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Transcript

Daily Market Podcast Jul 2 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:00
  SPEAKER_00: This is Chris Myers of AM6 Capital Management with our daily market letter on Thursday, July 2nd.
• 0:06
  SPEAKER_00: Walking in this morning, December corn is up two and a half at 445.
• 0:10
  SPEAKER_00: November beans are up five and three quarters at 11.55 and a quarter.
• 0:15
  SPEAKER_00: August crude is down$1.40 at$67.20.
• 0:21
  SPEAKER_00: Let's go back and review the last couple of days.
• 0:23
  SPEAKER_00: Yesterday, obviously, I was off.
• 0:24
  SPEAKER_00: I had things that I had to take care of around here.
• 0:28
  SPEAKER_00: So we've got a lot to catch up on this morning.
• 0:32
  SPEAKER_00: Particularly the USDA reports for grains and then a lot going on in the cattle market.
• 0:38
  SPEAKER_00: First things first, uh this weekend is obviously July 4th.
• 0:42
  SPEAKER_00: Therefore, markets will be closed tomorrow, July 3rd.
• 0:46
  SPEAKER_00: So with markets closed, we don't send out any emails or updates.
• 0:50
  SPEAKER_00: So we'll be back in the office on Monday.
• 0:53
  SPEAKER_00: As far as corn news, um, China was in bidding for U.S.
• 0:58
  SPEAKER_00: corn yesterday.
• 0:59
  SPEAKER_00: If you combine that with a slightly bullish US USDA report on Tuesday, and we get a rally.
• 1:06
  SPEAKER_00: D-Serma Corn is now up 18 cents from its low early Tuesday morning.
• 1:11
  SPEAKER_00: And uh I don't know to what degree the ones of you that that listen to the podcast, if you go and look at the emails also, but I do strongly encourage you today, if you do that, please go look at the email.
• 1:26
  SPEAKER_00: I have a chart, uh, two charts actually at the bottom of page one of U.S.
• 1:31
  SPEAKER_00: corn ending stocks and with a couple of scenarios and also U.S.
• 1:35
  SPEAKER_00: soybean ending stocks.
• 1:37
  SPEAKER_00: So that's what we're gonna be talking about today.
• 1:40
  SPEAKER_00: If you look at the chart that I have on US corn stocks, if we work through all the changes from USDA's June 1 stocks number and acreage numbers, and you add in the fact that U.S.
• 1:55
  SPEAKER_00: weekly corn export pace is much bigger than what USDA has been forecasting, we end up with a very likely ending stocks for our current crop year, 2526 crop year, and that will end at the end of August this year.
• 2:10
  SPEAKER_00: Those stocks will be somewhere in the neighborhood of 1.95 billion bushels.
• 2:16
  SPEAKER_00: And if we look forward, if we're assuming a continued very large U.S.
• 2:21
  SPEAKER_00: corn export pace and an okay U.S.
• 2:25
  SPEAKER_00: corn yield, then we end up with somewhere in the neighborhood of a 1.7 billion bushel in any stocks for this next crop year, the 26-27 crop year.
• 2:35
  SPEAKER_00: And just so everybody's clear, that does not add in any additional export demand for China.
• 2:44
  SPEAKER_00: If we assume that China is going to take 10 million tons of U.S.
• 2:48
  SPEAKER_00: corn, and and I strongly believe that's gonna be the case, then we end up with something closer to a 1.3 billion bushel carryout for U.S.
• 2:58
  SPEAKER_00: corn stocks.
• 3:00
  SPEAKER_00: And historically, a 1.3 billion bushel stock level has meant CBOT futures over$6.
• 3:09
  SPEAKER_00: And right now, D Summer is sitting at$445.
• 3:13
  SPEAKER_00: That's a big deal.
• 3:15
  SPEAKER_00: So clearly, we remain in the camp that CBOT corn has much more upside than it does downside right now.
• 3:22
  SPEAKER_00: Moving on to soybeans, the long-term story for soybeans is a very different one from corn.
• 3:28
  SPEAKER_00: If we incorporate all the stocks and acreage changes from USDA's reports on Tuesday and we assume a decent U.S.
• 3:35
  SPEAKER_00: bean yield and assume bigger plantings and bigger crops in South America this next season, which is entirely likely, then the upside for CBOT soybeans becomes pretty limited.
• 3:50
  SPEAKER_00: The world will simply have too many soybeans.
• 3:54
  SPEAKER_00: Um if uh and when, but if and when China does come in and buy 25 million tons of U.S.
• 4:03
  SPEAKER_00: soybeans, that obviously will cause a rally.
• 4:06
  SPEAKER_00: But if the U.S.
• 4:08
  SPEAKER_00: crop is still looking okay, then that's a rally to sell.
• 4:13
  SPEAKER_00: And I've got again at the bottom of page one, I've got uh stocks estimates for soybeans, and what we're expecting right now is a 26-27 U.S.
• 4:27
  SPEAKER_00: inning stocks around just slightly under 400 million bushels, which will be the largest stock level in five years.
• 4:37
  SPEAKER_00: So the story remains this: as long as we do not have a major crop issue in the United States, rallies in CBOT soybeans are rallies to sell.
• 4:49
  SPEAKER_00: Also, in recent days, we have mentioned a potential strike in Argentina soybean crush plants over some wage issues.
• 4:57
  SPEAKER_00: Well, that's all been resolved.
