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Transcript

Daily Market Podcast Oct 16 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:01
  SPEAKER_00: This is Chris Myers with William Six Capital Management with our daily market letter on Friday morning, October 16th.
• 0:07
  SPEAKER_00: Walking in this morning, December corn is down two cents at 476.
• 0:11
  SPEAKER_00: November beans are down five and a half at 12.57 and three quarters.
• 0:16
  SPEAKER_00: December meal is down 430 at 355.50.
• 0:19
  SPEAKER_00: And December crude is down 20 cents at 96.30 this morning.
• 0:24
  SPEAKER_00: As far as corn news, um, CBOT corn has not yet taken out the low from last Friday from USDA Crop Report Day, but we feel like that'll eventually happen.
• 0:36
  SPEAKER_00: Uh corn has mostly traded sideways, and every four to five cent rally is met with sell with selling.
• 0:42
  SPEAKER_00: You've got farmers that still have a lot of corn to sell as we go through harvest, and speculators continue to sell, getting out of their long positions.
• 0:52
  SPEAKER_00: Meanwhile, uh Argentina corn planting continues to progress very rapidly.
• 0:58
  SPEAKER_00: I've got a chart of corn planting uh on the bottom of page one.
• 1:02
  SPEAKER_00: Excuse me.
• 1:03
  SPEAKER_00: This year in Argentina, farmers are have planted very early, so they are treating this crop super, super good with plenty of fertilizer.
• 1:13
  SPEAKER_00: Uh, this last harvest season, uh, the crop they harvested back several months ago, was a record large 64 million ton corn crop.
• 1:24
  SPEAKER_00: Thus, the massive corn export program that Argentina has had this summer and fall.
• 1:29
  SPEAKER_00: The latest estimates for this upcoming season, the corn crop they're planting right now, is for corn planted area to be unchanged.
• 1:38
  SPEAKER_00: And the estimates right now for 2027, Argentina corn harvest, is for a new record 66, maybe 67 million tons.
• 1:50
  SPEAKER_00: So they're gonna have plenty of corn for a long, long time.
• 1:56
  SPEAKER_00: Meanwhile, corn planting is ahead of normal pace in Brazil also.
• 2:01
  SPEAKER_00: We obviously have a long growing season ahead of us for South American corn crops, but today it looks like 2027 will be a year of massive corn supplies in South America.
• 2:13
  SPEAKER_00: And that means that they will price their corn and move and they will dominate global corn exports, and U.S.
• 2:20
  SPEAKER_00: corn exports will suffer for many, many months to come.
• 2:25
  SPEAKER_00: So the story continues.
• 2:27
  SPEAKER_00: Big supplies in the U.S., big crops coming in South America, and very little news to support a rally in CBOT corn.
• 2:36
  SPEAKER_00: The near-term and longer-term outlook for corn is still lower, especially with no major crop issues globally.
• 2:44
  SPEAKER_00: As for soybean news, the U.S.
• 2:46
  SPEAKER_00: soybean market is dealing with a mess right now.
• 2:49
  SPEAKER_00: Yield reports we get from universities and seed company trials point to a bigger U.S.
• 2:54
  SPEAKER_00: soybean yield.
• 2:56
  SPEAKER_00: Anecdotal yields from farmers across the country support a bigger yield, also.
• 3:00
  SPEAKER_00: It appears that these late season rains, especially in western areas, boosted yield prospects above what we all had assumed earlier.
• 3:09
  SPEAKER_00: So a regular large crop just keeps getting bigger and bigger.
• 3:13
  SPEAKER_00: But there are many reports from across the country of off-colored soybeans.
• 3:18
  SPEAKER_00: As we talked to contracts, contacts across the going areas, some of these beans are pinkish or particularly purplish color due to particular varieties.
• 3:30
  SPEAKER_00: There's some university research out there pointing towards discoloration of soybean varieties containing the enlist E3 trait package.
• 3:41
  SPEAKER_00: But other isolated areas have just simply had too much rain and reporting issues with seed code and some quality concerns.
• 3:49
  SPEAKER_00: We are told that there are select elevators, particularly in central western areas, that are taking advantage of this and they are discounting these discolored or off-colored soybeans.
• 4:02
  SPEAKER_00: But as per USDA's rule change in 2023, soybeans of other colors were removed as a grade standard.
• 4:12
  SPEAKER_00: Um, and I've got a link to that information uh in the report at the bottom of page one today.
• 4:20
  SPEAKER_00: So when this change was made in 2023, uh China, who is our biggest export destination, agreed to these terms.
• 4:28
  SPEAKER_00: So soybeans going to China should not be discounted because they're uh off-colored or discolored.
• 4:36
  SPEAKER_00: But nevertheless, it's harvest time and elevators can and will find reasons to discount.
• 4:41
  SPEAKER_00: Um we've talked to crushers, they tell us these uh off-colored or discolored soybeans are not causing any issues with meal or oil.
• 4:49
  SPEAKER_00: Um, but there are some reports of isolated quality issues that are popping up, uh, like I said, largely due to excessive rains in some localized areas.
