Hello, market watchers. Rain produces grain. We are grateful that the current weather pattern has broken, bringing much-needed moisture to the plains.
Temperatures will warm up again next week but will remain below 90 degrees with a chance of rain. The cool, cloudy, wet weather likely saved late-planted soybeans, as the August heat caused some producers to suffer crop insurance losses.
The USDA released its long-awaited crop production and WASDE estimates this Tuesday. Reports were mixed, with yields decreasing for both corn (175.1 bpa to 173.8 bpa) and soybeans (50.9 bpa to 50.1 bpa), but harvested acres increased overall. That brings total corn production to 15.134 billion bushels, higher than last month’s USDA forecast and average trade estimates that had called for a cut to 14.986 billion bushels. Interestingly, this increase coincided with a further 1% decrease in “good” to “excellent” ratings to 52%.
Conversely, soybean production declined by 4.146 billion bushels from the previous month, and was also below the average trading estimate of 4.152 billion bushels, which would be more in line with the G/E rating, and also fell another 1 point. The total was 52%.
Based on these production revisions, 2023-24 U.S. ending stocks will increase for corn by more than last month’s USDA statistics, with trade estimates also increasing, while soybeans will decrease by less than last month, but with an increase in average trade estimates. exceeded. The bottom line is more corn and less beans. At the global level, the USDA increased soybean exports to Brazil and corn production to China and Ukraine. While corn imports from China remained unchanged, soybean imports increased by 1 million tons to 100MMT, slightly lower than last year’s 102MMT.
Corn and soybean charts both fell on the reporting day, but the US dollar continued to hold ground and cattle set the bar even higher. Indeed, nothing seems to be able to stop this cow market going to the moon, as they say.
This week was another week in which the feed cattle futures market and fed cattle futures market hit record highs. Trading on Thursday and Friday was very strong, with all contracts closing near their trading highs to end the week. The cash-fed cows developed late in the week as usual but showed meaningful strength. Recall that the packer was trying to keep cash prices in the South below he $180 per CWT. Well, the big cash deal in Texas on Friday was $183 per CWT.
With the three major UAW-affiliated auto unions on strike, could this be the catalyst to end the strong consumer demand that continues to drive cattle prices soaring? It’s hard to say. Many are calling for a soft landing for the Fed’s interest rate hikes, but those hopes could be dampened by nationally reported worker strikes in key infrastructure sectors across the country. Such strikes are usually short-lived, but these are unprecedented times heading into an election year, when inflation is likely to spike and largely end in a relatively short period of time.
Unions believe now is the time to take a stand. However, with consumer demand expected to slow down in the future, car companies are fighting back hard. Next week will be a very important week, and we will be monitoring developments closely as the stock market could see more decline than rebound. This week, ahead of next week’s FOMC interest rate decision, it was reported that the August CPI was higher than expected. The main factor was the rise in crude oil and gasoline prices.
Some predict that this energy uptick may be short-lived, but that is far from certain. Whether the peoples of the world who “control” the price level of oil-based fuels have a desire to help the United States and other Western countries reduce rampant inflation from energy exports for their own economies. , I’m not at all sure. Higher price. Rising energy prices will also have a ripple effect on agricultural markets. As seen with the previous biofuel boom, agricultural products and their fuel equivalents are increasingly being matched as fuel feedstocks increasingly shift to food products.
This time there will be more oilseeds than starches. While there are calls for weakness during the corn harvest, oil prices continue to rise and crude corn spreads have widened to unprecedented levels, which is likely not to last for long. While the corn market is currently only 5% complete and there are many calls to sell, there is broad consensus that wheat has finally bottomed out. The numbers from the WASDE report are supportive for bulls, with 2023-2024 global ending wheat stocks falling by 7.0 MMT, compared to average trading forecasts of just 1.3 MMT. This is a big problem all things considered, especially after the excessive liquidation of wheat futures contracts. Wheat longs are exhausted, assuming they will face a sell-off every time they rally. I believe we are now at a tipping point.
Chicago wheat closed above the downtrend line that began in early August. Kansas City wheat was close to the downtrend line, but rose after going inside on Thursday. This suggests further upside in the next session starting Sunday evening. If you are looking for an impulsive market with lots of complaints and reasons not to trade, wheat is the market for you and now is the time. USDA’s reduction in global ending stocks is primarily due to lower production and exports in Argentina, Australia, Canada, and the EU due to inventory shortages in France. USDA has certainly increased Russian exports and Ukrainian wheat production and exports, but I think trade is starting to downplay the ability of exports from the Black Sea region to flow efficiently and consistently to world markets. The region is also becoming drier, making it one of his five driest 30-day periods in the past 45 years. Overall, it appears that most, if not all, bearish news is priced into the wheat market.
This wheat market will expand if the US dollar depreciates and demand for US wheat emerges. If you need cash flow and need to sell your wheat, you should sell it, but buy a call option to maintain the upside. If Elevator sells 5,000 bushels of wheat, equivalent to a futures contract, at $8.00 per bushel, it will pay $40,000. To purchase an at-the-money call option on March 2024 futures, the total investment would be approximately $0.48 per bushel, or $2,400 for upside exposure on 5,000 bushels. So in this example, you would have access to $37,600 if the market goes up while maintaining your 5,000 bushel position. The same bushel would cost at least $0.30 per bushel if stored in physical storage with storage interest and interest, assuming that standard and the futures market do not weaken.
Cash flow is tight and getting tighter for everyone in this market. It’s time to sharpen your pencils and take advantage of the tools available to you.
I hope everyone has a successful week of trading.
