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Daily Market Podcast Jun 12 · 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 Friday, June 12th.
• 0:06
  SPEAKER_00: Walking in this morning, December corn is down two at 437 and a half.
• 0:10
  SPEAKER_00: November beans are down three quarters at 11.33 and a quarter.
• 0:14
  SPEAKER_00: And July crude is taking it on the chin down 260 at 85.10 this morning.
• 0:20
  SPEAKER_00: Couple of things before we get to corn and beans.
• 0:22
  SPEAKER_00: Uh we had a WASD report yesterday.
• 0:24
  SPEAKER_00: USDA issued uh its World Agricultural Supply Demand Estimates, the WASD report yesterday morning.
• 0:31
  SPEAKER_00: They made very few changes to their corn and bean numbers.
• 0:34
  SPEAKER_00: And I've got stocks uh numbers, their stocks numbers in charts on the bottom of page one for you to see.
• 0:41
  SPEAKER_00: Also, as far as U.S.
• 0:43
  SPEAKER_00: and Iran, it does seem that maybe a peace deal is close, if not imminent.
• 0:49
  SPEAKER_00: So maybe finally this war is over.
• 0:52
  SPEAKER_00: Who knows?
• 0:53
  SPEAKER_00: But because of that thinking, crude oil um is now trading the lowest price in six weeks, and this breaking crude is dragging most ag commodities, corn beans, wheat, with it this morning.
• 1:05
  SPEAKER_00: On to corn news, um in the charts uh below I've got USGA's current estimates for 2526, the current crop year uh for inning stocks, and next year 2627.
• 1:19
  SPEAKER_00: Um if I had to uh change their stocks estimates, I would take their current crop year in ex stocks down because uh current U.S.
• 1:31
  SPEAKER_00: export business for corn remains super, super strong.
• 1:35
  SPEAKER_00: Matter of fact, yesterday's weekly export sales report showed yet another week of massive U.S.
• 1:41
  SPEAKER_00: corn export sales.
• 1:43
  SPEAKER_00: Uh U.S.
• 1:44
  SPEAKER_00: export pace is staying much, much bigger than what USDA is assuming.
• 1:48
  SPEAKER_00: Also, we should note that in USDA's uh balance sheets, they do not have any corn shipments going to China.
• 1:57
  SPEAKER_00: Matter of fact, they have China importing very little corn next year.
• 2:02
  SPEAKER_00: So if I assume, and I believe this will be the case, that China will take 10 plus million tons of U.S.
• 2:09
  SPEAKER_00: corn, then my ending stocks for next year, the 26-27 crop year, would be around 1.4 billion bushels versus USDA, that is right at 2 billion bushels.
• 2:21
  SPEAKER_00: Quite a difference there, and that implies quite a difference in price forecast, too.
• 2:27
  SPEAKER_00: Um, but obviously the market is right now is not trading that.
• 2:33
  SPEAKER_00: They are clearly in a prove it to me type of attitude.
• 2:37
  SPEAKER_00: Um, whenever China shows up, the market will adjust for that.
• 2:40
  SPEAKER_00: Meanwhile, down in Argentina, corn harvest uh reached 44% yesterday, right at the average pace.
• 2:46
  SPEAKER_00: Uh yields so far in Argentina are big.
• 2:49
  SPEAKER_00: As for Brazil, their second corn crop continues to see very little rainfall.
• 2:54
  SPEAKER_00: I've got some um forecast maps on page uh three today for Brazil, and this is right in the middle of their grain field.
• 3:04
  SPEAKER_00: Harvest should begin in Brazil in late June, early part of July.
• 3:08
  SPEAKER_00: Um, so clearly they have gone through about 45 days of dry weather and have got another two weeks of dry weather coming.
• 3:17
  SPEAKER_00: That 60-day dry period is right in the middle of grain field.
• 3:21
  SPEAKER_00: That's just slapping them in the face.
• 3:23
  SPEAKER_00: Uh I remain longer-term bullish uh CBOT corn, largely due to crop issues around the world, and obviously this expected uh Chinese export business coming back to the US.
