Solid day for the cattle complex with the live cattle showing positive gains across all contract months with two of the months up over $1. It started quiet to lower, but gained ground as the day progressed. Corn was under extremely heavy pressure from start to finish and early on that had feeders up around $2 for quite a while, which caused some confusion regarding how 25+ cent losses in corn weren’t helping the feeder futures more. What it took for a more generous push higher was live cattle moving up as well. When all the live quotes were on the plus side of unchanged comfortably, feeders shot up to $3+ gains on the front three months and stuck there into the close.
Spot June live cattle closed within the same handle as negotiated cash from last week finally, so convergence is here even without any delivery action. That also gives anyone that hasn’t been able to move cattle the potential to sell June futures, deliver and end any worries about not finding a home for market ready cattle.
Couple of things going on in the fed cattle arena that are going to raise a lot of questions in coming days and weeks I think. Some of them have been cussed and discussed at length already. For starters, beef packers have been enjoying sky high product values, to the tune of record high levels if you take out the enormous Covid hoarding run in the spring of 2020. Under normal circumstances that would warrant wide open chain speed and aggressive daily kill totals and some monster weekly numbers, along with higher cash trade in the country. Labor issues have kept a lid on expanding chain speed and daily kill totals though, which created a big disconnect between beef cutout values and live animal prices being paid in the country. Actually, it’s either labor issues or maybe even the simple economics of net margins potentially being greater by creating a little bit of a bottleneck, instead of slugging the system all at one time by killing anything they could get their hands on. Regardless, choice beef jumped $81.88 from the first full week in April to last week’s high. Since that same week, negotiated cash at the feedlot level has traded at either $119 or $120, every single week. In other words, no movement in cash and a ton of movement in product.
A little rational thought process could lead one to believe packers could have beat down cash pretty hard at times the last two months, but they didn’t. There has without a doubt been some token trade attached to the cash in the country. Whether that’s to avoid scrutiny by the DOJ remains to be seen… Keeping things close to steady has actually been a good thing for folks that have been able to keep fairly current, but it’s been selective at times, leaving some market ready cattle in the pen for too many days. If we hit “current” status, things could get friendly pretty quick, but that’s going to be happening at the same time product prices are moving lower and some point they’re going move a LOT lower, really quick. Last week the product market stalled out and started to act toppy, yesterday the losses were steep.
Cattle slg.__ 119,000 +4k wa +3k ya
Choice Cutout__335.47 -2.09
Select Cutout__303.41 -1.80
Feeder Index:___139.61 -.62
Lean Index.__121.89 +1.05
Pork cutout___128.68 -3.86
IA-S.MN direct avg__132.35 +.37
Hog slg.__479,000 +1k wa +22k ya
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In the grain and oilseed trade there was far more confusion than facts surrounding the deep dive that corn and soybeans took from start to finish. It actually took a deep dive into all the news sources grasping for straws searching for valid reasoning and the only thing anyone could come up with was a wetter forecast finally in the 8-14 day model run. If you know me, you also know I have zero faith in any kind of weather forecast out past 7 days and I’ll quote the 6-10’s, but never anything longer. That was way too much pressure yesterday to be tied solely to a forecast, but that’s all we have to run with, so, there ya go… I’ll also add that the cooler and wetter forecast made it into the 6-10’s last night for most of the Corn Belt. The High Plains were showing below normal precip chances still and that drier run pushed farther east in the northern states of South and North Dakotas.
Weekly export inspections data that came out midmorning was good for corn at 60.8 mln bushels, but with USDA increasing the export forecast for old crop by 75 mln bushels, the average pace needed each week to hit that target was 63.1 mln. If you add census export data, we only needed 54.4 mln. Milo inspections were 6 mln bushels versus 4.5 mln needed each week. Soybeans were a major disappointment, coming in at 4.7 mln bushels. We need 16.8 mln a week to hit the target according to sales and inspections data. 9.5 mln versus the census data. Wheat export loadings were 17.6 mln compared to 17.2 mln needed. Yes, it beat the estimate, but we shouldn’t be happy with anything less than 20 mln a week, so I’m still going to call the wheat number bearish. Top destinations in everything were the Philippines in wheat, China for corn and milo and Mexico and Japan taking equal numbers in soybeans.
Funds yesterday were estimated on the sell side of 4k wheat, 15k corn and 10k beans.
Crop progress and condition data verified the heat and overall drier conditions had taken a toll on things. G/ex conditions nationwide in corn were 68%, down 4% from last week. Illinois and Iowa dropped 6 and 14 points out of those categories, Minnesota was down 11% and Nebraska was unchanged. Those are top four corn producing states. Soybean condition ratings dropped 5 points out of g/ex, falling to 62%. Illinois dropped 10% and Iowa was off 12%. Those conditions led to a mildly higher start in new crop months last night, but it didn’t last obviously.
Winter wheat condition ratings dropped 2 points nationwide to 48% g/ex. Spring wheat was 37% g/ex, down 1 point from last week. Last year 81% of the crop was rated g/ex.
Pete Loewen
Loewen and Associates, Inc.
Pete Loewen / Matt Hines / Doug Biswell
www.loewenassociates.com