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04/14/2024 Sunday Market Preview

By The Commstock Report
Grains have support to follow through on a firm close from Friday. Traders will again be looking for guidance from oil and the outside financial markets. In the Headlines May corn futures gained 1 1/4 cents last week, with nearby beans down 11. May Chicago wheat was down 11 1/4 cents while May Kansas City wheat gained 7 1/2. April cattle was up 65 cents and May feeders fell by $3.97. April hogs were up $1.55 for the week. Iran launched missile attacks on Israel over the weekend in response to Israel's recent strike on the Iranian consulate in Syria. The Israeli military reportedly intercepted 99 percent of the missile offensive. Iranian officials indicated that there would be no further operations, which may be a point of relief for the market. Oil futures traded up to a six-month high in anticipation of the conflict, with the nearby WTI crude contract finishing the week at $85.45. Kansas City wheat futures were seen briefly taking on a leadership role last week as doubts crept in about conditions for hard red wheat in the Southern Plains. Drought was expanding again throughout the region after some of the crop had recently been threatened with…
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04/12/24 Hope for the Best but Plan for a Trade War

By The Commstock Report
"China's economy is a juggernaut that defies the laws of economics by becoming an evolutionary new species of capitalism deftly managed by Xi Jinping." The Chinese economic performance over the past few decades has caused many to accept that narrative. I believe that the more likely scenario is that China is a fraud…something more akin to being a Ponzi scheme. It may well be the greatest fraud ever perpetrated on the planet, the risk of that being the sobering potential calamity that will result when the Chinese economy implodes. A Ponzi scheme is when someone cooks the books to show profits/growth that attracts new investment and absorbs leverage to keep the wheels spinning higher and higher above the ground. When it stops there is not a copasetic outcome. The bigger they are the harder they fall and the Chinese economy is poised to drop from never before inflated heights of hubris.   As the need for positive Chinese economic data becomes more important to sustaining their illusion, the less transparent that it has become or will be. There is always good and bad economic news and China is skewing the relationship by ending the release of bad news to cloak…
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04/12/2024 Markets Absorb Fairly “Bearish” WASDE Numbers Surprisingly Well

By The Commstock Report
On the Grains Grains are mixed in overnight trade thus far. Yesterday's WASDE has been sliced, diced and critiqued thoroughly for being almost stunningly conservative in changes to balance sheets that produced higher than expected ending stocks in U.S. and global balance sheets, particularly in soybeans. Particularly disappointing were the modest 25 million bu. increases in corn usage for feed and for ethanol. It puts feed usage up only 214 million bu. for the year when the March stocks report alone suggested feed usage already up 300 million bu. for the year. The stingy increase for ethanol puts usage for the second half of the year only 58 million bu. higher than last year when first half usage has already been up 166 million from last year. They also inexplicably left soybean crush unchanged from last month despite crush data suggesting it should have been raised to help offset their cut in exports. Yet by end of day, board losses were relatively modest despite USDA's conservatism, as if that "conservatism" itself had already been dialed in to some extent. Attention now shifts back to planting progress, crop condition ratings and the growing season outlook. We should see the planting pace…
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04/11/24 USDA Does Not Budge on Outlier Estimates for Brazil

By The Commstock Report
The morning started off with fresh estimates from Brazil's CONAB agency that served as benchmark levels to compare with the USDA report. Traders seemed to still be skeptical of the USDA doing much to close the gap, since corn and soybean futures largely shrugged off what looked to be bullish numbers from CONAB. In the end, it was right not to count on the USDA coming down to earth on its Brazilian estimates, seeing as the government analysts came in well above the average trade estimates because they did not change the numbers at all.   Some analysts argue that CONAB is holding too low on its Brazilian acreage estimates, but that does not seem to account for entire discrepancy against the USDA's figures for Brazilian soybean production. The difference between the USDA and CONAB is now over 300 million bushels for this year's soybean crop while the USDA will still higher than CONAB on last year's soybean crop by almost 275 million bushels. The distance between estimates for Brazil's corn crops from both this year and last year has USDA on the high side by nearly 650 million bushels.   Even with all of the anticipation that had been…
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04/11/2024 Room for Surprises in Range of Trade Estimates for Key WASDE Metrics Due at 11am

By The Commstock Report
On the Grains Grains are mixed in overnight trade, a few cents either side of unchanged. The DJIA is down further after yesterday's big plunge after the March CPI data. It came in higher than expected for the fourth straight month. Back in December, pundits were suggesting up to 6 rate cuts for 2024, then pared to 3 in January and just 2 last month. Yesterday's news has some pundits now doubting any cuts at all and some thinking there might be another increase in store before yearend instead. That kind of thinking caused a spike in the US Dollar Index that wiped out the slide we'd seen so far this month and made a new high for the year and a gut punch for export prospects. At 7:30, we get weekly export sales, which could set the tone for grains ahead of the 11 am release of the WASDE numbers. Here are the ranges of expectations: Corn 750K to 1.3 MMT, Soybeans 200-600K, and Wheat -100K (due to net cancellations) to 250K. The key WASDE metrics are changes in U.S. ending stocks and the trade is looking for modest cuts for corn and soybeans, and a slight increase for…
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04/10/24 April WASDE Brings Additional Scrutiny On Brazil’s Production Numbers

