to be some significant realignment back to reality. Yesterday’s cash indicators were up slightly, while futures were down actively. Given the BIG number of hogs still being slaughtered on a daily basis, I didn’t really foresee cash doing all the legwork for convergence. The futures lows “might” be in for the hogs, but this market also shouldn’t be barreling to the upside either. Too much product out there… African Swine Fever in China lit the fuse that started the rally in hog futures. There has been zero willingness to follow thus far in cash or product.
One other factor to keep in mind, pork cutouts in the $60’s are insanely more attractive than beef cutouts at $214 choice and $202 select. That’s not conducive to good domestic beef demand prospects.
Cattle slg.___118,000 unch wa +1k ya
Choice Cutout__ 213.98 +2.60
Select Cutout___202.29 +1.37
Feeder Index:___149.66 +.07
Lean Index.__ 51.51 -1.43
Pork cutout___67.18 +.41
IA-S.MN direct avg__40.31 +.18
Hog slg.___ 456,000 -11k wa +31k ya
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Moving on to the grain and oilseed trade, fall crop market trade in the corn and soybeans was fairly lackluster, but the wheat market sunk under heavy pressure. Part of the fire under the rally recently was from Russia’s Ag Minister convening a meeting discussing much tighter supplies than a year ago and possible restrictions if the export pace is too active. Yesterday, Russia was reported as putting 2 mmt’s of reserve wheat back into the cash market channels. There’s a much friendlier story developing versus last year’s bearishness due to the EU and Russian, along with Black Sea region crops down considerably from a year ago. That doesn’t mean bullish necessarily, but a LOT less bearish nonetheless. I was somewhat surprised at how hard wheat was hit yesterday and it was under decent pressure last night again as well.
Weekly export inspections showed wheat right back in the terrible category yesterday with only 12.7 mln bushels in total. The pace needed throughout the marketing year to hit USDA’s export target is 21.2 mln per week. Every week that target is missed, the weekly total needed goes up. Export sales last Thursday were really outstanding, but these shipments were very bearish. That trend has the potential of changing with lower Russian and EU crops, but potential isn’t reality yet.
Corn export loadings came in at 43.2 mln bushels. With two weeks to go in the marketing year, we need 114.8 mln bushels per week to hit the USDA target on total exports. I’m giving that a zero percent chance now. Last week I think I gave it a 95% chance of not happening. A bearish total yesterday kinda sealed the deal. Soybean export loadings were 23.5 mln and we need 52.1 mln each week for the next two weeks to hit the USDA target in beans. Beans have a slightly better chance than corn, but it’s highly unlikely that’s going to happen either. There’s far more soybeans sales commitments than the USDA target, but they have to be shipped to count in the export total. Otherwise they’ll be cancelled or switched to new crop sales. Either way, lower exports means chances of larger old crop ending stocks.
Fund activity yesterday was estimated at sellers of 6k corn, 9k wheat and even in beans.
Crop progress and condition data yesterday showed corn percent dough at 85% nationwide versus 72% normally. Percent dent was 44 versus 26 on average. Soybeans setting pods was 91% compared to 83% normally. Fall crops continue to be way ahead of the normal pace of maturity and I think that has some to do with crop conditions declining some as well. Someone recently called it the “Browning Effect”, which is something we’ve talked about a lot in recent years, but just hadn’t put a name on it. When crops mature and start to lose their green luster, condition ratings tend to decline some as the aesthetic view of the crop declines. That doesn’t necessarily have anything to do with yield potential, but I’m glad we now have a good term for it in the “Browning Effect”. Corn condition ratings dropped 2 points out of g/ex this week to 68% g/ex nationwide. Last year at the same time it was 62% g/ex. Soybean condition ratings were down 1 point to 65% g/ex versus 60% g/ex at the same time last year. Milo conditions were 49% g/ex compared to 66% g/ex last year. Spring wheat harvest came in at 60% complete versus a 5 year average of 44% on that date and condition ratings were 74% g/ex compared to 75% last week and 34% last year.
6-10’s last night showed above normal temps over the entire Plains and Corn Belt. Precip was above normal in the north including down into central Iowa. Below normal precip was on tap for Nebraska to Texas and all the way to the East Coast.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell / Matt Burgener / Alex Gasper
www.loewenassociates.com