- 02/26/24 An Election Year Rally Comes Next
This report follows the one aired early last December when I forewarned of the anticipated March 1st "John Deere Low". Today's low, after turning from red to green, is good enough to qualify. I personally do not use the kind of basis contracts that have gotten farmers in trouble with the commercial grain market this month as March contracts were priced this week. I have also argued against using "price later contracts", otherwise called "no price established" contracts, which have automatic trigger pricing in August if farmers do not act first. Farmers collectively fail to act on pricing these contracts until expiration which the commercial trade is able to use to their advantage in predator fashion. That is why John Deere February and NPE expiration August lows are so common. Farmers in general fought the corn market this year storing and holding more corn than usual. With a building carryover, that is asking for trouble. Commercials know that they will eventually end up with what they need without having to bid for it, with spreads going to more than full carry in the market.
Last year the crop insurance guaranteed price was 591. That was a good price, good enough to incentivize farmers to add acres to the 92 mln that they initially said that they were going to plant in the March intentions report. They planted 93.85 mln acres which was the core mistake that resulted in the burdensome carryover that we now have. The fall indemnity price was 488 ...» Continue Reading
- 02/26/2024 Bears Retain the Upper Hand but Bearishness Should Soon Be Dialed In
On the Grains
Grains are lower to start this final dismal week of February. Though private estimates for Brazil's crops continue to fall, the news falls on deaf ears after Friday's pitiful bean export sales and reports that poultry giant Perdue has three more cargoes of Brazilian beans headed for the U.S. east coast. Corn and wheat sales were both dismal as well, even though YTD sales remain ahead of pace to meet USDA targets.
Topping it off was Friday's Commitments of Traders report showing funds selling the daylights out of corn at a record net short likely now in excess of 350,000 contracts. They were also continued big sellers in beans and both KC and Chicago wheat. Only their big net short in MGE wheat came down by a few hundred contracts. Thursday will put February out of our misery as the end of pressure related to farm selling to raise cash for Mar. 1 land and equipment payments we've described as the "John Deere low".
Weather-wise, the latest 2-week outlook calls for warmer and wetter conditions for most of the country. Even that will likely be read as negative by promising an early start to spring fieldwork in this sour environment.
I've written before about how low prices are eventually supposed to help cure themselves by stimulating demand and discouraging production. There's actually some evidence the latter is happening in Ukraine. The Ag Ministry there has already predicted grain production may decline 10-15% in 2024 due to farmers going into the third ...» Continue Reading
- 02/25/2024 Sunday Market Preview
Grains are called mixed at the open, potentially finding some additional short-covering support, but vulnerable to further technical selling until something more clearly bullish comes along from the fundamentals. The mechanics of the March expiration period are still in play with first notice day coming on Thursday, the last day of the month.
In the Headlines
March grain options expired on Friday. Traders holding the $4 March corn options were presented with "pin risk," since it was unclear if those options would be able to be exercised or if they would be assigned futures depending on which side of $4 the contract settled. March corn ended up settling at $3.99 3/4, long put holders could exercise into short futures and short puts would be assigned the long positions at $4. March futures go into the delivery period on Thursday. Heading into first notice day, there is a relatively large amount of open interest left in the March contracts, at over 190,000 compared to only 17,000 for the March 2023 futures at this point last year.
Now that nearby corn futures have broken support at $4, there is not much below the market for key lows until $3, which was last tested in April of 2020. Futures could be perceived as oversold at any time after having dropped in 9 of the last 10 weeks. Soybean futures fell under their May 2021 low and now do not have much in the way of clear support above the 2020 low at $8.08 1/4. Soybean futures ...» Continue Reading
- 02/23/24 Bearish Export Fundamentals Add to the Technical Pressure
The grains were slightly stronger overnight before breaking lower in response to a disastrous weekly export sales report. Corn and wheat sales were at six-week lows while new soybean export commitments were a marketing year low, all coming in way under expectations. It was particularly bearish that China did not buy any U.S. corn and that there were cancellations of China's previous soybean purchases. Soybean meal sales were also at a six-week low and soybean oil export activity featured net cancellations. The silver lining of this week's disappointing trade numbers could be that China has washed out of most of the purchases already made at much higher prices and that buyers will find value again in U.S. exports after the latest price slide.
