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Transcript

Daily Market Podcast Jun 18 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:00
  SPEAKER_00: This is Chris Myers with M6 Capital Management with our daily market letter on Thursday, June 18th.
• 0:06
  SPEAKER_00: As a reminder, today is the 18th.
• 0:08
  SPEAKER_00: That's tomorrow is the 19th of federal holiday for Juneteenth.
• 0:12
  SPEAKER_00: And therefore, markets will not be open tomorrow.
• 0:15
  SPEAKER_00: It's a federal holiday, and we will not be issuing a daily market letter tomorrow.
• 0:20
  SPEAKER_00: So we've included cattle comments today.
• 0:22
  SPEAKER_00: Walking in this morning, December corn is down three and three quarters at 444 and three quarters.
• 0:28
  SPEAKER_00: November beans are down nine and a half at 11.39 and three quarters.
• 0:32
  SPEAKER_00: August crude is down$1.70 at$74.30.
• 0:38
  SPEAKER_00: The grain comments today are mostly going to focus around China.
• 0:40
  SPEAKER_00: In the last two days, excuse me, China has checked on prices of soybeans, corn, sorghum, and wheat from U.S.
• 0:48
  SPEAKER_00: ports.
• 0:49
  SPEAKER_00: So the market is now frothing at the mouth about whether China is back or not.
• 0:56
  SPEAKER_00: So today I want to focus mainly on what could that look like.
• 1:00
  SPEAKER_00: And I've got a table at the bottom of page one that I encourage everybody to take a look at just to wrap your brain around how can we get to$17 billion of ag exports to China.
• 1:13
  SPEAKER_00: And the end conclusion is I struggle to get to$17 billion, even if I make some pretty wild assumptions.
• 1:20
  SPEAKER_00: So for corn news, before we get to talking about U.S.
• 1:24
  SPEAKER_00: corn going to China, I want to discuss Brazil.
• 1:26
  SPEAKER_00: Yesterday, the May data was released for the amount of corn used for ethanol production in Brazil.
• 1:33
  SPEAKER_00: A massive 2.1 million tons of corn went to ethanol grind in May.
• 1:37
  SPEAKER_00: That's up 20% from May of last year.
• 1:41
  SPEAKER_00: All indications are that Brazil will use somewhere in the neighborhood of 24 to 25 million tons of corn for ethanol this calendar year, 2026.
• 1:52
  SPEAKER_00: With their corn crop down, the second corn crop that suffers from drought, and domestic corn use up, this should keep corn exports limited for the remainder of this year.
• 2:03
  SPEAKER_00: And that's a big problem for the world.
• 2:06
  SPEAKER_00: Last year, Brazil exported 35 million tons of corn between July and December.
• 2:11
  SPEAKER_00: They completely dominated global corn trade.
• 2:14
  SPEAKER_00: This year, their exports will be far, far less than that.
• 2:18
  SPEAKER_00: So that keeps U.S.
• 2:20
  SPEAKER_00: corn exports much stronger for a much longer time period.
• 2:24
  SPEAKER_00: Now to China.
• 2:25
  SPEAKER_00: As you can see in the table I've got on the bottom of page one, um even if we increase U.S.
• 2:33
  SPEAKER_00: shipments uh to China for cotton and livestock and dairy and horticulture and et cetera, to very big levels historically.
• 2:43
  SPEAKER_00: And if we assume that soybeans will not be part of the$17 billion due to the already 25 million ton agreement for soybeans, then corn has to be a minimum of at least 10 million tons.
• 3:00
  SPEAKER_00: And let's not forget that China is already in the market buying corn from Argentina, so they need corn right now.
• 3:07
  SPEAKER_00: If the U.S.
• 3:08
  SPEAKER_00: does ship 10 plus million tons of corn to China, this will be on top of our already massive outstanding corn export sales.
• 3:18
  SPEAKER_00: And this would definitely tighten up U.S.
• 3:20
  SPEAKER_00: corn stocks quite a bit.
• 3:22
  SPEAKER_00: Longer term, there's nowhere around it.
• 3:25
  SPEAKER_00: This is definitely bullish CBOT corn longer term, maybe even in the$6 neighborhood, bullish.
• 3:34
  SPEAKER_00: And today, D Summer corn is trading around$445 area.
• 3:41
  SPEAKER_00: So quite an upside potential.
• 3:43
  SPEAKER_00: For soybeans, China has been checking uh prices of soybeans also, as we reported yesterday.
• 3:50
  SPEAKER_00: And let's not forget that now U.S.
• 3:54
  SPEAKER_00: soybean prices are competitive with Brazil September forward.
• 3:59
  SPEAKER_00: So why does that matter?
• 4:00
  SPEAKER_00: Well, we had all assumed that if China bought 25 million tons of U.S.
• 4:05
  SPEAKER_00: beans, then the rest of the world would just buy their beans from Brazil and net net it's like shifting deck chairs around an ocean vessel.
• 4:13
  SPEAKER_00: It just doesn't matter.
• 4:14
  SPEAKER_00: It wouldn't make much difference to U.S.
• 4:16
  SPEAKER_00: ending stocks.
• 4:18
  SPEAKER_00: Well, that may not be the case today.
• 4:20
  SPEAKER_00: We may be seeing U.S.
• 4:22
  SPEAKER_00: export business increasing already due to competitive prices.
• 4:27
  SPEAKER_00: So today, if China buys beans from the U.S., that adds up on top of decent exports to other places.
• 4:36
  SPEAKER_00: So that definitely gets ending stocks smaller.
• 4:39
  SPEAKER_00: Now this can change.