By The Commstock Report
Brazil's soybean harvest pace is beginning to slow as it nears its conclusion.  We expect over 85% will be harvested by the end of the week.  Most of the Center West region has wrapped up the harvest along with Parana.  The MAPITOBA region is roughly 75% complete.  RGDS is the main laggard with only 25% complete but yields there are reportedly doing very well overall.  The April WASDE report will be out Thursday morning and yet again much attention will be focused on the size of Brazil's crops.  In the case of soybeans, the trade expects the USDA to make cuts at or below 152 MMT.  We believe this cut is warranted but whether the USDA will make good on that is a different matter.   In the case of Brazil's corn crop, the trade is looking for a cut below 122 MMT compared to 124 MMT last month.  Again, we feel this reduction is justified as farmers had very little financial incentive to plant safrinha corn.  While growing conditions have been conducive to reaching trendline yields that will not be enough to reach the USDA estimates for corn.  Much attention will be focused on how many acres they actually…
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04/10/2024 Creeping Inflation Worries Seeping Back Into Markets?

By The Commstock Report
On the Grains Grain prices are mostly firmer in overnight trade. There is little to chew on from the fundamental side until traders see tomorrow's April WASDE update and the extent and direction of changes in ending stocks forecasts. Until then we're seeing more and more commentary confirming Ag traders taking note from outside markets like gold and the likelihood Consumer Price Index (CPI) numbers due later today will show prices increased by 3.4% in March, up from 3.2% in February. The Producer Price Index (PPI) will be out tomorrow and that's expected to show an annualized increase of 2.2% for March, up from 1.6% in February. Further re-stoking inflation worries, the Energy Information Administration (EIA) just raised its average price estimate for Brent crude this year to $89 a barrel from $87 previously. Reasons? "Expectation of strong global oil inventory draws and ongoing geopolitical risks." EIA specifically cites Middle East tensions and attacks on shipping in the Red Sea in combination with OPEC+ extending output cuts into the seasonal increase in demand for summer driving. Speaking of gasoline demand, all is not well on that front long-term. NCGA is sounding the alarm on the impact EPA's new tailpipe emissions…
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04/09/24 Demographic Generational Economic Transformation …As Sure as Death and Taxes

By The Commstock Report
Interest rates are the cost of capital. Is the cost of capital going to rise or fall? Everyone looks to the Fed for the answer to that question but the Fed essentially responds to underlying fundamentals rather than makes them up. They can temporarily directionally impact capital markets but they will eventually come back to whatever trendline that is fundamentally supported. The Fed is looking for an opportunity to reduce rates but that is against the backdrop of changing demographics. How did interest rates and the cost of capital get so cheap this decade before it has now gone up? The answer is that as of 2023, 51.3% of the wealth in the US was held by baby boomers…$78.1 trillion. 70% of the economy was being driven globally by the wealth of the baby boomer generation. That is why when in the throes of the Covid pandemic that interest rates could fall to as near to zero as they did. This generation hit the sweet spot of their earnings potential as we entered this century generating an unprecedented pool of capital but this will fade with their further aging. “Some $53 trillion will be passed down from boomers to their…
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04/09/2024 Planting Progress Right on Schedule, But Soil Moisture Still Lags Last Year at This Time Nationally

By The Commstock Report
On the Grains Grains are soft in overnight trade thus far with no signs of any issues in yesterday's weekly planting progress update. Weekly export inspections were actually pretty good yesterday. Corn loadings came in above the high end of expectations, wheat loadings right at the high end and soybean loadings midway in the range. Between stronger than expected jobs growth data and Fed remarks about toning down expectations for rate cuts by year end to two instead of three. These factors have some pessimistic pundit's even suggesting there is potential for further hikes if the decline for inflation rates should end and start creeping up instead and that's rattling the stock markets. The weekend news about SAF qualifications for corn are not being released until mid-May was actually a bit better than expected for some in one sense. They note that originally, it was feared to meet specs to qualify for use in SAF production, farmers would have to comply with all three requirements of "efficient" tillage, "efficient" fertilization practices as well as employing cover crops. Now it appears any one of those practices may be acceptable and if so, the requirements may be less onerous than feared when…
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04/08/24 Waiting On The Weather

By The Commstock Report
The above map shows the spring average last frost dates for regions of the country. First and last frost dates have been extending the growing season for much of the country. One could say that spring is coming sooner but this year was unprecedented for us to have had a dose of spring in early March. Farm publications all have stories on cover crops as they have become the new thing. They are not very applicable to the NCB starting at the Iowa/MN border as there is little time for them to develop before row crops go in. Our crop insurance date for corn is April 10th and for soybeans April 15th. Farmers like to get both crops planted in April if conditions allow. Note that in NW IA where we are, planting soybeans in April is challenging the final frost date. Farmers bumped up the soybean planting date from what it used to be generationally by as much as a month resulting in improved yields. Cover crops just get in the way of early planting. They are still being tried because of carbon credits. A farmer shared his experience at a recent carbon conference. I understand carbon scoring and…
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