It remains the same story for soybeans in that U.S. exports have struggled to compete with cheaper supplies from Brazil. Offer prices from both the U.S. and Brazil are down at new one-year lows, but the U.S. maintains a premium of nearly 14 percent above Brazil. Soybean prices in Brazil have fallen cheaper as the fresh harvest comes online, although harvest pressure may soon wane with progress that will likely reach past the halfway mark by the end of the month. Soybean prices in Brazil may start to track higher if the market begins to realize a more severe extent of yield loss than what is currently suggested by estimates like those from the USDA. The USDA estimates for Brazilian soybean production last year and this year add ...» Continue Reading
- 02/23/2024 Agonizing Wait for Bearish Grip to Ease with Few Signs Yet
On the Grains
Grains are steady to firm in overnight trade as this goes to press. We'll have the holiday-delayed weekly export sales at 7:30, which could set the tone for early trade. Expectations as follows: Corn, 700k to 1.5 million tonnes, Soybeans, 300K to 800K, Wheat, 250K to 550K. Two big reports due at 2 pm after markets close are the Cattle on Feed Report and monthly Cold Storage report for beef and pork in freezers. We'll see their impact Monday.
The stock markets soared to new highs again yesterday on the stunning report from AI giant Nvidia, where quarterly profits were up 265%, blowing away estimates and pumping that stock up 16% in a single day. Other than that, the macro-environment remains conflicted. Weaker housing starts and retail sales argue for rate cuts, but stronger employment, GDP and CPI have the Fed signaling at best that the top may be in for rates, but cuts not likely until June at earliest.
The crude oil market is looking toppy again, hitting solid resistance at $79. This week's data from the EIA was helpful. Ethanol output was up 7% over last year and strong enough in recent weeks to suggest USDA's corn use for ethanol is about 50 million bu. too low.
On corn and beans, we remain stuck in a mode where news is scarce and the default mood is bearish. Sometimes it's said that "a picture can be worth a thousand words" but when it comes to the long-term monthly charts it's ...» Continue Reading
- 02/22/24 What’s Mucking Up Farm Bill Prospects
We may not be at "the bottom," but at least can "see it from here"
In hindsight we wish we had more soybeans sold, but being 75% sold on corn since Dec. 6 feels good. On 11/30/23 we were already 50% sold and advised rewarding good basis and selling another 10% if March futures hit 488 and another 15% (to 75%) when March hit 493 (or by Christmas, whichever came first).
Then on Dec. 4, this p.m. report warned about the "John Deere low" that often occurs near March 1st of every year. Specifically, that column read "Farmers typically need to raise some cash through grain sales to make equipment payments, cash rents, land payments and taxes." We also warned, "Commercials know this need to raise money by farmers and often step back from the market to see how low it can go, knowing that farmers will be forced to make some sales regardless of the price as March approaches." We noted the huge jump in corn carryout and reminded clients those new March targets for advancing sales were close. We just didn't realize how close! The 488 target was hit the very next day and 493 on 12/6, taking our sales to 75%.
Now we actually are approaching Mar. 1st. By a week from today all that basis contract pricing, cash flow selling and cocky hand-to-mouth purchasing by users should dissipate. Should the market finally begin to show signs of life, then that could finally convince funds already nearly record net short ...» Continue Reading
- 02/22/2024 Counting Down the Last Six Days for Basis Contract Price Pressure
On the Grains
Grains were mostly firm in overnight trade as of 6 a.m. Weekly export sales normally released early Thursday mornings won't be released until 7:20 tomorrow because of the Presidents Day holiday Monday. The steady drip-drip of farmer corn and soybean pricing against March basis contracts taken out months ago has another six trading sessions to go due to this being leap year. Yet yesterday national average basis actually firmed slightly for corn and wheat while slipping but a penny in beans.