• 4:59
  SPEAKER_00: Union members are getting two pay raises.
• 5:01
  SPEAKER_00: One started on July 1 yesterday, another one uh starts on September 1.
• 5:06
  SPEAKER_00: So NetNet, the soybean crush industry in Argentina just keeps churning and meal exports keep flowing out like water.
• 5:14
  SPEAKER_00: This keeps U.S.
• 5:15
  SPEAKER_00: meal exports pretty limited for the foreseeable future.
• 5:19
  SPEAKER_00: In longer term, that is bearish CBOT meal.
• 5:23
  SPEAKER_00: Moving on to cattle.
• 5:25
  SPEAKER_00: Um, we now have 31 cases of New World Screwworm in the U.S.
• 5:31
  SPEAKER_00: I've got a map uh on page two of where those cases are, and also a link if anybody wants to go to the website uh to get daily updates.
• 5:42
  SPEAKER_00: This is the the website that your USD is putting out all that data.
• 5:47
  SPEAKER_00: Um, so far, the U.S.
• 5:50
  SPEAKER_00: consumer has not backed away from beef.
• 5:53
  SPEAKER_00: And we've had a lot of discussions with people in the beef industry, and the uniform opinion seems to be that other items have caught the headlines on the evening news, and screwworm has just not gotten that much attention.
• 6:08
  SPEAKER_00: So, therefore, you know, people have not really backed away.
• 6:13
  SPEAKER_00: But irregardless, the U.S.
• 6:16
  SPEAKER_00: consumer uh did not pull away from beef demand like we feared that they might.
• 6:24
  SPEAKER_00: As a matter of fact, beef demand ends up being still pretty good.
• 6:28
  SPEAKER_00: As for CME Live Cattle Futures, we rallied to new highs in mid-June.
• 6:32
  SPEAKER_00: We spent several days near those highs, and we've been sliding lower for the last two weeks.
• 6:37
  SPEAKER_00: As of the close yesterday, the August contract was down a little over$8 from its high just two weeks ago.
• 6:44
  SPEAKER_00: This is a combination of three items.
• 6:46
  SPEAKER_00: Number one, plenty of cattle, plenty of cattle available to be slaughtered.
• 6:51
  SPEAKER_00: We've mentioned this for months now, how feeder prices have been very high, and the U.S.
• 6:56
  SPEAKER_00: cattle feeders have opted to keep cattle on feed longer and not buy feeders at a big loss.
• 7:04
  SPEAKER_00: This has slowed down marketing rates and left a much larger number of cattle still on feed today, and that especially much larger than what we were expecting back in January and February.
• 7:16
  SPEAKER_00: Uh, I've got a chart on the bottom of uh page two showing cattle on feed numbers uh and and projected going out the rest this year.
• 7:26
  SPEAKER_00: So please take a look at that.
• 7:28
  SPEAKER_00: Um, also, number two, this has kept uh keeping these cattle on feed longer has boosted cattle weights to huge new records.
• 7:37
  SPEAKER_00: Uh I also at the bottom of page two I have a chart of Fed cattle carcass weights.
• 7:43
  SPEAKER_00: And you can see that these carcass weights are massive.
• 7:47
  SPEAKER_00: So if you combine more cattle available for slaughter and heavy weights, we end up with plentiful beef supplies in the United States.
• 7:55
  SPEAKER_00: And then we got number three.
• 7:57
  SPEAKER_00: Speculators are long a lot of CME live cattle futures.
• 8:02
  SPEAKER_00: As of last week's data, the large specs are long some 125,000 contracts of live cattle.
• 8:08
  SPEAKER_00: That is within a stone's throw of their all-time record long.
• 8:13
  SPEAKER_00: So when the market cannot go to new highs and thus they are not making money on those longs, we end up with a situation where the pendulum has fully swung to one side.
• 8:24
  SPEAKER_00: The speculators are fully leaning one way, that is long.
• 8:29
  SPEAKER_00: Breaks become easier as they exit those longs.
• 8:34
  SPEAKER_00: I am still in the camp that rallies in August, ox and dece live cattle are rallies to be sold.
• 8:40
  SPEAKER_00: Feeder cattle obviously remain a very different story.
• 8:43
  SPEAKER_00: U.S.
• 8:44
  SPEAKER_00: supplies of calves and feeders should remain tight for months and likely years to come.
• 8:49
  SPEAKER_00: Breaks in feeder cattle prices should be well supported for a long, long time.
• 8:54
  SPEAKER_00: Moving on to weather.
• 8:56
  SPEAKER_00: We've got uh decent rains coming across the north central part of the corn belt the next three, four days.
• 9:03
  SPEAKER_00: And then we got rains returning uh to the mid-south next week.
• 9:08
  SPEAKER_00: If we look at the six to ten and eight to fourteen day outlook, we continue with uh above to much above normal temperatures, but at the same time, you have normal to above normal precip across almost the entire country with most of the above normal precip in the mid-south and southern areas.
• 9:32
  SPEAKER_00: And so, you know, we have seen in many of the last recent years temperatures can be above normal, but as long as you've got decent moisture, corn and bean crops can uh accommodate and they end up being okay.
• 9:46
  SPEAKER_00: So uh that's it for today.
• 9:48
  SPEAKER_00: Thanks for listening.
• 9:49
  SPEAKER_00: Hope everybody has a uh safe 4th of July weekend, and we will return on Monday.
• 9:56
  SPEAKER_00: Take care.