• 3:36
  SPEAKER_00: As for soybeans, uh USD's estimates for stock numbers are decent, both old crop and new crop.
• 3:42
  SPEAKER_00: And actually, if I had to adjust their stock estimates, I would probably lean towards stocks maybe a little bit bigger, not smaller.
• 3:49
  SPEAKER_00: Um so if China does come in and buy U.S.
• 3:56
  SPEAKER_00: soybeans, we still have plenty of beans in South America to take other business.
• 4:01
  SPEAKER_00: Uh, I think that's just basically going to be moving deck chairs around an ocean liner.
• 4:07
  SPEAKER_00: At the end of the day, it's just really not gonna matter that much.
• 4:10
  SPEAKER_00: Um, our contacts in Argentina and Brazil both tell us that they are going to plant more beans this fall and less corn.
• 4:20
  SPEAKER_00: So if we have a big stock, I'm sorry, big crop in the U.S., which is coming, we got big area, and big current crops in South America and bigger crops in South America coming, the world has plenty of beans.
• 4:35
  SPEAKER_00: Matter of fact, Conab, the USDA of Brazil, issued their monthly crop report yesterday and they raised Brazil's bean crop.
• 4:44
  SPEAKER_00: Again, bigger crops get bigger.
• 4:47
  SPEAKER_00: So I continue to believe that longer term, unless we have some U.S.
• 4:51
  SPEAKER_00: crop issue for soybeans, rallies in November beans are meant to be sold.
• 4:56
  SPEAKER_00: If when China shows up to buy U.S.
• 4:58
  SPEAKER_00: beans, then we rally.
• 5:00
  SPEAKER_00: But with this massive global supply, a rally from Chinese business should not last, and that is probably a rally to sell.
• 5:10
  SPEAKER_00: Moving on to cattle.
• 5:12
  SPEAKER_00: Uh man, a lot of stuff going on with cattle here.
• 5:15
  SPEAKER_00: Middle of last week, and this is kind of irony, I guess.
• 5:19
  SPEAKER_00: Middle of last week, Secretary Vag Rollins was talking about what would happen if we got New World Screwworm in the U.S.
• 5:27
  SPEAKER_00: Well, today we have seven cases: six in Texas, one in New Mexico, and this consists of five calves, one goat, and one dog.
• 5:35
  SPEAKER_00: Uh, the I've got a map in here showing the counties uh that have been affected so far.
• 5:41
  SPEAKER_00: And what USDA is doing right now is they are declaring an infected zone for a radius of 12 miles around each case.
• 5:49
  SPEAKER_00: And then they uh inspect any suspect animals, treat infected cases, restrict movement of all animals from that area, and after three days of observing andor treatment of infected animals, the animals can be released from that area.
• 6:07
  SPEAKER_00: Um USDA so far has been rather uh quiet and not wanting to use some like the terminology of quarantined area or whatever.
• 6:19
  SPEAKER_00: So they're treating this as we can treat them, and then life goes on and we're fine.
• 6:24
  SPEAKER_00: Uh the northernmost case in Texas is around Fredericksburg, just north of San Antonio.
• 6:31
  SPEAKER_00: Uh and the case in New Mexico uh is pretty close to Hobbes in the southeast corner.
• 6:39
  SPEAKER_00: So uh both of these are a long, long ways from the Mexican border.
• 6:46
  SPEAKER_00: So there's a lot of area uh in there that can have infected air, infected animals.
• 6:52
  SPEAKER_00: So we have not seen the last of these, not by a long shot.
• 6:55
  SPEAKER_00: There's gonna be quite a few more, particularly if you're looking harder, you're gonna find them.
• 7:00
  SPEAKER_00: Uh CME cat CME cattle markets have been super volatile since this first case was announced last Thursday.
• 7:07
  SPEAKER_00: Speculators still have quite a decent long position in live cattle, but the speculators have exited um their longs in feeder cattle, and actually they're a little bit short right now.