Private estimates for Brazil's bean crop continue to decline. The latest was from Agroconsult, which completed a tour and cut their crop estimate to 152.2 MMT. That's up from the Brazilian Ag Ministry, which recently matched our own estimate at 145 MMT but still well under USDA's Feb. WASDE peg at 156. Argentina's Rosario Grain Exchange has just lowered their estimate for that country's bean crop to 49.5 MMT, down half a million from USDA. (They also cut their corn estimate to 57 MMT, but that's still 2 million higher than USDA's 55 MMT.)
The U.S. isn't buying Russian assurances that Putin opponent Alexei Navalny inexplicably died of what they termed "sudden death syndrome" in a Siberian gulag. Tougher sanctions are being pursued and none too soon to relieve pressure on wheat from Russian sales. They're selling wheat at the lowest prices since the fall of 2020 and their February sales are up a million tonnes from last month. At the very least, the U.S. needs to sanction Swiss-based ...» Continue Reading
- 02/21/24 The Slippery Slope of Impeachment
Last week the House of Representatives voted to impeach Secretary of Homeland Security Alejandro Mayorkas for failure to secure the southern border and enforce immigration law. Although the first vote failed to pass, it was brought back up and succeeded by a single vote, 214-213 without the support of a single Democrat. Despite the House having successfully initiated the impeachment, it is all but guaranteed to go nowhere in the Senate. To remove an official from office through the impeachment process the senate requires a 2/3’s majority. Given the Democrat’s 51-49 majority in the Senate and the partisan split on the House vote, there is little to no path for a successful Senate vote. In fact, it is likely that the Senate won’t even take up the issue, likely utilizing a procedural trick to bury it in committee until it expires at the end of the session.
As fruitless as this effort is likely to be, it is ultimately a symptom of the cheapening of the impeachment process over recent years. To put it in perspective, including Mayorkas, the House of Representatives has only successfully voted to impeach a federal officer 22 times in the history of the country, with 3 of those coming just in the last 5 years. Even more importantly, 15 of those 22 times the target has been a federal judge rather than an executive or legislative official. Additionally, of those 22 times only 8 have resulted in a Senate conviction and removal from office (7 of ...» Continue Reading
- 02/21/2024 Cash Selling to Meet Cash flow Needs Still a Drag on Recovery Hopes
On the Grains
Grains are all soft in overnight trade after yesterday's robust start to a holiday-shortened week. In corn and beans, the most likely culprit is steady farmer selling driven by Mar. 1 cash flow needs and pricing of a lot of basis contracts written against the March contracts. Though national average basis held steady yesterday, it's been softening on a weekly basis as cash movement picks up. News the Biden Administration would finally approve year-round sales of E-15 helped ease the sting of rule changes that will make it harder for ethanol to meet specs for Sustainable Aviation Fuel (SAF).
Weekly grain inspections were all well within the range of expectations yesterday, with corn loadings at the upper end of expectations once again. Not only are YTD corn sales running well ahead of USDA expectations for the year, so are loadings. They're up 32% compared to a year ago vs. USDA's forecast for shipments to increase 26%. Sadly, that's not the case for soybeans and wheat, however. YTD soybean loadings are down nearly 23% from last year vs. USDA's forecast for them to drop less than 14% and YTD wheat loadings are still behind last year by nearly 18% vs. USDA's forecast for just a 4.5% drop and just over 3 months left in the marketing year.
Weather-wise, rains in Brazil and Argentina are said to be helpful for the most part. We cover that in the weekly Brazilian Operations update below, where we also note the Brazilian Ag ministry recently ...» Continue Reading
- 02/20/24 Can The Cotton Market Save Us?
We all might have to learn how to plant cotton this year, currently that is the only crop that pencils. While grains have been doing a death spiral, cotton has enjoyed a steep rally approaching contract highs. Much of that has to do with increased exports to China, combined with tightening stocks. The February WASDE report saw US supply drop by 100,000 bales to 2.8 million bales. As a rule of thumb, we consider anything under 3 million bales to be tight. You might recall cotton's meteoric rise to over $2/lb in 2010 when ending stocks fell to 2.6 million bales.
