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AUDIO: Market Commentary with Daily Brokers

AUDIO: Market Commentary with Daily Brokers

Summary

We have once again made it to Friday. Unlike last week this trading week had all 5 days and for the grains the bull has used almost all them. Outside markets are rocky as the election concerns, FED statements and a lack of economic stimulus keep traders guessing.

The biggest move on the week, as far as the global economy is concerned, the Federal Reserve’s statement on monetary policy Wednesday afternoon.  The Fed in the statement hard lined that it would keep short-term interest rates near zero until inflation is on track to exceed its mandated 2% level for an extended period of time. Federal Reserve Chairman Jerome Powell in open comments hinted at interest rates staying low through 2023. That is a much longer recovery time than what Wall Street was thinking up to this point. You can find analytical evidence to try and support either side of the argument. The facts are only about half of the jobs lost to the pandemic have returned and it may be an even longer road to get back to the full jobs number. The good news there is the Thursday jobs number showed 860,000 new unemployment claims. That was 10,000 less than analysts expected and nearly 30,000 less than a week ago.

Other economic data out this week concerns the housing sector and high lumber prices have started to take it’s toll on the industry. Housing starts fell to an annualized rate of 1.416 million units in August, down from 1.492 million in July and below analyst expectations of 1.486 million. Housing starts had recovered to near pre-Covid levels earlier this summer, but inflation hitting the lumber market late summer has significantly slowed starts. Permits for new housing starts fell slightly to an annualized rate of 1.470 million, down from 1.483 million in July and below expectations that they
would rise to 1.530. These numbers are still decent, but they are a disappointment to traders.

On the commodity inflation subject it’s  interesting to note where money started flowing once the FED’s statement was out. Of course stocks took a nice little bump, but RBOB unleaded gas jumped almost 5% in mere minutes. Gold also reversed what was starting to look as a lower day to up 0.3% in short order. Precious metals were unable to hold their rally into Thursday, but RBOB added another 3% on Thursday to it’s gains. The good news there is that could help refineries looking for blend margin with ethanol.

We haven’t touched on the energy front in a while, but the latest DOE data shows U.S. crude oil supplies dropped 4.4 million to 496.0 million barrels in the week ending September 11, and remain about 14% above the five-year average for this time of year. Gasoline stocks fell by 0.4 million barrels and are just 3% above seasonal levels. Distillate stocks rose by 3.5 million barrels and are still 22% above levels normally seen this time of year. That didn’t slow WTI crude oil futures down much, but so far they have only breached $40/barrel. The crude oil and energy market in general has been in a very sideways pattern for over a month. Earlier this week it didn’t help that OPEC and other analysts believe peak energy/oil demand may have been in 2019 and with more people working from home and traveling less energy demand may be down for the foreseeable future. That seems to have capped the crude oil market somewhat. Commodity inflation could be the saving grace for crude oil bulls if it continues to develop.

In the grain complex soybeans have been on another big run this week. The only day where some held their breath was Tuesday, but that simply seemed to be a pause in the action and soybeans are holding well over $10. That price action hasn’t been seen since the trade war with China started in early 2018. Helping soybeans get back to these prices is China’s appetite for most grains. The export sales report out Thursday morning showed China as a sizable buyer of corn (359,700 MT), soybeans (1,487,100 MT, sorghum (121,800 MT, including 68,000 MT switched from unknown destinations), and cotton (440,100 RB).

The biggest disappointment from China’s buying is that it may not really increase that much more. In the Wednesday overnight trade China released their tariff rate quotas for 2021 that were identical to 2020. Most in the trade had expected a significant turn up given the aggressive purchases lately. The TRQ for China sits at 7.2 million metric tons corn, 9.36 mmt for wheat and 5.32 mmt for rice.

It’s important to keep in mind though that this could be political positioning by China. They are trying to calm the waters domestically with record high grain prices and fears of a food or grain shortage. Leaving TRQ’s unchanged may help to ease those domestic concerns. Not helping China is that their current corn crop has been battered by 3 typhoons and has destroyed as much as 2 MMT. China is also trying to show the US that it can withstand all of the economic sanctions thrown it’s way.

According to EIA data for the week of September 11, US ethanol production dropped 14,000 barrels per day (b/d) or 1.4% to 926,000 b/d. Production is still nearly 8% below the same week in 2019.
US Ethanol stocks decreased 1.0% to a five-week low of 19.8 million barrels, which was 14.8% below year-ago volumes. Inventories decreased across all regions except the East Coast (PADD 1) and Gulf Coast (PADD 3).
The volume of gasoline supplied to the U.S. market, a measure of implied demand, took a step in the right direction, up 1.0% to 8.48 million b/d (129.97 bg annualized). Gasoline demand remained 5.2% lower than a year ago.