• 5:01
  SPEAKER_00: This is a big deal if you're the farmer with off-colored soybeans and you're dealing with elevators trying to discount them, but as far as a larger, larger market goes, we have massive supplies and prices are simply headed lower.
• 5:16
  SPEAKER_00: As far as cattle news this morning, I want to spend today talking about uh beef prices.
• 5:23
  SPEAKER_00: Um, if you dive into the CPI data, um, this will be the retail price data for beef from the US Bureau of Labor Statistics.
• 5:36
  SPEAKER_00: One thing becomes blatantly obvious.
• 5:39
  SPEAKER_00: The U.S.
• 5:39
  SPEAKER_00: government has been under reporting these high beef prices.
• 5:44
  SPEAKER_00: And then in later months, they go back and revise the data over and over and over.
• 5:49
  SPEAKER_00: In some cases, they revise prices 5% higher than what they earlier reported.
• 5:55
  SPEAKER_00: Shocker, I know.
• 5:56
  SPEAKER_00: With all the news on high grocery store prices, the federal government has not been reporting data correctly.
• 6:03
  SPEAKER_00: I know.
• 6:04
  SPEAKER_00: Hard to believe, isn't it?
• 6:06
  SPEAKER_00: As of the latest September data, which again may be revised later, retail beef prices are up 2% from last year, versus pork prices down 3% and chicken prices down 2%.
• 6:20
  SPEAKER_00: Beef prices have come down in the last two months, especially ground beef prices.
• 6:25
  SPEAKER_00: But um, as you can see, I've got charts on the bottom of page two.
• 6:31
  SPEAKER_00: Beef price remains well above pork and chicken.
• 6:34
  SPEAKER_00: And I will argue forever that there really is not a whole lot of substitution between um beef and pork and chicken, but that all changes when the U.S.
• 6:45
  SPEAKER_00: consumer gets tight on money.
• 6:47
  SPEAKER_00: Then they switch to whatever is cheaper.
• 6:50
  SPEAKER_00: Um, in recent weeks, we've talked about this beef price coming down, especially with all this massive amount of imported beef coming in.
• 6:57
  SPEAKER_00: And it's getting harder and harder for the beef packer to pick up kills.
• 7:02
  SPEAKER_00: Um, the packers have a small margin today, but the beef market cannot handle more beef.
• 7:08
  SPEAKER_00: Not right now.
• 7:10
  SPEAKER_00: Um, so the packer keeps slaughter levels steady, and we still risk that these beef prices fall more, and packer margins uh likely go back negative at some point.
• 7:24
  SPEAKER_00: And this beef market and the lack of larger slaughter is keeping a lid on cattle prices.
• 7:31
  SPEAKER_00: Cash cattle prices have been flat for basically flat for seven weeks now.
• 7:36
  SPEAKER_00: But the December futures is certainly penciling in a rally.
• 7:40
  SPEAKER_00: Um, CME live cattle futures are back at their highest levels in two months.
• 7:46
  SPEAKER_00: Between now and the end of the year, I am still in the camp that rallies will be short-lived.
• 7:50
  SPEAKER_00: We simply have way too many heavy cattle and a not so good beef market.
• 7:57
  SPEAKER_00: Now, in early 2027, the situation can be very different.
• 8:02
  SPEAKER_00: USDA will issue its monthly cattle and feed report next Friday, and we expect another month of small placements in September.
• 8:09
  SPEAKER_00: We're looking for September placements in the feed lots to be down 7% from a year ago.
• 8:15
  SPEAKER_00: So we now have very small placements every month from May through September.
• 8:24
  SPEAKER_00: And that will eventually catch up and haunt us in 2027.
• 8:30
  SPEAKER_00: I've got a chart on the bottom of page two uh listing out the um placements from May to September over the last 10 years, and clearly you can see that this year is super, super small, um, the smallest in many, many years and way below what the average is.
• 8:50
  SPEAKER_00: So near-term rallies in feeders and live cattle may be hard to hold.
• 8:56
  SPEAKER_00: Longer term February and April uh contracts may be decent, but we have to get past these next couple of months first.
• 9:04
  SPEAKER_00: As far as weather goes, um, it looks like the central and eastern cornbelt will remain open for uh harvest progress, um, maybe even the Dakotas.
• 9:18
  SPEAKER_00: But we've got rain picking up uh particularly next week in the plain states, and that gives us uh about a week to two-week time period of above above normal rains, um, let's just say west of the Mississippi, uh, normal to above normal rains, dry to the east and plentiful rains to the west.
• 9:42
  SPEAKER_00: Temperatures stay well above normal.
• 9:44
  SPEAKER_00: Um, and I don't know that this is gonna be heavy enough rains to really slow down harvest a lot, um, but um nevertheless, they are just a little bit above normal.
• 9:54
  SPEAKER_00: So that's it for today.
• 9:55
  SPEAKER_00: Thanks for listening.
• 9:56
  SPEAKER_00: Uh, y'all have a good weekend.
• 9:58
  SPEAKER_00: We'll be back on Monday.