On the production side, cotton acres dropped sharply by 25% from 13.76 million acres to 10.23 million this past season. Subsequently production is estimated to drop to 12.4 million bales, the lowest production level since 2009. Much of the US cotton industry success is based on exports as nearly 100% of the crop is shipped out of the country.
Similar to the soybean industry, the cotton industry is heavily reliant on China and how much they buy from us. Approximately 40% of US cotton exports end up in China. China is so important to the market, that Chinese reserve stocks are highly scrutinized as low or high inventories could signal whether they are buyers. China's reserve remains fluid, constantly buying and selling depending on price changes and market imbalances. They typically like to keep at least 3 to 5 months of use on hand at any given time. Their cotton reserves, ...» Continue Reading
- 02/20/2024 First Signs Market Bears Losing Heart for Continued Selling
On the Grains
Corn and beans are firm in overnight trade, with wheat mixed. There isn't anything particularly bullish in the news. To the contrary, the Biden Administration's sudden decision to change carbon footprint scoring making it harder for ethanol to meet specs for Sustainable Aviation Fuel (SAF) rather than easier came out of "left" field (literally and figuratively). Yet corn is firm in overnight trade because it's been declining for weeks and clearly hadn't yet responded at all to the "promise" of greater ethanol use as SAF.
Weekend weather was mostly favorable for South America, where traders still face that huge gulf between USDA's Brazilian crop estimates and their own. Global winter wheat conditions continue generally favorable, especially in the U.S., and yet even KC wheat is showing a plus sign in overnight trade at 6 a.m. after closing lower every day last week. The best explanation for general firmness in overnight trade is that even market bears are losing the stomach for pressing the short side even further.
Friday afternoon's Commitments of Traders Report showed funds continued selling the tar out of corn, soybeans, SBM and KC wheat through Tuesday of last week. Those funds had actually begun lightening up on their net short positions in soybean oil, Chicago and MGE wheat. Let's hope that spreads to the other grains this week.
Geopolitics was not without drama this weekend when imprisoned Putin opponent Alexei Navalny died in a Siberian gulag of what the Russians can describe only as "sudden death syndrome." (That's ...» Continue Reading
- 02/19/2024 Monday Market Preview
The grain market is closed for President's Day but will open at 7 pm central for the Tuesday session. Early price strength may be supported by short-covering and technical bargain-buying.
In the Headlines
The Biden administration is reportedly planning to endorse a different standard for measuring climate emissions that will weaken the tax incentive for corn-based ethanol used for making sustainable aviation fuel. The White House previously announced that they would maintain the ethanol-friendly standard, but that there would be changes made by March. Now it seems the changes are basically a flip toward the emissions model preferred by environmentalists, but that the framework of the tax credit would still provide some benefit for farming practices deemed climate friendly.
Harvest progress in Brazil is being monitored for what yield results might say about where the USDA will be heading with its crop production estimates. Differing estimates for Brazil's soybean crop from both this year and last year add up to the USDA being ahead of Conab by over 500 million bushels. The USDA forecast for Brazil's new corn crop is almost 10 percent higher than Conab, which is a difference of about 400 million bushels.
Corn export sales are running ahead of the pace needed to meet the USDA's marketing year target, but strong trade demand is being overlooked in part because China has been absent as a buyer. Cumulative corn export commitments are up 30 percent from a year ago versus the USDA estimating them increasing about 26 percent this year. Mexico is ...» Continue Reading
- 02/16/2024 More on the USDA Outlook Forum
PLEASE REFER TO THE HEDGE AND TRADE STRATEGY PAGE FOR UPDATES!!