Recapping USDA flash sales. On Monday China purchased 350,000 MT of corn, and 129,000 MT of soybeans. Japan purchased 106,000 MT of corn. Unknown destinations purchased 318,000 MT of soybeans. On Tuesday China purchased 132,000 MT of soybeans. Unknown destinations purchased 132,000 MT of soybeans and 120,000 MT of corn. On Wednesday China purchased 327,000 MT of soybeans. All purchases have been for the 2020/2021 marketing year. Thursday China purchased 264,000 MT of soybeans. Unknown destinations purchased 360,500 MT of soybeans and 120,000 MT of corn.

USDA also announced that an unknown purchase of 140,000 MT of corn back in August was actually to China. That now pushes one of China’s largest corn purchases from 747,000 MT of corn to 887,000 MT of corn on August 27th.

Livestock continued in mixed fashion most of the week. Lean hogs though were able to stoke the fire from last week’s rally on ASF in Germany. Helping the fire was US pork export sales jumping 68% for the week of September 10. China purchased nearly 36,000 MT of US pork alone that week. With that type of demand the pork cutout has skyrocketed. This could continue to lend support to lean hog futures. As for cattle it’s been a sideways market with any gains seemingly given away on the next turn. Cash has been slow to develop, but is developing higher this week. That could lend some support to futures traders, but cash is still discount to all futures contracts. Next week is the September cattle on feed report and that could help shed light on how many cattle are headed back into feed yards and if there is any potential in tight fed cattle supplies near term.

In the country a light trade has developed Thursday in Nebraska with dressed deals marked at $163, roughly $2 higher than last week’s weighted average, basis Nebraska. Live business in Nebraska and Colorado is reported at $103.50, $2.50 higher than last week’s weighted averages. Cash had been quiet up to Wednesday when finally a light to moderate trade took place in the South with deals at mostly $103, with some in Texas up to $103.50. $2 higher than last week’s weighted averages.

The Fed Cattle Exchange Auction today listed a total of 613 head consisting of lots, in Kansas and Texas only, of which no cattle actually sold, 339 head were listed in Kansas and 274 head were listed in Texas. A total of 359 head were listed as unsold, and 254 head were listed as PO (Passed Offer), the offers that were passed were at $102.25. Asking prices ranged from $101 to $104.

For the week ending September 05, 2020, Imported Beef Passed for Entry in the U.S. totaled 43,128, 92.84% of the previous week and 97.76% of the 4-week average.

Expected Slaughter numbers Thursday

Cattle

120,000 hd today  hd wk ago  hd yr ago

Hogs

486,000 hd today hd wk ago hd yr ago

 

Midday Carcass Value Thursday

Beef

Choice dn 0.35 215.03

Select dn 0.91 203.60

C/S Spread 11.43

Loads 122

Pork

Carcass up 7,93 91.07

Bellies up 17.84 155.69

Loads 136

Grain Settlements

  • Corn up 1/4- 3 1/2
  • Soybeans up 1 1/4 – 17 1/4
  • Chicago Wht up 10 1/4 – 14 1/4
  • Kansas City Wht up 8 1/4 – 12 1/2

Livestock Settlements

  • Live Cattle dn 0.62 up 0.82
  • Feeder Cattle dn 0.32 – 1.32
  • Lean Hogs dn 0.30 up 1.65
  • Class III Milk up 0.05 – 0.41

Pre-Opening Market Broker Commentary

Mark Gold, Top Third Ag Marketing, discusses overnight grains and what the trade may see today. The latest Egyptian tender purchased Polish wheat. It appears Russia may be starting to get tight on supplies. Technical difficulties are occurring for the Thursday commentary.


Jerry Stowell, Country Futures,  looks at what may impact the livestock futures today. Feeders were able to move higher on Tuesday, but how much longer can they keep the rally going? Technical difficulties are occurring for the Thursday commentary.


Mike Zuzolo, Global Commodity Analytics, takes a look at the midday trade. Strong exports are keeping soybeans on top.


John Payne, Daniel’s Ag Marketing, takes a closer look at today’s grain close. Grains continue their rally back to 2018 highs.


Jack Fenske, York Commodities, looks at the closing market numbers. Soybeans are still going strong and nearing Fenske’s target price.

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