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Transcript

Daily Market Podcast Nov 6 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:01
  SPEAKER_00: This is Chris Myers with M6 Capital Management with our daily market letter on Friday morning, November 6th.
• 0:06
  SPEAKER_00: Walking in this morning, December corn is up a quarter cent at 440 and a quarter.
• 0:10
  SPEAKER_00: January beans are unchanged at 1188.
• 0:13
  SPEAKER_00: December meal is up 240 this morning, and December Crude is up 66.60 cents at 91.10.
• 0:21
  SPEAKER_00: As far as corn news, uh CBOT grains were lower yesterday following a huge break in the stock market.
• 0:28
  SPEAKER_00: Speculators have now gotten out of all of their long in CBOT corn.
• 0:32
  SPEAKER_00: And Decent Recorn has now broken 20% from as high a price in early September.
• 0:38
  SPEAKER_00: That's one of the biggest price breaks ever for this time of year.
• 0:42
  SPEAKER_00: This was much more than a harvest time break, obviously.
• 0:45
  SPEAKER_00: This price collapse was speculators getting out of one of the biggest long positions ever and farmer selling on top of that.
• 0:53
  SPEAKER_00: We're now to a point where it's going to take some outside factor to drive prices lower in the near term.
• 1:00
  SPEAKER_00: That could be a price break in stocks like we had yesterday, or a big break in crude, or Russia and Ukraine agreeing to allow grain exports, or something similar.
• 1:12
  SPEAKER_00: It's going to take some unforeseen outside factor to continue to drive corn prices lower right now.
• 1:19
  SPEAKER_00: The entire world knows the fundamental story.
• 1:22
  SPEAKER_00: Big crop in the U.S., U.S.
• 1:24
  SPEAKER_00: corn exports are stinko, big crops coming in South America.
• 1:28
  SPEAKER_00: This is all factored in the market already.
• 1:31
  SPEAKER_00: There is one particular outside factor that could be very bullish that we have not discussed in quite a while, and that is China buying U.S.
• 1:40
  SPEAKER_00: goods.
• 1:41
  SPEAKER_00: I think that one factor is completely off the table right now.
• 1:46
  SPEAKER_00: Especially since Trump and the Republicans took such a beating in the midterm elections.
• 1:51
  SPEAKER_00: I believe, I fully believe, that China saw that and decided all they have to do is wake Trump out for the next two years.
• 1:59
  SPEAKER_00: His ability to push them around just got severely kneecapped.
• 2:03
  SPEAKER_00: So where does that leave us?
• 2:05
  SPEAKER_00: In the near term, I think it's going to be hard to push corn much lower right here, right now.
• 2:09
  SPEAKER_00: We bounce around lacking direction.
• 2:12
  SPEAKER_00: Decent rallies will be limited, and any rally should be sold.
• 2:16
  SPEAKER_00: Three to six months out, we could and should see lower prices.
• 2:21
  SPEAKER_00: But we need to see if these huge crops actually materialize in South America.
• 2:26
  SPEAKER_00: As far as soybean news, speculators are still getting out of their longs and soybeans.
• 2:31
  SPEAKER_00: That's why breaks in stocks like yesterday seem to hit soybeans harder than corn.
• 2:36
  SPEAKER_00: Otherwise, like corn, the market already knows the bearish story.
• 2:40
  SPEAKER_00: But unlike corn, there is one factor that's changing, one major factor, and that is China.
• 2:46
  SPEAKER_00: Crest margins remain poor in China.
• 2:48
  SPEAKER_00: We've talked about that.
• 2:50
  SPEAKER_00: However, over the last couple of weeks, we have seen China dramatically slowing down the pace of unloading soybean vessels at their ports.
• 2:58
  SPEAKER_00: Now, this is a typical strategy of China that they have done for years and years and years.
• 3:03
  SPEAKER_00: If they don't need a certain commodity, they simply cite paperwork issues or some phytosanitary issue or some other concocted story to delay imports.
• 3:15
  SPEAKER_00: At the same time, the U.S.
• 3:17
  SPEAKER_00: Addition in China just issued a report estimating Chinese crop year soybean imports 5 million tons or 4%, smaller than the latest uh import estimate from USDA.
• 3:31
  SPEAKER_00: And let's not forget the fact that China is by far the largest soybean importer in the world.
• 3:37
  SPEAKER_00: And their demand is definitely slipping.
• 3:40
  SPEAKER_00: So the soybean market has no friends right now.
• 3:43
  SPEAKER_00: But I don't think CBOT soybeans continue to decline at the same pace that it has the last several weeks.
• 3:49
  SPEAKER_00: Speculators are getting out of longs.
• 3:51
  SPEAKER_00: That limits the upside.
• 3:53
  SPEAKER_00: But moving forward, the market will be closely watching to see if things continue to change there in China.
• 3:59
  SPEAKER_00: And we will really be watching weather in South America, particularly Brazil.
• 4:03
  SPEAKER_00: South American crops will be the biggest driver of where soybean prices are in the Jan Feb March time period.