The USDA's Agricultural Outlook Forum has been widely reported on this week due to its production of initial estimates for the 2024 crop season. Among the highlights were projections for plantings to be down by 3.6 million acres for corn and up 3.9 million acres for soybeans, leaving corn acreage still larger than the soybean area by about 4 percent. Projected ending stocks of 2.53 billion bushels for corn and 435 million bushels for soybeans were built upon trend line yield estimates of 181 bushels per acre for corn and 52 bushels per acre for soybeans. The predictive power of these forecasts are limited, as proved last year with the early acreage estimates that were far from the actual outcome. Early yield estimates are also obviously limited in their accuracy. While the new supply projections mentioned above received most of the attention, there were other notable items from the Outlook Forum that can help shape our view of what might lie ahead for markets throughout the rest of the year and beyond. Here are some key excerpts selected from the USDA documents just released:
• Prices for fertilizer such as anhydrous ammonia are down nearly 40 percent relative to 2023, while diesel is about 20 percent lower. Output prices generally falling faster than input prices leading to tighter margins, reducing sector profitability.
• During the past year, soybean oil used in biofuel has increased and U.S. prices have risen to levels ...» Continue Reading
- 02/16/2024 New Spring Weather Outlook Bodes Well for Most; But Not for Some
On the Grains
The markets are closed Monday for President's Day, so this report will return on Tuesday. Overnight markets are mixed as this goes to press, with corn and beans showing plus signs but wheat weak again. Yesterday's weekly export sales got little attention with traders digesting the new balance sheets just out from the Outlook Forum. They were actually very strong for corn. At 1.306 million tonnes, they were near the upper end of the range of expectations and kept YTD sales running 30.2% head of last year vs. USDA's forecast for exports to rise only 26.4%.
Soybean and wheat sales were a bummer, however. Both came in near the low end of the range of expectations. For soybeans, YTD sales are down 19% vs. the USDA forecast for them to decline only 13.7%. (NOPA crush numbers for January were a little below trade expectations, down 4.9% from December but up 3.8% from January 2023 and the largest on record for the month.) Wheat sales YTD are hanging in there, however. They're actually up 6.6% from a year ago at this point vs. USDA's forecast for them to decline by 4.5%.
One bright spot for the export outlook is the end of barge restrictions for the Mississippi river. Drought conditions have been a factor since September of '22, but the Corps of Engineers says it has subsided enough that delays or barge loading restrictions have ended with no further dredging needed. The Climate Prediction Center just put out its latest 3-month ...» Continue Reading
- 02/15/24 USDA Outlook Confirms Our Fears
The USDA released their annual Grain Outlook this morning and it was not good. Much of the results were telegraphed ahead of time as we had shared in previous reports that even with cuts to corn acres, ending stocks still increased due to improving yields and an already hefty supply. The USDA foresees 91 million planted acres this season, down 3.6 million from last year. They are using an average yield of 181 bpa compared to 177.3 last season. This brings ending stocks up 2.532 billion bushels compared to 2.172 billion for this year.
There was a lot of pushback last year on the USDA using a national yield of 181 bpa for corn. I don't think they will get the same pushback this year considering 2023 results. Despite adverse weather, we still set a record for national corn yield at 177.3 bpa. What happens in a normal weather year? What is scary to me is that the 181 bpa corn yield is seen as a ceiling when it is not. If we can get 177 bpa in a bad year, who's to say we cannot get 182 or 183 in a good year for a national average?
With these baseline figures, the USDA has now set the tone for 2024. The focus will now shift towards an acreage debate for the next six weeks about whether it is too high or too low. Just to get us back to par with this season, we would have to reduce acres by an ...» Continue Reading
- 02/15/2024 Hot off the Press! First Ending Stocks Estimates for 2024-25
On the Grains
Grains were weak again in overnight trade. Today and tomorrow USDA is conducting its 100th Annual Outlook Forum and we'll have highlights of key presentations as they unfold. However, as you're reading this, markets are already absorbing the first supply/demand balance sheets for the 2024-25 season just released ahead of opening sessions:
Corn: Acreage plugged in at 91.0 million acres, down 3.6 million from last year. Average yield put at 181.0 bpa, compared to 177.3 last year, ending stocks at 2.532 billion bu. compared to 2.172 billion for this year, average farm price of 4.40 per bu. compared to 4.80 for this year's crop.