• 4:41
  SPEAKER_00: Uh things always do, but today China buying U.S.
• 4:45
  SPEAKER_00: beans would be more bullish than what we had originally expected.
• 4:49
  SPEAKER_00: So um moving on to cattle.
• 4:53
  SPEAKER_00: Uh we're up to 12 cases now of New World Screwworm in the U.S., 11 in Texas, one in New Mexico.
• 4:59
  SPEAKER_00: As far as what animals it's infected so far, is one sheep, eight cattle, two goats, and one dog.
• 5:05
  SPEAKER_00: The counties, I've got a map in here, the counties uh that it's been found in so far.
• 5:10
  SPEAKER_00: And uh, like we reported last week, there's a lot of area between those counties and the Mexican border.
• 5:17
  SPEAKER_00: And APIS is really, really looking hard for it.
• 5:20
  SPEAKER_00: So Netnet, they're gonna find more.
• 5:23
  SPEAKER_00: And surprisingly, we have not seen any reported cases in wildlife.
• 5:29
  SPEAKER_00: And you know it if if if they found it in domestic herds so far, you know it's gotta be in wildlife also.
• 5:36
  SPEAKER_00: It's just a matter of time until they find it.
• 5:38
  SPEAKER_00: So, uh, so Netnet, we're gonna see more cases show up.
• 5:43
  SPEAKER_00: Um in the last week, we have seen CME cattle rally quite a bit.
• 5:48
  SPEAKER_00: This is really due to two main reasons.
• 5:50
  SPEAKER_00: Number one, the cash market was well above futures for the last two weeks, and cash is not broken.
• 5:56
  SPEAKER_00: Cash has been steady for three weeks in a row.
• 5:59
  SPEAKER_00: So we walked in earlier this week with CME futures, uh uh, particularly the June futures, well below cash, and that had to change.
• 6:09
  SPEAKER_00: Either cash had to come down or futures had to go up, especially going into delivery later this month.
• 6:14
  SPEAKER_00: Um, also, number two, with rumors of China on Tuesday uh looking at bean prices and other grains, then CME cattle market assumed if China's buying beans and other grains, why not buy beef also?
• 6:30
  SPEAKER_00: There has been quite a bit of talk of how much U.S.
• 6:33
  SPEAKER_00: beef China could buy.
• 6:35
  SPEAKER_00: I absolutely and totally disagree with that.
• 6:38
  SPEAKER_00: China does not want more beef or need more beef.
• 6:42
  SPEAKER_00: Matter of fact, China has put in new import tariffs to limit beef from all origins, not just U.S.
• 6:48
  SPEAKER_00: from everybody.
• 6:49
  SPEAKER_00: And typically, what they the beef that they do buy from the U.S.
• 6:54
  SPEAKER_00: is mainly organ meat and hides.
• 6:57
  SPEAKER_00: So for the market to assume that China is fixed to come in and buy some whopping amount of muscle cuts, that's a long, long stretch.
• 7:05
  SPEAKER_00: And I don't agree with that at all.
• 7:07
  SPEAKER_00: That's not to say the market may not get bulled up on China and rally on this, but the reality of the situation would be very, in my opinion, would be very different than what the market may be expect uh expecting or anticipating.
• 7:22
  SPEAKER_00: Also, we've got a catalog and feed report this afternoon.
• 7:24
  SPEAKER_00: Typically it's on Fridays, but obviously Friday is a holiday, so they'll issue it this afternoon at 2 o'clock.
• 7:31
  SPEAKER_00: Um, we do expect to see May placements down 9 to 10%, but May marketings may be down even more, down 11 to 12%.
• 7:41
  SPEAKER_00: So that puts June, and this this is all compared to a year ago.
• 7:45
  SPEAKER_00: So that puts June 1 cattle in feed lots up around 2% from a year ago.
• 7:51
  SPEAKER_00: And as we stated the last couple of weeks, we are now in the camp that cattle numbers the rest of this year will remain very close to last year's levels, uh, cattle and feed numbers.
• 8:04
  SPEAKER_00: And obviously, this is hugely due to month after month after month of slow sales out of the feed lots.
• 8:10
  SPEAKER_00: And with big cattle weights, big beef imports, small beef exports, you add all this up, and beef supplies in the next four to five months of this year will be up um two to three percent from year-go levels.
• 8:25
  SPEAKER_00: And that's just quite simply not bullish at all.
• 8:28
  SPEAKER_00: I am in the camp that rallies in uh August or Ock or December live cattle futures should be sold.
• 8:35
  SPEAKER_00: But feeders are a different story.
• 8:37
  SPEAKER_00: Tight numbers and feeders should keep uh feeder cattle well supported.
• 8:42
  SPEAKER_00: Brakes and feeder cattle are brakes to be bought.
• 8:45
  SPEAKER_00: Moving on to weather, we continue to have big rains in the next four or five days coming across the uh most all of the corn belt, especially the mid-south.
• 8:54
  SPEAKER_00: And then following that up in the six to ten and eight to fourteen day time period with normal to above normal rains.
• 9:00
  SPEAKER_00: Temperature outlook uh is the center of the corn belt is going to be cool for at least the next two weeks.
• 9:08
  SPEAKER_00: So U.S.
• 9:08
  SPEAKER_00: weather is non threatening.
• 9:11
  SPEAKER_00: That's it for today.
• 9:12
  SPEAKER_00: Hope everybody has a good weekend.
• 9:14
  SPEAKER_00: We'll be back tomorrow.
• 9:16
  SPEAKER_00: I'm sorry, we'll be back Monday.