• 4:12
  SPEAKER_00: I've got two charts on the bottom of page one of Argentina corn planting progress, which remains crazy fast, by far the fastest on record, and also soybean planting progress, which is just getting started and is uh somewhat normal so far.
• 4:28
  SPEAKER_00: Roughly 5% planted.
• 4:30
  SPEAKER_00: As far as cattle news, um clearly the CME cattle futures and feeder cattle have gotten crushed in the last week.
• 4:38
  SPEAKER_00: Since last Wednesday, CME December live cattle are down$19.
• 4:44
  SPEAKER_00: Cash cattle was lower at the tail in last week, and although we have not seen very much cash trade this week, prices are definitely down also this week.
• 4:53
  SPEAKER_00: This break in futures has been mostly driven by speculators liquidating loans.
• 5:00
  SPEAKER_00: At the same time, the beef market is not doing well.
• 5:04
  SPEAKER_00: In recent weeks, we have discussed how U.S.
• 5:06
  SPEAKER_00: beef prices are typically flat from now to the end of the year.
• 5:09
  SPEAKER_00: But this year we run the risk of beef prices going lower into November, December time period.
• 5:17
  SPEAKER_00: Beef imports continue to be big, and this year I fear that beef prices could weaken before we get to New Year's.
• 5:25
  SPEAKER_00: To that point, it should be mentioned that roughly one half of all the beef consumed in the U.S.
• 5:31
  SPEAKER_00: is ground beef.
• 5:32
  SPEAKER_00: And much of the beef that is being imported is beef to be ground up.
• 5:38
  SPEAKER_00: So I have a chart on the bottom of page two that shows the U.S.
• 5:43
  SPEAKER_00: price of ground chuck.
• 5:46
  SPEAKER_00: Ground beef prices are a very pronounced seasonal pattern.
• 5:50
  SPEAKER_00: They are higher in the summer months for grilling season and then lower in the fall.
• 5:55
  SPEAKER_00: A typical price decline from summer highs to early November is 10 to 12 percent.
• 6:01
  SPEAKER_00: So far this year, from the summer highs, we have seen ground chuck prices drop a little over 21%.
• 6:09
  SPEAKER_00: And the fact remains that U.S.
• 6:11
  SPEAKER_00: beef prices are still high enough that we encourage large imports from everybody in the world.
• 6:17
  SPEAKER_00: So this is not good for ground beef prices and not good for beef prices overall in the near term.
• 6:24
  SPEAKER_00: So let's discuss pack of margins.
• 6:27
  SPEAKER_00: USB packers are making a very small amount,$30,$40 ahead.
• 6:32
  SPEAKER_00: And yes, lower cash cattle prices this week, last week and this week, it helps their margins.
• 6:38
  SPEAKER_00: But a struggling beef market strongly suggests to me that pack of margins could get worse.
• 6:45
  SPEAKER_00: And we could see before the end of the them cutting kills again.
• 6:49
  SPEAKER_00: In that scenario, cash cattle or futures cattle prices have very limited upside for the rest of the year.
• 6:58
  SPEAKER_00: Sure, futures market may be oversold and it may bounce a little bit.
• 7:01
  SPEAKER_00: But a struggling beef market is a major problem that we are not over with yet, not even close.
• 7:09
  SPEAKER_00: I do remain cautiously bullish with tighter cattle numbers coming into 2027, but between now and then, this beef market is really a major problem that we've got to get past.
• 7:25
  SPEAKER_00: Looks like weather the next 10 days is going to be wide open across the Corn Belt.
• 7:28
  SPEAKER_00: Yeah, we're still wet from that last uh series of storms that came across.
• 7:33
  SPEAKER_00: Um, harvest is probably not really gonna get going until early next week, but the remainder of harvest looks like it's gonna occur with really no problems in the U.S.
• 7:43
  SPEAKER_00: Um Let's talk about Brazil here for a minute.
• 7:46
  SPEAKER_00: We got better rains showing up in central Brazil, and that's Mata Grosso and the areas to the east.
• 7:51
  SPEAKER_00: But Paranoia still remains a big problem.
• 7:54
  SPEAKER_00: Um, they're too wet, they've been too wet for too long.
• 7:58
  SPEAKER_00: I would really like to see them have some open weather for change, but that's just not in the cards yet.
• 8:03
  SPEAKER_00: Um and we all know as far as soybeans, they just don't like having wet feet.
• 8:08
  SPEAKER_00: That gives you all kinds of problems with soybeans.
• 8:11
  SPEAKER_00: Argentina looks like they're gonna have light scattered rains.
• 8:14
  SPEAKER_00: Planning progress should go ahead at a very good pace in Argentina.
• 8:19
  SPEAKER_00: So, South America in general, Paranoia's too wet, everybody else is doing okay.
• 8:24
  SPEAKER_00: That's it for today.
• 8:25
  SPEAKER_00: Thanks for listening.
• 8:26
  SPEAKER_00: Y'all have a great weekend.
• 8:27
  SPEAKER_00: We'll be back on Monday.