Soybeans: Acreage plugged in at 87.5 million acres, up 3.9 million from last year. Average yield put at 52.0 bpa, compared to 50.6 last year, ending stocks at 435 million bu. compared to 315 million for this year, average farm price of 11.20 per bu. compared to 12.65 for this year's crop.
Wheat: Acreage plugged in at 47 million acres, down 2.6 million from last year. Average yield put at 49.5 bpa, compared to 48.6 last year, ending stocks at 769 million bu. compared to 658 million for this year, average farm price of 6.00 per bu. compared to 7.20 for this year's crop.
We'll have more detail and discussion of trade reaction in the PM report.
While trade this morning will be heavily influenced by reaction to these initial balance sheet projections for the 2024-25 marketing year, another important piece of the puzzle is the likelihood of achieving the yields plugged in. ...» Continue Reading
- 02/14/24 Will the Cattle Herd Continue to Shrink?
It should be no secret to our subscribers that the cattle numbers have been falling for some time now and the severe multi-year drought across the plains was primarily to blame. Pastures were scant, hay prices went through the roof and feedstuffs (corn, ddg, etc.) were outrageous for the better part of three years. This combined with an extremely strong cow market to ignite a herd liquidation like we have never seen in the US cattle industry.
The aforementioned cow market was what took this liquidation to the next level and superseded anything we saw in the 2014 cattle market run. When you are actively killing the factories, eventually the product stops coming out the door and consumers are left searching for alternatives. We haven't quite reached these extremes, but the writing was on the wall if something didn't change so we entered into the greatest bull-run in the history of the US cattle market. Boxed beef kept pace for the bulk of this run and most were questioning how demand wasn't being destroyed at the retail level. Increased imports of foreign cattle and beef were met with decreased exports of both from the US to other countries. This bolstered the domestic inventory and we were able to skate by blending higher fat US beef with leaner foreign beef to make palatable hamburger and hold the price near steady, keeping the ship afloat for a bit longer.
Throughout this market run higher there were expectations as early as last fall that producers ...» Continue Reading
- 02/14/2024 Two Key Drivers behind Overnight Weakness in Grains
On the Grains
Grains are lower in overnight trade with wheat down double-digits. Two factors are at work, the first is the "aftershock" of yesterday's disappointing small decline in the CPI compared to trade expectations. It's hard to explain how coming in down just slightly to 3.1% compared to December at 3.4% can be seen so harshly negative compared to expectations for 2.8%. But just 3/10ths of 1% difference caused the stock market to tank more than 500 points and reignited the uptrend in the U.S. Dollar Index.
The message it sent to the market is that the Fed was on solid ground poo-pooing last month's market chatter of up to six rate cuts possible through year end. Yesterday's data told the world "it is what it is" and that interest rates will likely stay higher for longer than most were hoping.
The second driver for overnight weakness is likely trade bracing for bearish balance sheets for the 2024-25 marketing year in tomorrow morning's first batch from USDA's annual Outlook Forum. Though nearly 40% of the country is still suffering some degree of drought, that figure has been shrinking as well as the "intensity" of drought within the footprint. That raises the odds USDA will plug in trend line yields and acreage guesstimates that pump up ending stocks and more fodder for funds already so heavily short to stay with their positions. The best face we can put on this ugly scene is the hope that whatever tomorrow's numbers show, they may not ...» Continue Reading
- 02/13/24 LRP Market Impacts
There has been a lot of chatter recently about Livestock Risk Protection and how many have been abusing the subsidized program to "harvest subsidies". Reports of this have garnered enough attention that some grassroots organizations like the Iowa Cattlemen's Association are even adopting policies to attempt to change the program so that some of these maneuvers are more difficult. The argument to this point has been that people are "subsidy harvesting" by purchasing LRP on a specific set of cattle and then selling an equal value put option to effectively pocket the 35-55% subsidy and remain net neutral the market.