• 7:19
  SPEAKER_00: Um, live cattle prices are way below the current cash market.
• 7:24
  SPEAKER_00: So either cash has to break or CME cattle futures are too low and they're gonna rally.
• 7:30
  SPEAKER_00: Seasonally, beef prices tend to be steady this time of year, steady to higher this time of year.
• 7:37
  SPEAKER_00: But the retailers have told us from here forward they're gonna take a wait and see attitude on beef.
• 7:41
  SPEAKER_00: They've already bought most of their beef for the grocery store ads uh that are going out between now and July 4th weekend.
• 7:49
  SPEAKER_00: Forward purchases beyond that are gonna be hugely based on how beef sales do versus other meat.
• 7:56
  SPEAKER_00: Basically, will the consumer back away from beef or not?
• 7:59
  SPEAKER_00: So that's their wait and see attitude.
• 8:02
  SPEAKER_00: Um beef supplies are increasing in the U.S.
• 8:06
  SPEAKER_00: Uh USDA will give us their cattle on feed report next Friday.
• 8:10
  SPEAKER_00: We suspect that that report to show May placements going into feedlots down nine to ten percent for versus a year ago.
• 8:18
  SPEAKER_00: But marketings, and that's cattle shipped out of the feedlots in May, are expected to be down even more, down 11 to 12 percent.
• 8:26
  SPEAKER_00: So net net cattle on feed numbers should be up two to three percent from a year ago.
• 8:33
  SPEAKER_00: This is hugely due to month after month after month of slow sales out of the feedlots.
• 8:39
  SPEAKER_00: Cattle are staying on feed longer and they're getting heavier.
• 8:42
  SPEAKER_00: We believe that today the number of cattle in the feedlots that are have been on feed for over 180 days is the largest ever for early June and is up some 35 to 40 percent from a year ago.
• 8:58
  SPEAKER_00: At the same time, these high beef prices are encouraging more beef imports and less beef exports.
• 9:05
  SPEAKER_00: Year to date, beef imports are up fourteen percent.
• 9:10
  SPEAKER_00: Year to date, beef exports are down eighteen percent.
• 9:15
  SPEAKER_00: Let that sink in for a minute.
• 9:17
  SPEAKER_00: Imports up fourteen percent, exports down eighteen percent.
• 9:21
  SPEAKER_00: So if we look forward July through December, if we continue with slow marketings, record heavy cattle, on feed numbers equal to slightly higher than a year ago, limited exports, big imports, all that adds up to big beef supplies in the U.S.
• 9:41
  SPEAKER_00: The last half of 2027, we're looking to see U.S.
• 9:44
  SPEAKER_00: beef supplies up two to three percent from last year's level.
• 9:48
  SPEAKER_00: This is very different from what we were thinking just four to five months ago.
• 9:51
  SPEAKER_00: The cattle marketing pace has been much slower, weights are much bigger, and this big change in net trade is simply the icing on the cake.
• 9:59
  SPEAKER_00: So, what does all this mean going forward?
• 10:02
  SPEAKER_00: I believe rallies in CME live cattle should be sold.
• 10:06
  SPEAKER_00: I suspect we have limited upside from here.
• 10:09
  SPEAKER_00: Feeders may be a totally different story.
• 10:12
  SPEAKER_00: We have very tight feeder supplies for at least the next year and a half to two years.
• 10:17
  SPEAKER_00: Yes, a rally in corn prices would be bearish for feeders, but until then, feeders should have very limited downside, and I believe break-in feeders should be bought.
• 10:27
  SPEAKER_00: As far as weather, we continue to have uh big rains across the mid south um this week and next.
• 10:34
  SPEAKER_00: Uh and I've put two maps in today, one for Europe and one for Brazil, and they continue to show dry weather uh uh for the next 10 days, which again is hurting corn crops in both areas.
• 10:47
  SPEAKER_00: That's it for today.
• 10:48
  SPEAKER_00: Thanks for listening.
• 10:49
  SPEAKER_00: We'll be back on Monday.