Example: Purchase LRP on feeder cattle steers with a floor of $268/cwt.
and an end date of 09/02/24 for $10/cwt.
Sell $268 put option for $13/cwt. with an expiration date of
09/02/24, pocketing the $3/cwt. government subsidy.
In this example, if the price continues to move higher the cattle are gaining value, the short put premium will be realized profit while the LRP won't pay an indemnity and premiums will be due within 30 days of the policy end date. Win, win, lose. If the bottom were to fall out of the market, the cattle lose value while the short put requires constant margin money and the LRP would replace the lost cattle value. Lose, lose, win. Even in this common scenario, there is still risk associated in a downward moving market. Point being, there is no foolproof way of harvesting the government subsidy ...» Continue Reading
- 02/13/2024 Why “Quiet, Mixed” Trade in Low Volume Holiday Trade is Noteworthy
On the Grains
Grains are mixed but leaning lower in overnight trade as of 6 a.m. Favorable weather for Brazil and Argentina continue to pressure prices despite wide disagreement over how much irreversible damage was done to crops early in the growing season.
Yesterday's weekly export inspections were pretty decent for a change with corn and soybeans falling near the upper end of expected ranges and wheat midpoint in that range. Market volume is very low due to South America celebrating "Carnival" and China off for "Lunar New Year." Actually, for markets to be steady-to-mixed despite low volume trade is encouraging because it suggests little new selling by funds, who are enormously short.
That alone offers a hint they may soon grow impatient and begin to lighten up. If they do, that could trigger commercial buyers into taking advantage of these awfully low prices. Alas, even that is a slim hope for now as traders await this week's first 2024-25 balance sheets from Thursday and Friday's USDA Outlook Forum.
Today we could see that inflation during January was under 3% for the first time since March of '21 and a solid drop from December at 3.4%. If so, it could resurrect talk of a possible rate cut by the Fed as early as May.
On the Hogs:
After Friday's modest recovery, hog futures returned to their losing ways yesterday. It could signal the downside correction isn't over yet, especially since cash trade has suddenly turned mixed. The range of prices paid across the country dropped at ...» Continue Reading
- 02/12/24 USDA Missed The Mark
The February WASDE report gave us another bearish report that will likely give bears further incentive to maintain their foot on the neck of any potential rally. We had not expected much by way of changes in the domestic stocks reports. Most of the focus was on potential production changes in South America. CONAB gave us a glimpse of hope when their report was released earlier in the day. CONAB cut Brazil's production estimates on the low end of the range, giving us our first government report below 150 MMT this year at 149.4 MMT. This was a big cut from their previous report of nearly 5.9 MMT. I have always held a bias towards believing CONAB more when it came to Brazilian production simply because they have more of a presence. The same way I don't rely much on the USDA to tell me what the South American crop size is, I would not rely on CONAB to tell me what the US crop size is.
And yet the trade still listens more to the USDA related to South America. We did not expect the USDA to catch up to CONAB, but we did expect them to make more cuts than what they did. The USDA did not come on the CommStock crop tour to Brazil and it showed. They trimmed only 1 MMT to Brazil's crop, taking it from 157 MMT to 156 MMT. The crop size is not fully known and likely won't be until May, but enough ...» Continue Reading
- 02/12/2024 Funds Relentless Sellers, but Corn and Bean Charts Severely Oversold
On the Grains
Corn and beans are firm in overnight trade while wheat is weaker. Weekend weather was generally favorable for both Brazil and Argentina and the dollar is firm again, so the firmness in corn and beans flies in the face of what would normally be pressuring prices even more. The big gap between USDA and its Brazilian counterpart CONAB on the soybean crop was only reinforced when two more private firms down there lowered their own estimates even lower than CONAB.
Friday's Commitments of Traders report confirmed that trading funds were relentless sellers of both soybeans and corn through last Tuesday with their net short position in corn now near 300,000 contracts and approaching the all-time record short at 322,215. As you'll see in this week's basis update below, spot basis weakened for both corn and beans a second straight week last week.
I'm regularly asked what could trigger a rebound in such a bearish climate and the only thing that comes to mind is "evidence the market is running out of willing sellers" that triggers fund short-covering. There's no evidence of that yet but plenty of evidence that corn is severely oversold, even on the weekly chart.
The same is true for soybeans. On the weekly chart, the Stochastics oscillator is as oversold as it can get and prices are at the lower Bollinger Band as well.
On Thursday and Friday of this week, USDA will hold its annual Outlook Forum. Typically, they issue initial acreage estimates Thursday morning and then full ...» Continue Reading
- 02/11/2024 Sunday Market Preview
Grains are likely to be little changed on a quiet open while most traders are busy watching the Super Bowl. Food spending for the Super Bowl is expected to rise by about 23 percent this year as at least 110 million people will plan to watch the game. Total food costs are up about 3 percent from a year ago with items such as hamburger and eggs higher while Super Bowl staples like chicken wings, potato chips, and beer are flat or lower compared to last year.
In the Headlines
Tensions in the Black Sea were raised over the weekend with what Russia alleged was a failed attack by Ukraine against a commercial vessel. It was put into question whether the Russian claim would be a pretense for Russia to retaliate against Ukrainian assets in the southwestern areas of the Black Sea that are key for the passage of ag and energy exports.
Friday morning produced another sub-150 million metric ton estimate for Brazil's soybean crop, with the Brazilian consultancy Safras & Mercado coming in at 149 mmt. That same firm has last year's soybean crop at 157.8 mmt. Last week's crop report saw the USDA only lower the 2024 crop estimate to 156 mmt while the 2023 crop was inexplicably raised to 162 mmt.
The latest weekly export sales report included net cancellations of corn previously committed to China. Unshipped corn sales to China are now negligible, so buyers there may be ready to begin purchases again after the recent price slide. Activity ...» Continue Reading
- 02/09/24 The Moment You Have Been Waiting For
In the past I have been asked "Why don't you criticize Biden more?" Here is what you have been waiting for. I have not been pleased with a number of things in the performance of the Biden administration and I am in the super-majority of 70% of Americans who think that forcing us to choose between Trump and Biden is abusive. I will pick out three things that I think that Biden really mucked up on…the first was the incompetent exit from Afghanistan, number two would be the failure to address immigration/border security and the third would be the fiasco now unfolding with EV mandates. I am sure that subscribers could send me a much longer list.
The exit in the middle of the night from Bagram air base, leaving the keys on the desk for stunned Afghans, as part of a wholesale withdrawal of US forces from Afghanistan, was one of the most embarrassing exercises in disloyalty ever conducted by the US. We left our key allies in the country fully exposed and unsupported to a ruthless enemy while we hightailed it for the exits. The unwillingness to support the existing government forces with which we had worked and fought alongside for years broke pledges and promises that were noted by other allies with the US everywhere else in the world. Now the MAGA people want to do the same thing to Ukraine. Why anyone would trust our promises again would be incredible. Our enemies noted our mismanaged retreat too. ...» Continue Reading
- 02/09/2024 Trade Still Reeling from Whipsaw Forecasts on Brazilian Crop Size
On the Grains
Grains are weak again in overnight trade, still reeling from the whipsaw action we saw yesterday from conflicting Brazilian crop estimates between USDA and its Brazilian counterpart CONAB. The day started out with lousy weekly export sales in beans, coming in below the low end of trade expectations. Then CONAB came out with its Brazilian crop estimate down sharply to 149.4 million tonnes vs. trade expectations for USDA at 152.5 against 157 in January. So prices rose accordingly.
Then USDA comes out and KO's the beans with US ending stocks up 35 million bu. at 315 million bu., which beat the high end of trade expectations. Worse yet, they came down only a million tonnes for the Brazilian crop at 156 and nearly mocking CONAB's number. Prices tanked. However, by end of day, beans managed to close on the plus side, suggesting that on balance, traders were giving CONAB the nod as the more credible.» Continue Reading